research for midterm complete

7/31/2019 Research for Midterm Complete

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RESEARCH FOR MIDTERM

1) Assess the benefits and detriments to UK firms of UK going in the EU.

2) Assess the case for and against UKs membership of the single currency.

3) What will be the likely impact of the growing economic power of China and India on individuals, national and multi-national

firms in the 21st Century.

Issues to focus on:

- Implication of their population size

- Economic growth

- Export Rate

- Increased purchasing power

FOR QUESTION 1:

The Benefits for UK joining the European Union:

It has benefited from membership of the Single Market:

The Single Market of the EU has meant that companies going about their dealings in EU member states have been forced to lower

the prices of their products to become more competitive.

The single market benefits companies, in particular, by making it easier & cheaper to do business in other EU countries. No customs

tax is charged on goods that are sold or transported between member states. The EU also tries to make each market as similar as

possible to ensure fair competition across national borders.

Free Movement of Citizens:

European citizens have the freedom to live, work, study, and travel in any other EU country. Since 1995 alone, about 100,000 young

Britons have spent time studying in another European country.(A)

More Jobs:

It is estimated that 3.5 million British jobs are dependent on Britain's membership of the EU. (Source: UK Jobs Dependent on the

EU, Brian Ardy, Iain Begg and Dermot Hodson, European Institute, South Bank University)

Money for Development:

The EU is working to develop deprived regions of Europe. Such areas might, for example, have high numbers of peopleunemployed, or be rural areas without many facilities, like good roads. This will provide areas of investment for new corporations.

The development is carried out using 'European Structural Funds'.

The UK had been allocated a total of 15.5billion of European Structural Funds for 2000 - 2006. Over the same period, the UK

had also been allocated 120 million for Fisheries Guidance and

961 million for Community Initiatives.(A)

A Louder International Voice:

By working together in the EU member countries can ensure their concerns are heard, and taken more seriously, on the


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international stage. When the EU speaks it represents about 500 million people. This is more than the combined population of the

United States & Russia. Margaret Thatcher once said: On our own, as a nation of 55 million, we would have some voice, but not

enough."

Greater Protection for Workers:

The European Working Time Directive is an EU initiative designed to protect workers from exploitation by employers.

The directive lays down regulations on matters such as how many breaks an employee can take, and how many holidays they areentitled to each year. It also aims to limit the average time an employee can be compelled to work to 48 hours a week. This

motivates workers to work harder as they will be satisfied with their jobs, therefore leading to potential profits for the fi rm in the long

run.

Greater Equality and Social Inclusion:

The EU has done a lot of work to raise the standard of equality for its citizens. Through EU directives citizens are protected

from employment discrimination on the basis of gender, religion or belief, disability and age.

Protection of the Environment:

The Environment knows no border and so the only effective way to tackle environmental pollution is through international co-

operation and action. Britain has cleaner water, cleaner air and cleaner beaches because of action at the EU level. This means a

healthy working environment for workers.

Greater Co-operation in Law Enforcement:

EU co-operation is helping to crack down on terrorism, drug trafficking and organised crime. As such firms can be assured security

in their vicinity.

What are some of the detriments for UK in being a part of the EU?

Too Many Rules and Regulations:

There are a great deal of rules and policies, some of which don't seem sensible. This can make the EU inefficient and

excessively bureaucratic. In turn, it imposes a barrier to palatable regulations for companies and workers.

Unaccountable to its Citizens:

Decisions are taken a long way from the people, making it a poor example of democracy. Individuals and firms who are affected by

EU decisions have little chance to make their voices heard.

Concentration of Power:

EU institutions have too much power. They have taken away the right of individual countries to make their own decisions abouteconomic and political matters.

Speed of Integration:

The EU is moving towards more and more integration at a phenomenal rate with not enough thought or debate on the issues. The

UK risks being swept by this tide of integration without plotting and following its own course in the interest of i ts own corporations

and citizens.

Loss of UK Sovereignty:

Membership of the EU has led the UK to lose its sovereignty. As a result the UK is no longer free to develop its own policies, make

its own laws, or control its own economy in response to its own needs, therefore unable to efficiently regulate companies i.e. to

promote those that are beneficial to the society and exterminate the negatively impacting firms, without the consent of the EU.

