The Business Environment of European Union - Research Paper Example

Running head: The European Union: A Business Environment Analysis Report The European Union: A Business Environment Analysis Report The European Union is the world’s biggest market. Within Europe every type of multinational market grouping exist. “The European Union (EU), European Community (EC), European Economic Area (EEA), and the European Free Trade Association (EFTA) are the most established co-operative groups” (Cateora, 1997). The main aim of the European Union formation was the economic development, political goal achievement and safety of benefits of member states. With many uncommon characteristics the success of single market was not very obvious. These differences include difference in language, political and cultural differences, individual national interests, and national market regulations, which was required to protect local markets. With the formation of European Union all the member states are required to follow the EC 92 as the Single European Act. The single European act was a step closer to the goal of economic integration. This Economic integration has revolutionised all the laws and regulations and has changed the whole business environment in most of the member states. With the dismissal of the trade barriers the European act also proposed an array of commercial policies including single European standards for goods produced. This has given rise to difficulties for the companies producing below the standards as they are faced with the challenges of technology upgrade and quality advancement while keeping the prices competitive due to increased competition. For example in the Italian textile industry producers are struggling to keep under priced clothes from flooding the Italian market, designer label brands are waging another battle - against imitations, or "knockoffs”, as they are known in the trade. (Italian designers, 2005) Most of the fakes come from China or other Asian countries with the low labour costs and no concern for social services, welfare and pollution control. Although the Italian sector is currently facing unprecedented challenges but these challenges can be faced only by innovation. These include the abolition of quantitative restrictions (quotas) which took place on 1st January 2005. These challenges are occurring in a period of marked slowdown in economic activity, which has a significant impact on sectors such as textiles and clothing. Furthermore, at the same time the Euro has shown a significant upward trend against the US dollar. All in all, every segment of textiles and clothing production, from spinning and weaving to garment make-up, has in one way or the other suffered from the impact of the developments of the last few years. (Textiles and clothing sector in the EU-25) The years 2001-2004 have been particularly difficult for the industry. After substantial falls in production and employment in the previous three years, it is estimated that in 2003 production fell by a further 4.4% and employment by 7.1% (EU-25, source: Eurostat). The trade deficit (EU-25) amounted to € 29.4 billion in 2003, the trade in textiles reaching a surplus of € 3.7 billion and the deficit in clothing € 33.1 billion. The European union was expanded in May 2004 having 25 members. The aim of the creation of the union was to create the most competitive and dynamic knowledge-based economy in the world, capable of substantial economic growth with more, and better, jobs and greater social cohesion (Elizabeth Hunt Recruitment). All the member states of the EU have to follow common trade and employment laws, which on the one hand provided them with the ease of free trade and larger availability of work force and a vast product market on the other. “Under harmonisation the most essential requirements for projection of health, safety, the environment, and product standards are established. Once these EC-wide essential requirements have been met by all members, i.e., harmonisation, each member state will be expected to recognise each others national standards for nonessential characteristics, i.e., mutual recognition. In other words, all member countries must adopt the same essential requirements but also accept any different national standards as adequate.” (Cateora, 1997) Despite all the strict regulations and scrutiny European Union is an attractive destination for Foreign Direct Investment from across the border with UK ranking at the top of the investment destinations among the European countries. With in Western Europe, France has continued to secure its position as the lending for new manufacturing investment although the march eastwards has continued. The UK is now only the 7th most likely location for new manufacturing activity- behind France, Poland, Russia, Czech Republic, Romania and Slovakia. (European Investment Monitor, 2005) The sectors attracting the FDI include Chemicals, Pharmaceuticals, Financial Services, Electronics, Food, Software, Automotive Manufacturers, and Automotive Components. With the Unification the EU also observed that the improvement in public scrutiny and controlled market discipline is largely dependent upon the meaningful and accurate disclosure of information. This not only helps the shareholders but also helps the organisation to conduct business in a safe and efficient manner by achieving their targets through improving their risk management processes. The researchers find many gaps in the appropriate disclosure of risk by the organisations. Many surveys have been conducted, a wide variety of studies and interviews from the information users and shareholders have pointed out towards gaps in the currently