Advantages and Challenges of European Integration To Business - Admission/Application Essay Example

Advantages and Challenges of European Integration To Business Introduction The integration of 27 European states on November 1, 1993 known to be the European Union has made a big impact on the life of the Europeans. With over 500 million citizens, the Union comprises around 30% of the nominal gross world product (Wikimedia Foundation, Inc., 2009). The integration probably has the largest impact on the countries’ economy. The two major changes in the economy are: the development of a single market and a customs unions between its member states. Thus, there is a “free circulation of goods, capital, people and services within EU” (Wikimedia Foundation, Inc., 2009). The Europe’s Department for Business, Innovation and Skills has reported major benefits of the single market to business, consumers and employees. According to European Commission statistics, in broad terms, the  Single Market project has meant: “EU Gross Domestic Product (GDP) in 2002 was 1.8% higher (€164.5 billion) [£110 billion] than it would have been without the Single Market, Over ten years, the Single Market has boosted the EU’s GDP by €877 billion [£588 billion]. This represents €5,700  [£3,819] of extra income per household, EU Employment has grown (1992-2002) by 1.46% (an extra 2.5 million jobs) thanks to the Internal Market.  Up to 3 million British jobs are linked to exports to the EU, around ten percent of the total workforce, Intra-EU trade has increased as a percentage of GDP from less than 25% in 1993 to 35% in 2005, Foreign direct investment in the Single Market has risen from €23 billion  [£15.4 billion] in 1992 to €159 billion [ £106.5 billion] in 2005, 60 Million customs clearance documents per year no longer need to be completed, cutting bureaucracy and reducing costs and delivery times” (Department for Business Innovation and Skills). What these developments have brought to the Europe’s business is the discussion in this paper. We look at the two sides of the story: the advantages and the challenges created by the European Integration. Main Body The Features of a Single Market Before delving into the discussion of the advantages and challenges of the European integration to businesses, it would be worthwhile to look at the features of the integration. They are the following: “building one internal market was intended to launch Europe as an economic superpower, as member states got rid of obstacles to trade, companies would start to enjoy new economies of scale, more cross-border competition would wipe out inefficient firms, Removal of barriers to the four freedoms of movement (people, goods,services, capital) within the EU, Barriers were: regulatory, technical, legal, bureaucratic, cultural and protectionist, EU Directives telling member states’ governments to put changes into effect” (Biz/ed). The Business Advantages Even for an ordinary observer and a business enthusiast, the advantages that the European integration brought is deemed tremendous. We will discuss them one by one on this paper and cite examples. The presence of a single huge market without physical barriers is one very important development. There are no regulatory barriers to trade goods and services between countries, therefore maximum competitiveness and economies of scale are achieved. This means that one can do business in several countries among the members with just an office in one of them (Yahoo Inc!). In a survey done in 1998, the creation of a single market was seen to have a positive effects on the companies. The data gathered in the survey are as follows: “82% of companies surveyed actively participate in the Single Market, through exporting, directly sourcing goods or services, manufacturing or providing services in another Member State. All sizes of company exhibit high rates of participation: 92% of large companies (those with more than 250 employees), 87% of medium sized firms (50-249 employees) and 77% of small companies (10-49 employees) do business in at least one other Member State” (Europa). The table below gives the preceived effect of the sinlge market for the year 1997-1998. Very Positive 3% Positive 24% Equally Positive and Negative 7% No Impact 57% Negative 6% Very Negative 1% Don’t Know 2% Source: (Europa). Among the 3 new member states, 51% of the Finnish and Austrian companies and 46% of the Swedish companies testified that the Single Market has benefitted their peroformace. “This seems to indicate a certain maturity of the Single Market, with those participating in it longest building their perceptions of its benefits into their normal expectations of the business environment” (Europa). The creation of the Euro, one currency for all the member countries also makes it easy to keep accounts and allows for faster business transactions. The benefits of having a single currency are the following: More cross-border trade - A direct benefit of the euro is that, within the euro area, there is no need for businesses to work in different currencies. A company can buy and sell throughout