Evaluation:

Much of what is contained in the argument for the EU does not need a stricture ridden bureaucracy to operate successfully. The

Cash benefits look good but what is not taken into account is that Europe is NOT the major trading partner it is made out to be and

the costs of

running the machine is astronomical. Politicians are out of touch and out of time - the need to be free of party politics is imperative,

so that common sense can prevail over dogma.

The advantages, but...

1: "Companies have been forced to lower their prices in the EU"


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On the contrary; that may have been the original intention of the common market, but the higher labour costs of a 'Social Europe'

have meant that prices are uncompetitive and growth is low. (Unless we're talking about farmers who can use their outrageous CAP

subsidies to dump cheap food on the third world...)

2: "Easier and cheaper to do business in other EU countries - more competition"

A better description would be to say that everybody will eventually become as uncompetitive as everybody else. The EU

has levelled the playing field in favour of those with the highest costs.

3: "Free movement of citizens/students"

There arent many countries you can't travel freely to these days. Is this really down to the EU? The UK accepts students from many

other non-EU countries and sends many thousands of its own to, the US, for instance.

4: "3.5m more jobs"

This figure seems to have been picked out of thin air as it is supposed to correspond to all employees working for firms which

have trading ties with the EU. Truly, they would not be out of work by tomorrow and those firms would not cease to exist if UK left

the EU! Germany and France have over 10% unemployment. That's their highest jobless figure since the 1930's depression.(A)

5: "The UK has been allocated 15.5 billion for 2000-2006"

This is the lowest figure per capita of any European country . During the same period of time (2000-2006) UK has paid IN almost25Bn. So there is no economic benefit. Britain pays more to be part of the EU than any other country. At the moment Europe wants

to stop UK getting its 3.3Bn yearly rebate(to compensate it forbeing penalised so heavily by the French on joining) If that ends up

happening, then UK will be paying 7.5Bn per year into the EU and getting 2.6bn

back.... Worth it?

6: "Greater worker protection/ 48hr week"

This was intended to be a way of reducing unemployment by sharing out the work to be done among more people working shorter

hours. It has had the opposite effect. In Germany manufacturing jobs have migrated to former soviet countries where labour costs

are cheaper. That means 11% unemployment in Germany and 5 million jobless. The situation is no

better in France. Their rate of growth is less than half the UK average. What's the point in protecting workers if it means

creating unemployed people - who are welfare dependant victims? Maybe some of those 5m jobless would be happy to work at a

car plant for more than 48 hours a week. This has had a negative impact on most firms, who find it costly to employ more workers.

Therefore, I feel the detriments definitely outweigh the benefits; it has been less of an advantage and more of a burden for UK firms,

individuals and UK itself as a whole.

FOR

QUESTION

2:

We will divide the task into the following sub-topics:

Introduction

a) Why did not the UK join the Single Currency?

b) What advantages and disadvantages of the UK joining the single currency?

The United Kingdom & the EU

(the Single Currency)


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Conclusion

Introduction:

On 2nd May 1998 the European Commission in Brussels decided the membership of 11

EU-countries to the Euro-Launching on 1st Jan. 1999. The Euro-11-Zone includes:

300 million people

19.4% of the World-GDP

18.6% of the World-Trade

Timetable:

1992 - Treaty of Maastricht

1994 - Founding European-Monetary-Institute

1995 - European Parliament settled a scenario in

Madrid - these are the following three stages:

Mai 1998 - Decision about the participants - 1st stage

1.1.1999 - Starting date - 2nd stage

1.1.2002 - Bank notes issuing - 3rd stage

1.7.2002 - The national currency is not valid!!

a) Why didnt the UK join the single currency?

1) The convergence criteria

An inflation rate that is no more than 1.5 % higher term than the average of the three lowest inflation rates. A long term interest rate that is no more than 2% higher than the three lowest interest rates. A government budget deficit that is no higher than 3% of GDP. And government debt that is no higher than 60% of GDP.

2) Why did the UK opt out?

i) Economic obstacles


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ii) Political and social obstacles

i) Economic obstacles

The British economy is out of synch with the continental cycle. The UK does not have a high degree of interdependence in trade with the European countries. The sterling is overvalued.

ii) Political and social obstacles

The EMU (European Monetary Union) is currently deeply unpopular with ordinary people. The British people are reluctant to enter in the single currency because they dont want to lose their identity. Another reason is their reluctance to suffer the predicted economic damage of the single currency.

b) What advantages and disadvantages of the UK joining the single currency?