disclosed information. In order to improve and strengthen the Corporate Governance efforts by and within the EU member states a report was presented by the High Level Group of Company Law Experts. The Report was aimed at improvement in shareholders protection and increase in the confidence level of investors with regards to the system. The recommendations presented in the report were highly inspired by the development in UK. The report also pointed out towards the fact that the company law in all the EU member states has high degree of diversity, which can further increase, with the enlargement of EU. The report by Mallin et al. (2004) further states that the EU’s ‘Modernising Company Law and Enhancing Corporate Governance in the EU’ published in November 2003 largely incorporates the recommendations of the High Level Group of Company Law Experts discussed earlier. In addition the OECD has recently issued revised principles of corporate governance in the spring of 2004. The Swedish Commission on Business Confidence issued a report in May 2004 emphasising improved corporate governance, increased confidence in the financial sector, and a more effective competition policy. Although in most respects inspired by the UK and EU principles discussed above, the Swedish Commission deviates or goes further in some areas. The Company act should require those decisions with respect to remuneration principles and incentive programmes are taken at shareholder meetings. Companies covered by a “Code of Corporate Governance” (CCC) can deviate from the code under the principle “comply or explain”. The fact that legislation is a catalyst for economic growth and development is well known. Differing economic, cultural and political circumstances abroad also suggest the need for a better understanding of employees with a broad context is important. Fortunately, the ability to study the implications of policies on economic growth abroad is expanding rapidly as a result of the emergence of global private equity markets and micro finance. International entrepreneur ship spans cultural boundaries and involves a variety of stakeholders, including the entrepreneur, investors and policy makers (Asel, 2003). “Social considerations must be given the same status as economic, financial and environmental concerns in a holistic approach. It is time for global thinking and local action. The implementation of the Core Labour Standards and the laws and regulations that give effect to them at national levels can be significantly enhanced if the capacities of national labour inspectorates are built up and strengthened. Labour inspectors have a crucial role to play because they are the only ones with the authority to directly access and impose changes in the workplace.”(Albracht, 2005) “According to the EU Working Time Directive (93/104/EC), implemented on 23rd November 1999. According to the directive the workers are allowed to have a minimum rest period of 11 consecutive hours for every 24-hour period. It is also necessary that there should be a rest break if the working day is longer than six hours. Employers are required to provide the workers with a minimum rest period of one day per seven-day period. Paid annual leaves needs to be a minimum of four weeks per annum. There should be an average of no more than eight hours work per night in a 24-hour period. Although there are significant variations relating to paid holiday leave across the member countries; in all cases the average paid annual leave exceeds the guidelines laid down in the EU Directive.” (Elizabeth Hunt Recruitment) In the EU countries a minimum wage ranges between 406 and 1,290 EUR. “The EU Race Directive made it essential for all the member states to ensure equal treatment is concerned with the principle of equal treatment between people, irrespective of their racial or ethnic origin. It sets minimum standards of protection, which all Member States of the EU must meet. Member States may exceed these standards and introduce more favourable provisions, but article 6(2) of the Directive states that they cannot reduce the standards of protection they already provide. The Race Relations Act 1976 (Amendment) Regulations 2003 (‘The Race Regulations’) incorporates the EU Race Directive into UK law. ” (Elizabeth Hunt Recruitment) EU Member States will also have to outlaw discrimination on the basis of age and disability. Legislation on age discrimination comes into force in the UK in 2006, and disability discrimination was made unlawful in 1996. Most of the European countries are suffering due to the harsh labour laws. The countries having much flexible laws before joining the EU had to impose the rigid laws levied by the EU which are only playing part in weakening and threatening the economic growth of the EU member states. For example “In the Czech Republic, the current minimum wage is less than 200 EUR. Legal paid vacation in the Czech Republic is four weeks - the same as set by the European directive. On the basis of the European directive, a maximum working hours limit was set in the EU countries at 48 hours per week and the Czech Republic follows this requirement. This maximum number of hours can be exceeded in the short term; however, it should be followed on average over four months.” (Subrtová, 2006) On the other hand “With relatively generous wages and the shortest working week on the continent, workers in Germany are likely the envy of many of their European counterparts. But unlike their counterparts in many other countries on the continent, they don't have the protection of a statutory minimum wage.” (Deutsche Welle, 2006) In France “The national minimum wage was $9.64 (8.03euros) per hour, which