this area, paying and being paid in euro.Previously, when doing business in another EU Member State, a company would need to take account of the risk of fluctuating exchange rates – i.e. the stated foreign currency amount on the invoice might change in value before being paid. This meant either export prices were higher, or companies were discouraged from exporting within the single market. This risk has now gone, as have the costs associated with exchanging different currencies. Before the euro, these exchange costs were estimated at €20 to 25 billion per year in the EU (as much as 0.3% to 0.4% of GDP) – much of it incurred as companies transferred goods, people and capital around Europe. With the euro, these costs have disappeared in the euro area, and this money is now available for more productive investment. Better borrowing, better planning, more investment - Before the euro, volatile interest rates meant unpredictable costs. With the euro, inflation has come down to a low and stable level, which also means low and stable interest rates. Firms can borrow more and more cheaply and can invest more confidently in the long term. Long-term investment is further encouraged by the sound and prudent management of Economic and Monetary Union, which builds trustin the economy of the euro area and reduces uncertainty about the future. Companies can invest more in growth and new technologies rather than saving money in reserve in case of an economic downturn. Better access to capital - The euro gives a large boost to the integration of financial markets across the euro area. Investors, such as banks, are no longer limited to local markets. Capital can flow more easily because exchange rate risks have disappeared and because financial market rules are being progressively harmonised – allowing investors to move capital to those parts of the euro area where it can be used most effectively. More international trade - The euro is a strong international currency backed by the commitment of the euro-area Member States and the firm and visible management of monetary policy by the European Central Bank. The euro area is also a large and open trading bloc. This makes doing business in euro an attractive proposition for other trading nations, which can access a large market using one currency. Euro-area companies also benefit because they can export and import in the global economy while paying, and being paid, in euro – reducing the risk of losses caused by global currency fluctuations. Source: (Dimireva, 2009) Aside from the adantages of having one currency and one labor market, the integration has also brought several other benefits. Some of these are: Export Potential – commercial opportunities from enlarging the Internal Market The increase in the size of the custom union is seen as a result of the integration. Also it was evident that accession countries who are small have grown quickly in recent years so that they have a great long-run economic potential. The integration is expected to increase their living standards so that exports potential is also huge (Tutor2u). Exploitation of economies of scale from supplying to a larger market With the integration, gains from productive efficiency are realized. We call this the increasing returns to scale. Also, many industries can explout the principle of large minimum efficient scale (Tutor2u). Foreign Investment and Incomes and Profits The foreign direct investment which are expected to flock the accession countries are expected to provide a net flow of interest proficts and dividends, thereby boosting the GDP of the countries and improving the balance of payments. The influx of FDI are expected to supplement rather than reduce the domestic capital spending. Lastly, FDI will help speed up the transistion and transformation process of the accession countries (Tutor2u). Free trade With free trae, there is a possible savings in costs when raw materials and components are imported from accession countries thus improving the terms of trade for developed EU countries (Tutor2u). A more diverse European labor market There is an open opportunity for both british and the EU businesses to be ablt to import skilled labors at a lower cost especially in places where labor is isn shortage. Also, the expected migration of laborers from accession countries is deemed to be effective in offsetting the long-term effect of ageing populations which means that the growth of working age is slowing. The opportunity for the people to travel and live in both the Central and East Europe will rise. Lastly, in terms of labor, the problem of economigrants that flock the existing EU member countries which are mostly from East Europe will be reduced (Tutor2u). More jobs The presence of just one labor market means that “Companies can hire citizens of any EU country as workers in any other EU country (apart from some transitional restrictions by some old EU countries against recent EU members)” (Yahoo Inc!). In figures this was estimeated to be at 380,000 jobs across EU members in 1998. Higher EU economic growth From 1998 alone, the accession has been expected