1) Economic consequences of the UK opting out

i) Disadvantages of opting out

The country, like other outsiders, will be very much affected by the policies adopted by the EMU members. All decisions which relate to monetary and exchange rate policy will be to reflect primarily the interests of the EMU

participants.

Its trading partners would dominate decision-making in key areas of EU policy. These partners would acquired a competitive advantage as a result of EMUs success. The gain in competitiveness of the EMU group would, other things being equal, be equivalent to a loss of competitiveness

among the countries outside.

Then, it will lead to :

Higher risk premium on interest rates; greater exchange rate volatility; lower rates of investment and growth and Higherunemployment and strains on government finances.

ii) Benefits of opting out :

The UK, like other outs, will be shielded from the counter-cyclical fiscal policy instability. It will also be spared the inevitable political frictions which will arise in the process of adjustment to a single monetary

policy.

2) Consequences of the UK joining (in short or long term).

i) Costs or disadvantages of joining

Total costs for a business = 20 m costs from strategic changes to maximise the business competitiveness in the new Euro-zone environment.


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Costs in changing their systems in order to trade in Euro

Costs of transferring their base accounting systems to the Euro

No transition period for the UK Cost of the loss of independence in interest rate decisions The UK, due to being a long-term Outsider, would be unlikely to have any serious influence on measures adopted by the

EMU members.

Principle Advantages for the 11 members of the Euro-zone

The domestic market needs a single currencyi.e.: currency crises in autumn 92/summer 93

Retirement of operation costs Long-term economic stability No exchange rate losses for companies i.e.: Germany lives up to 60 % from EU export Abolition of barriers to a single European market Price transparency

ii) Advantages of joining

Increased competition 11-Euro-zone Countries = save 0.3 - 0.4 % of EU GDP p.a. (transaction costs). The UK = only 0.2 % of EU GDP p.a.,because the UK trade with other EU countries is

below average.

Greater specialisation and trade within the Euro-zone Euro will bring more integrated European financial markets Cqs : Higher growth in the Euro-zone markets.

Britain could switch to Euro in 40 months

FOR QUESTION 3:


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It's getting harder to comprehend the world economy without understanding two of the world's most rapidly growing economic

powers China and India. A new crop of books focuses on how that astonishing growth will play out in the global economy. So, we

will first look at what different authors from around the globe have to say in this respect, then we will brief through the backgrounds

of China and India.

InThe New Asian Hemisphere: The Irresistible Shift of Global Power to the East, author Kishore Mahbubani points out that Asia led

the world's economic activity for thousands of years. The fact that the past 200 years have been dominated by Western countries is

merely an exception, he says.

Mahbubani's view "is perhaps too overly optimistic that it 's all a foregone conclusion," says Vishakha Desai, president of the Asia

Society in New York, who discusses the new books with Steve Inskeep.

"There will be a much larger percentage of the world's economic growth in Asia, particularly driven by China [and] India, but also

Japan and Southeast Asia," Desai says.

"I think that we have to recognize [the] likelihood of America being a sole superpower is very, very small," she says. "But how

America handles this, and how Asia especially China and India handle their new global power status is also still a question

that we have to deal with."

InBillions of Entrepreneurs: How China and India are Reshaping their Futures and Yours, author Tarun Khanna writes that India

and China will need to shift from being competitors to collaborators.

India's strength has been "individual entrepreneurship without interference from the state," Desai says, adding that the country could

benefit from China's emphasis on state planning and macroeconomic planning to make its infrastructure work. India needs to

diversify from being "the back office of the world" to manufacturing, she says, "and China is going to have to [become] more of a

service economy."

But inRivals: How the Power Struggle Between China and India and Japan Will Shape Our Next Decade, which focuses on the

region's political landscape, author Bill Emmott says the two emerging powers are likely to remain rivals, eyeing each other warily.

Still, Desai says, "I think you also have to recognize that that intra-Asian trade today is among the fastest trading patterns in the

world. ...China has now surpassed the U.S. as India's largest trading partner."

"[The] world is more interdependent than ever before," she says. "In that level of globalization is the rise of China and India and

other parts of Asia. So we need to figure out the role we're going to play not just to balance, but also as [an] active, responsible

participant so that we don't have to feel that we're the only ones who have all the answers, because that may not be the case."

China
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Background Information

- China is the fourth largest country by land mass and has a population of 1.3 Billion people.

- China was originally a state-run economy, but after the death of Mao Zedong, his successor, Deng Xioaping introduced

major economic reforms that changed it from a state-run economy to a more capitalist economy.

