Transcript The European Union and Business

The European Union and
Business
Is it all we are told it is?
The EU - 1
Customs Union
Common External
Tariff
Freedom of
movement of
people, product and
capital
Advantages - firms
have free access to
markets which
would otherwise be
Firms have access
to most appropriate
factors of production
firms have access to
large markets
firms are protected
from outside
competition
increased internal
competition
EU - 2
Disadvantages -do
we buy from lowest
cost sources
others have ‘open’
access to our markets
sheltered from real
competitive forces
marketing strategies
to suit all
So what makes for
international
competitiveness?
Trading blocs
costs of production
corporate cultures
trading agreements
clubs e.g WTO
International Competitiveness
NAFTA
Former Eastern
Europe - new
markets,
opportunities, we
have expertise to sell
BUT - forms, political
instability, low
incomes,
infrastructure,
economic conditions
E.g Russia - now
changing laws on
contract and property
Developing Countries
- NIC’s, low income
countries,
new world economic
order - what of
China?
Globalisation - 1
Growing importance
of international trade
rise of MNC’s
global
strategies/competitive
advantage
technical changes
transports costs
falling
De-regulation
liberalisation of trade
standardisation of
consumer tastes
growth of emerging
markets
greater consumer
awareness
Globalisation - 2
Think - competition,
consumer
expectations,
economies of scale,
location,mergers and
market control
other agreements e.g
joint ventures,
franchises
MNC’s avoid
protectionist policies,
standardise markets,
transfer capital, profits
and skills
balance of payments?
Social responsibility?
Interference in
domestic affairs?
Impact on UK Business?
Better motivated workers?
Improved Industrial Relations?
Improved Productivity?
But – will labour costs increase?
Will competitive ness be reduced?
Will we lose trade?
Will it force difficult economic decisions on us/
Is it value for money?
What of the Single Currency?
Business and the Euro?
What of those outside the ‘zone’?
Might it impact on their export prices and may
imports from within the ‘zone’ appear to less
expensive?
Will bigger units drive costs down and exclude
the smaller producer?
Will small suppliers of big business have to use
Euros?
Retailers in tourist areas?
Subsidiaries of large firms? Banks?
Single Market- 1
Free access to market – 400m and rising
Access to factors – integration?
Protection from external competition –
CET
Increased competition (Internal)
Drive for efficiency and common standards
Common currency
Transparency of prices
Single Market - 2
Consumers will decide on price and nonprice factors
BUT – will choice continue to expand?
Will costs fall?
Reduced market shares as competition
increases = less economies of scale?
Lack of efficiency as barriers protect?
Can all tastes be satisfied – too diverse?
Single Market - 3
Will the marketing mix have to be
changed?
Problems with expansion beyond 25?
So, does it have other less obvious power
to change things?
Greater freedom to move?
End of tariffs, quotas, government
subsidies, harmonise taxes, reduce
transaction costs?
Single Market - 4
We now have to tender for large public
contracts
Will we move towards EU wide
qualifications?
Will decisions become more centralised?
Will trade creation grow? – replace high
cost domestic production with imports from
a more efficient EU partner?
Single Market - 5
Will trade diversion increase – switch purchases
to high-cost suppliers?
If we are to increase economic welfare then
internal producers will have to be as efficient as
external producers?
Does a Customs Union offer dynamic market
conditions? Inelasticity of demand and supply of
commodities affected by CET
Will EU reduce monopoly power?
Single Market - 6
Will EU increase drive for R and D and
innovation?
Will it push for economies of scale and
what of diseconomies?
Will growth be ‘balanced’ – peripheral v
core areas?
Structural problems?
Increased mobility of labour
Power of mergers/takeovers?
Single Market - 7
What of price fixing?
What of predatory pricing?
What of need to monitor corporate behaviour
and application of Social Charter and Health and
Safety?
Where will free factors, such as labour and
capital flow?
Will EU unemployment rates vary?
Can all new members afford to adopt social
policies?
Single Market - 8
Signed 1986
Non-discrimination between imported and
domestic goods
Mutual recognition of products but
acceptance of different standards
Burden of Proof
4 big areas removal of frontier controls,
technical barriers, public procurement and
fiscal frontiers
Single Currency - 1
Needed to reduce uncertainty
Bring harmonisation within monetary and
fiscal regimes
To reduce use of exchange rate
manipulation
Control money expansion within member
states
Competitive de-valuations
Single Currency - 2
Started with ERM – UK left in Sept 92.
Maastricht Treaty decides on currency
stability
Monetary Union – designed to create
common inflation and interest rates within
member states
Integrate financial sectors, so developing
greater freedom of capital
Single Currency - 3
Membership based on meeting
convergence criteria and accepting
political rules
Price stability – no more than 1.5% above
average of three best performing members
Interest Rates – no more than 2% above
average of the three member states with
lowest inflation rates in previous year
Gov deficit – no more than 3% of GDP.
Single Currency-4
Public Sector Debt Control – must not exceed
60% of GDP
Reduced transaction costs
Reduced uncertainty
Price transparency
Lower interest rates
Lower inflation and unemployment
Euro a powerful currency, greater parity with $,
integration of financial markets, greater market
liquidity, sounder fiscal policy
Single Currency - 5
Gains? – one catalogue price, one bank
account, less formalities, stability,
enhanced competition as prices remain
stable, integrated bond markets, stricter
discipline in tax issues
BUT – at what costs?
Loss of economic sovereignty
Asymmetric shocks
Lack of convergence – two speed Union?
Single Market - 6
Different labour market regulations
Different growth rates
What if one country gets out of synch?
What if monetary flexibility required?
Structural differences between countries –
we export 52% to EU, Germany 56%,
France 63%
Single Market - 7
Different housing market – mortgage debt
in UK = 57% of GDP, 33% within rest of
EU
More vulnerability to oil price hikes?
Can it be sustained as enlargement
continues?
Can Regional Policy cope
The future?
Can the poorer nations be
accommodated?
Common Agricultural Policy?
Greater political cohesion needed?
Managing the Euro?
Huge trading block?
Trade-offs – winners v losers