International Business Environment - Essay Example

The reverberation of the recent economic recession is still observable in most countries across the world. The recession did not spare even the feared nations in the world such as United Kingdom. Financial institutions became prey to the devastating effects of the recession leading to lose closure of investments and subsequent loss of job. Political stability of many nations was at stake with left wing thinkers giving their views against the government standpoint over the election (Oxdale, 2012:1). Many economists directed their concern towards creating measures that would normalise the situation. This paper is analyses the response of UK government to the economic recession. 1. United Kingdom hosts some of the largest financial institutions in the world. Their role in the world economy is very crucial because many investors across the world have invested their treasures in these banks. The recent economic recession shook the foundation of UK economy with many institutions retrogressing because of the effects of the financial spill. North England and Scotland felt the effects of the recession that was evident through closure of businesses, loss of jobs, increase in commodity prices, government inability to offer crucial services to the nation, and social life became very hard (Boffey, 2012:1). The government could not control the inflation levels because of the debts that it registered through the economic meltdown. The economic meltdown has created tension in the political sphere because many politicians do not know how to contain citizens who have shown their displeasure with the current trends they observe in the market. Political platform becomes greasy when politicians fail to address issues that affect the common person. Many economic critics believe that the UK government has powers, which can institute normalcy in the market (Gibb, and Leishman, 2011:23). David Cameroon lamented the action taken by the western nations in responding to the biting effects of the financial collapse. Many critics directed their concern to the anticipated events that would yield from the status of events. In deed, the crisis is a real mess to life of a common person. The increase in cases of unemployment is a bigger threat that the government of Scotland feel that it should unemployment index. Sharp decline registered in the financial market indicates that the economy is unable to create new opportunity in the job market. The labour market largely depends on the level of economic growth in creating new opportunities for job seekers (Smit, 2010:12). Many people have lamented that they have to work for long hours in order to meet the needs that they were able to meet with normal working hours before the recession. The concern is genuine because pound has lost value. A person has to cough more coins for a product that was affordable before the inflation. Another notable thing in Scotland is that the nation has registered a decline in investor interests. 2. Economists fear that reverberation of the economic crisis can trigger more problems to United Kingdom when it fails to handle it effectively. Speech delivered by Cameroon pointed acquisition to lack of commitment among the western countries in dealing with the crisis. However, some critics believe that UK government should demonstrate that it could exercise authority by restoring the financial spill (Wan, 2004:146). Ideally, it is wise for United King to handle the situation using the optimum development of national economies theory put forward by Michael Porter and Adam Smith. Theory argues that a country can promote economic growth if it specialises in creating products that it commands total cost advantage over other competing nations and engage in importation of products that it is unable to produces (Larti, 2010:6). The notion propagated by the theory is that a country should be able to identify areas where it can perform best and use them to its advantage instead of engaging in importation of products. The case applies to UK; it can reduce its importation by creating avenues for production of products that it commands great ability of producing. In the international market, UK would only buy products, which it cannot be able to produce while taking the advantage of the market to sell to other countries the products that it has produced. The idea advocated by the theory is that UK can increase its national economic standards by restricting imports in the country. Importation of products from other nations has its effects, which include importing products from countries suffering inflation. The idea of comparative advantage creates an opportunity for a nation to engage in product protection in a line that demonstrates that it would be beneficial to the nation (Martin, and Knapp, 2008:168). Economic impact of the theory includes creating of new opportunities in the nation, which would create jobs for many citizens that grapple in unemployment. The major impact of the economic crisis is the investors’ withdrawal from the financial market leading to loss of jobs because of decline of investment opportunities (Hammouda, B. H. 2003:156). The remedy that UK requires must start from home as argued by some economic critics who believe that the government has done little to handle the situation. The state commands direct authority in influencing importation of products. The government approves all products that enter the country. Many nations would discourage trading in products, which they can locally produce (Zhang, 2008:147). The economic impact of the scenario is that the country would be providing market of its own products while limiting importation. The result of the action would lead to development of local industries. The concept of market influences the cost of a product. Imported products are likely to cost higher than they cost in the countries of origin because of cost involved that includes importation tariffs, logistics costs, and other related costs. A mechanism that reduces importation of products would enhance development of the local sector (Schulse, 2010:123). The government exercises roles such as tax holiday or incentives to investors who aim at investing in areas that the government think would promote its economic abilities. Reducing importation while enhancing domestic sector would reduce expenses that the country incurs. The government can channel such budgets to other needs that citizens require. 3. The government of Scotland has realized that it can chip in to change the current situations. Innovative approaches, which seek to reduce consumer spending, has been one of the options that the government has been trying to roll out. The government has decided to create innovative plans that would create affordable housing to Scottish citizens (Scottish Government. 2012:15). The innovation would create employment to Scottish citizens who have grappled in the economic recess. Housing is essential and the high cost spend in housing reduced the ability of the citizens to buy other products in the market. The Scottish government has pledged to finance basic businesses (Scottish Government. 2012:6) in the nation as a move that would influence production in line with the Adams and Porters theory. Coming out of the crisis would be difficult if the government does not create sustainable development among its citizens. The pledge by the government to revive businesses is a positive mark that would revive sectors of economy that were dead. Investors would respond when the environment for conducting business would prove viable to the intended business. The government has thought of enhancing oil production with a view of reducing costs associated with importation of oil from other nations. As proposed in the national economies theory, the nation would be creating opportunity for its citizens while reducing dependence from other nations (Mclntyre, 2005:156). I think Adam Porter would ask the government to create more opportunities for the citizens especially funding their businesses because the move would revive the situation. Efforts, which aim at reviving economy, must involve local investors. I think Michael Porter would suggest that the government should absolutely depend on its oil because it would eliminate importation of oil completely while giving a room for the government to sponsor other vital needs of the citizens. Arguable enhancing oil production sector would open other avenues in the economy. I think the idea proposed in the two theories would help Northern England and Scotland to create opportunities for their citizens who grapple in unemployment. In conclusion, economic depression has led to job lose, loss of investment, hard life among other conditions which are unfavourable to UK citizens. Some economists have proposed various interventions to the condition including government involvement in controlling importation and enhancing domestic product production in line with Adams and Porter theory of optimal national economies. Comparative and absolute advantage discussed in the theory is relevant to UK situation. The government has demonstrated intentions that aim at influencing the trends in the financial market. Bibliography Boffey, D. 2012. How the north of England has suffered most in the downturn. Available from http://www.guardian.co.uk/business/2012/feb/05/financial-crisis-economics [Accessed 15 April 2012] Gibb, K. And Leishman, C. 2011. Scotland National Report. 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Connectionist Economics: An Outline. New York: Indiana: Trafford Publishing. Scottish Government. 2012. Skills for Scotland: Accelerating the Recovery and Increasing Sustainable Economic Growth. Available from http://www.scotland.gov.uk/Resource/Doc/326739/0105315.pdf [Accessed 15 April 2012] Smit, A, J. 2010. The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries? Available http://www.unisa.ac.za/contents/faculties/service_dept/docs/SABVIEW14_1_chap5.pdf [Accessed 15 April 2012] Wan, Y. H. 2004. Economic Development in a Globalized Environment: East Asian Evidences. New York : Springer. Zhang, W. 2008. International Trade Theory: Capital, Knowledge, Economic Structure, Money, and Prices Over Time. London: Springer. Read More