- This saw the making of megacities like Shanghai, which were close to the sea.

- However, the interior provinces of China still remain very poor, with little education

China has been booming for the three decades. Economic growth has been constant around 10 for a very lore time. These double

digit growth rates make China a very lucrative business to settle In.

However, high growth rates are for a developing economy, but to have double digit growth rates for such a prolonged period of

time is truly remarkable. -

From this economic growth, the population of China has

benefitted greatly, their incomes have risen and the past

famines that had plagued china are now a thing of the past

The Influence of Purchasing Power

Purchasing power is measured by the purchasing power

parity: an exchange rate that allows the accurate

comparisons of purchasing power It is used because prices

for specific products such as food vary considerably between

countries and consequently the purchasing power of a sum of

given money

Much ofrural China still remains poor, even though there has been dramatic change over the past few decades when China first

adopted Capitalism.

Overall, the massive increase in total GDP has helped China.

Cities such as Shanghai and Guangzhou have very wealthy citizens, facilitating the growth in demand for luxury goods.


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- The USA has a far higher GDP than China for the time being, but China has a far higher growth rate. Predictions state that

China will overturn the USA by 2040, and is currently the second largest economy. However, right now as Cina becomes

more developed, will growth rates reduce?

- China right now has the largest car market in the world. Fast rising car sales will put a great pressure on its roads and other

infrastructure in the future.

- China is already 'economically colonizing' Africa to make sure it has the resources to sustain strong economic growth in the

future. But opinions differ on this matter. None the less, China is making strong advances in order to secure African natural

resources.- The shift in power due to the growing influence of China has made it a key market for most Multinational businesses.

- China is also investing heavily into education and research facilities due to the massive inflow of foreign currency. China is

trying to make something similar to the Ivy league in America.

- Due to these high growing rates, Chinese are becoming richer and are demanding better foods such as meat and fish.

- China is making its business more competitive and transparent through the introduction of regulatory commissions and

Privatization of SOEs (State Owned Enterprises); reducing corruption at the same time.

Barriers to trading in China:

- China, unlike India, was not a colony of the British; it lacks able English speakers, making language a barrier to trade in

China. China is ripe for investment so the English speaking Chinese managers are in short supply and are likely to be

expensive.

- Intellectual copyright laws are not properly enforced in China, so software makers and music companies will have a very

difficult market to sell to.

- Markets can suddenly fluctuate due to changes in government's economic policies; the government of China has amassive influence on the market because a large portion of the businesses in China are SEOs. Investors have to

understand a whole new set of the monetary, regulatory, and legal issues that are involved as the Chinese government

has a lot of say in the economy.

- China has no nation-wide credit database, so it's difficult to assess customers' credit-worthiness.

- China is undergoing rapid social and economical change; a widening disparity between haves and have-nots could cause

significant upheaval.

- Multinationals often must compete against local players with lower cost operations and lower prices.

- The diversity of the Chinese market is significant, requiring a variety of products to meet segmented needs.

- Infrastructure is less developed than in US. Making transportation a challenge, especially legal and banking infrastructure.

- Conducting market research and identifying market sectors is extremely difficult due to language and cultural barriers; an

advert may be culturally offensive to the Chinese.

Trading Opportunities:

- China is a fast growing market with both enormous landmass and population; there are plenty of customers in China.- Growing car market means that it gives a larger market for car manufacturers to sell to.

- There's a lot of interest in foreign education as many Chinese students are now opting for foreign degrees from countries

such as Australia and the UK.

- As China is becoming richer, there is growing demand for processed foods such as meat and fish.

- Wine is also becoming something that rich Chinese are wanting.

- Large increase in income has led to the demand of luxury goods.

India:

Background Information:

- India is also a very large nation; 7th largest by landmass and with a population of 1.2 billion.

- The Indian subcontinent was colonized by the British and India remained a colony for 200 years. As a result the economywas crippled although the British did establish an administration system and rail transport lines (which was to transport

Indian natural resources)

- However, this is giving India an edge over China because it has more English speakers; its markets are more accessible.

- At present, India has a much lower HDI than China. The higher the HDI, the better. HDI is a composite index of life

expectancy, education and standard of living.


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Economic Growth:

- After India received independence it adopted socialist principles aiming to reduce the rift between rich and poor. It also

believed greatly in the idea of self-sufficiency. This caused few private industries to grow as there were many restrictions

and formalities.