to elevate the GDP of Uk by around £1.75 billion (Tutor2u). A cleaner environment a) The concept of externality will be at work in this. Since the accession coutnries are actively campaigning for the abating of air and water pollution, there will be a reduction in the cross-border pollution (Tutor2u). Source: (Tutor2u) The Challenges of the Integration to Business The success that the EU members are experiencing right now is not without challenges. Some of these are still outstanding and needing solution. One main challenge to businesses men in the European Union region is the high costs of doing business. There is a relatively high labor cost and welfare policies. “Generally the EU is home to the higher-end of the service sector jobs, rather than factory, etc” (Yahoo Inc!). Others are against Euro for the following reasons:”The impact of the Euro could be a reduced market share for local businesses due to greater competition from elsewhere, increased potential for price wars, especially as large firms enter local markets, previously served by smaller companies, european consumers did fear that they would be cheated when the new notes and coins are introduced – price changes were obvious, the biggest criticism is not one of economics, but loss of political control of monetary policy and the fear of a heavier tax burden, because member states might find this the only way they can manage rising inflation (especially in the non Euro countries Great Britain, Sweden and Demark)” (Schwabl). The Case of Romania’s Textile Industry The textile industry of EU is undergoing a very challenging period. The perceived reason for this is the “termination of quantitative restrictions, of the shares referring to the textiles and ready-made products, as well as the negotiations during the Doha round and the reconstruction of the Euro-Mediterranean area” (Andreea). Romania, who’s been a member of the European Union has been a major supplier for the contractors in Western Europe even before being an official member of the EU. Its heavy investment, its technology, its ability to react quickly to the market needs plus the world class know-how has made it the first European exporter in the EU. However, today, Romania’s textile industry faces the following challenges: 1. EU enlargement to 27 member states; 2. Romania’s joining the EU and its implications; 3. The complete liberalization of world textile commerce 4. determination of a free trade area in the PAN-EURO-MEDITERRANEAN frame; 5. The effects of globalization. For the Romanian textile industry businesses men, “The merger with the EU has lead to a growing volume of trade exchanges on the European market, and Romanian producers were forced to improve their design of clothing and to produce small volumes depending on market segment” (Andreea). There are industries and countries such as Romania who’s EU membership has brought much challenge to their industries. These things remain to be the European Union’s concern. Conclusion The European integration has brought vigor in Europe’s regional and individual economy. It’s advantages to business is apparently weightier than the challenges that some countries face. The unique system of entirely free market for the region has significantly increased the productivity of its industries. Over-all, the integration is still seen to be beneficial and successful. Figures reveal that the integration has brought forth increases in economic indicators such as the GDP. These figures, which reveal rosy economy is both a product and foundation of a good business. During the recent recession, the European Union countries are also among those who showed resilience. Works Cited Andreea, P. S. The Textile Industry and the Challenges of the European Integration. University for Economic Studies – Bucharest. Biz/ed. (n.d.). Retrieved November 25, 2009, from http://www.bized.co.uk: http://www.bized.co.uk/educators/16-19/business/external/lesson/singlemarket.htm Department for Business Innovation and Skills. (n.d.). Retrieved November 25, 2009, from http://www.berr.gov.uk: http://www.berr.gov.uk/whatwedo/europeandtrade/europe/benefits-eu-membership/page22676.html Dimireva, I. (2009, October 1). Retrieved November 25, 2009, from http://www.eubusiness.com: http://www.eubusiness.com/topics/euro/business Europa. (n.d.). Retrieved November 25, 2009, from http://europa.eu: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/98/79&format=HTML&aged=1&language=EN&guiLanguage=en Schwabl, T. (n.d.). Retrieved November 26, 2009, from http://www.referate10.com: http://www.referate10.com/referate/Politik/4/The-Euro---Advantages-and-Disadvantages-reon.php Tutor2u. (n.d.). Retrieved November 25, 2009, from http://tutor2u.net: http://tutor2u.net/economics/content/topics/europe/enlargement_existingmembers_advantages.htm Wikimedia Foundation, Inc. (2009, November 25). Retrieved November 25, 2009, from http://en.wikipedia.org: http://en.wikipedia.org/wiki/European_Union Yahoo Inc! (n.d.). Retrieved November 25, 2009, from http://answers.yahoo.com: http://answers.yahoo.com/question/index?qid=20061027100704AAKGC1a Read More