Business

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Business Management Studies

• Week 6
• The European Union Globalisation

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Lecture content

• Unit 66 The European union
• Unit 79 Multinationals

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Origins of EU

• 1958 started with 6 members
• 2003 15 Members
• 2004 25 members
• Original goals limited to
• Free trade area
• Customs Union (common import restrictions and
  tariffs)

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1986 Single Market programme

• Goal to create single market by 1992
• Achieve common technical standards
• Harmonisation of taxation
• Ensure the free movement of labour and capital
• open borders for the migration of individuals
• Lay the foundation for economic union by the
• co-ordination of fiscal/monetary policy
• single currency

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Benefits of Monetary Union

• Reduction in trading costs
• Stability of trading costs
• Real price comparisons
• Increased volumes of trade
• Increased inward investment

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Problems of monetary union

• Decline of the Euro
• Differences in business cycles
• Unemployment growth
• Un-accountability of ECB
• Loss of economic and political sovereignty
• Differences of business and political cultures

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Institutions of EU

• The European Commission Proposes EU policy to
  the Council of Ministers
• The Council of Ministers Agrees or rejects
  Commission proposals
• The European Parliament (EP) Monitors Council
  Commission policies and actions
• European Court of Justice (ECJ)Establishes
  European law

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Types of EU Law

• Regulations Binding on all members
• DirectivesRequire a law to be passed in member
  countries
• RecommendationsExpress a view but have no legal
  standing

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Workers Rights Social Charter

• Similar workers rights on an EU-wide basis
• Rights to join TU
• Right to undertake industrial action
• Consultation with workers over company plans
• Equality for men and women
• Minimum wage
• Maximum working week of 48 hours
• Four weeks paid holiday

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Balance of Social Charter

• For
• Worker motivation, efficiency and productivity
• Improved industrial relations
• Harmonisation of labour costs
• Against
• Increased labour costs
• Reduced competitiveness
• Costs some countries more than others

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Multinationals

• Can be huge companies that operate across several
  countries.
• Often have financial turnover greater than many
  significant states

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Advantages for a multinational -1

• Nearness to local markets - lower transport
  costs etc.- avoid import tariffs/restrictions- f
  acilitates the understanding of local business
  culture and customer preferences
• Low labour costs- Average UK wage over 400 per
  week - Average Indian wage 5 6 per week

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Advantages for a multinational -2

• Government Incentives- Subsidies and Loans etc.
• Low Taxes- Transfer Pricing maximise profits
  by declaring high profits in low tax countries
  and minimal profit in high tax countries

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Benefits for Host Countries 1

• Boosts foreign currency earnings
• Improves balance of trade
• Creates jobs directly and indirectly
• Skills training etc.
• Creates opportunities for local suppliers of
  materials and components

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Benefits for Host Countries 2

• Can improve infrastructure local roads,
  hospitals, communications etc.
• Technology and skills trickle down
• Management expertise successful and improved
  management techniques are copied by local
  businesses

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Problems for multinationals

• Communication between foreign management and
  local workforce
• Communication between headquarters and outposts
  lessening due to IT
• Lack of skills in the local workforce
• Poor basic education and language skills

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Problems Multinationals Bring 1

• Sub-standard facilities/operations safety, and
  quality of equipment etc.
• Higher levels of accidents and injuries
• Local firms often go out of business because they
  cannot compete
• Net job losses may result (labour intensive local
  firms)

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Problems Multinationals Bring 2

• Demographics can change as workers are taken from
  traditional employment
• Profits are exported
• Natural resources are sometimes ruthlessly
  exploited for short run gain
• Negative impact of Western culture on the local
  culture