- Domestic markets in the 1980s were guarded by trade barriers; the government hoped that this would give the domestic

businesses protection; the markets were not open. This in turn attracted little FDI and thus no technology transfer. Growth

was slow in the 1980s and majority of Indians were very poor.

- In the 1990s, government control over the businesses were removed. As a result, export as a percentage of GDP

increased, making India an open economy; an economy in which exports and imports form a significant part of the GDP.

- India has about 50% of the global market for outsourced IT and business services, made possibly by its English speaking

population and good education system.

- India also has great human capital, as there are many unemployed graduates in India with growing industries inpharmaceuticals, electronics, cars, aerospace and biotechnology.

The Influence of purchasing power:

- India has a strong and growing middle-class meaning that the over-all purchasing power of India is increasing. This

means that it will be more lucrative for car manufacturers, luxury goods producers as well as electronics manufacturers to

start selling therein. Increased purchasing power has also resulted in more FDI into India.

- However, 40% of the Indians live in the poorest states and 25% live under the US $ 1.25 poverty line!


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-

Barriers to trade:

- India, still holding to the idea of self-sufficiency has many trade barriers installed that make imported goods more

expensive. Foreign companies have to pay higher corporate tax. For normal companies its 35% and for foreign its 40%.

- Culture and Language is a big problem in India; India has 23 languages with a myriad of different cultures.

- There is still a lot of corruption that persists in India and this means that setting up businesses and legal formalities take a

long time.

- Inconsistent Industrial Policy and Rules; laws, regulations and rules are often and suddenly changed.

- Labour Regulations and Protections: Under the Industrial Labour Law, in the case that any company employing more than100 employees lays off staff, it must first acquire permission from the state government. As it is extremely difficult toobtain such permission from the state government, not only does this regulation directly affect flexible business planchanges, but it also makes business closure difficult.

- Foreign companies are limited to the amount of loans they take.

- China does not respect international intellectual property laws.

- Goods in India are often smuggled from other countries making them cheaper. For a le8al business to import and sellforeign goods there are a lot of fees to be paid, which makes them very expensive and does not give them a fair chanceat competition.

- Foreign investors are barred from investing into key sectors, such as agriculture andinfrastructure such as transport.

- Lack of Infrastructure: Infrastructure in such areas as electric power, roads and telecommunications networks has not yet

been developed and this is the principal barrier to the enlargement of overseas investment in India.

Trade Opportunities: Trade, still is diff icult, as of now, to carry out in India, mainly because of the protectionist policies that India

persists in maintaining, although new opportunities have been created via the incoming of economic reforms in the 1990s.


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- There is considerable human capital in India and with an English speaking population, it means that skilled labour can berecruited at very cheap wages as the cost of livingIndia is much lower than that of western nations.

- India is a very education-promoting nation, meaningthat there are many opportunities for westernUniversities especially in UK, USA and Australia tomake money from Indian students.

- International businesses are allowed to ownpharmaceutical companies in India meaning that they can take advantage of the location to export to other nations as wellas taking advantage of the human capital present in the country.

SO, WHAT DO YOU THINK?

Bibliography:

(A)http://www.123helpme.com/(B)http://www.euromove.org.uk/

[1] Britain and the Commonwealth, Harold Macmillan MP, September 1962.

[2] Speech reprinted as Our European Destiny, Conservative Group for Europe, 1971

[3] Fund Management, at,www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdf

[4] This figure, and the preceding one, from UK trade performance: Patterns in UK and global trade growth, Department forBusiness, Innovation & Skills, November 2010.

[5] Figures from UK Energy Supply: Security or Independence, House of Commons Energy & Climate Change Committee, HC1065, October 2011, p.13.

[6] Outside and Inside: Norways Agreements with the European Union, 17 January 2012.http://www.npr.org/

http;//www.studenttech.co.cc/
http://www.123helpme.com/http://www.123helpme.com/http://www.123helpme.com/http://www.euromove.org.uk/http://www.euromove.org.uk/http://www.euromove.org.uk/http://www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdfhttp://www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdfhttp://www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdfhttp://www.npr.org/http://www.npr.org/http://www.studenttech.co.cc/http://www.studenttech.co.cc/http://www.studenttech.co.cc/http://www.studenttech.co.cc/http://www.npr.org/http://www.thecityuk.com/assets/Uploads/Fund-Management-2011.pdfhttp://www.euromove.org.uk/http://www.123helpme.com/

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