provided a decent standard of living for a worker and family. The Employment Ministry was responsible for enforcing the minimum wage. The official workweek was 35 hours however, in certain industries, the government allowed a greater number of overtime hours that could result in a de facto 39-hour workweek. Overtime was limited to 180 hours annually. Maximum hours of work were fixed at 10 hours per day, 48 hours per week, and an average of 44 hours per week over a 12-week work period. Employees were guaranteed a daily rest of at least 11 hours and a weekly break of 24 hours, not including the daily rest period. Employers must accord workers a 20-minute break for a 6-hour workday. Premium pay was required for overtime. These standards were effectively enforced.” (Bureau of Democracy, 2006) “To see the magnitude of how rigid EU labour laws are, one must only look as far as Germany. In Germany, in order to hire and fire employees, companies must get prior approval from workers’ representatives. This practice is steeped in the rich traditions of workers councils and guilds. Unlike the US, where trade unions have limited power, European labour unions wield great control over corporate operations. Throughout European history, strikes have crippled many segments of national economies, which is the major reason they have not been abandoned. To further illustrate the rigidity in hiring and firing workers, German companies must wait an average of six months to hire new workers, and must file extensive paperwork to employ temporary workers in the meantime. “For one multinational German Company, a recent round of layoffs took two weeks to accomplish in the US, four weeks in the UK, and three months in Germany.” Although Germany does not have a minimum wage, labour unions have set minimum standards for both compensation and benefits, including while working and after. This has forced many companies to limit the number of new hires they make, allowing for a more attractive outsourcing option. A further embellishment of labour laws concerns market restrictions such as price regulations, zoning laws and subsidies. By providing subsidies to companies, European governments are removing the need for companies to innovate. This loss of innovation and novelty hinders European corporations’ ability to compete with foreign firms whose sole right of conquest is derived from a thirst for getting there first.”(Kirby) The implementation of the European legislation to make it free market has also effected some of the steep financial traditions such as more flexible laws and less working hours. As in the case of France, the working hours are reduced to 35, working hours a day making approximately 210 hours per week. Although the extended working hours not only adversely effect the productivity of an employee but also affect the emotional and social setting of the family and community. Technical workers are in severe demand due to the increase in technology use and automation of organisations but on the other hand these workers are more in requirement of implementation of work life balance principles. Since their work involve more mental fatigue and psychological concentration. The increased working hours pose several external costs to the employees and employers both. They give rise to different health problems such as heart problems, high blood pressure, gastrointestinal disorders, psychological wellbeing and circadian disruption. The resulting increase in sick leave makes the organisation bear the cost of the illness of employee. The external cost effect thus transfers to society in shape of increasing tax burden on taxpayers and on Government for the provision of more social care facilities (Dawson, McCulloch and Baker, 2001). But in order to compete internationally it is important to increase the working hours. As Berry (2005) “Europe's productivity is lagging behind the US and Asia because inflexible labour laws are preventing companies restructuring and investing in new technologies, a report shows. A DTI-sponsored study, published to coincide with the UK's presidency of the EU, criticises member countries, particularly France, Germany, Spain and Italy, for not having the courage to reform labour laws. EU heads of state agreed a 10-year programme in 2000 to increase investment and make the EU "the most dynamic and competitive knowledge-based economy in the world". However, the DTI report said little progress has been made in achieving this goal. Companies in Europe have to pursue a policy of "creative destruction" to change the way they do business and learn from the "hire and fire" culture of the US to compete globally, the report said. At a conference this week key European players from business and government discussed the challenge of the future of information and communication technologies (ICT) policy. Viviane Reding, EU commissioner for information society and media, said many workers were concerned about their jobs and the EU would only strengthen economic growth by investing in ICT and abolishing "superfluous regulation” Although the hire and fire culture seems an easy way of achieving economic goals but the change in the policies regarding the employment can adversely effected the ties between Government and people. In order to avoid the strict policies and rigid laws most of the companies are considering the option of outsourcing so that they can avoid the strict laws governing how they hire and fire native citizens. The trend will give rise to unemployment rate, which will increase the anti foreigners, emotions. Although these trends will inevitably result in shape of relaxation in labour laws to increase the no. of native employment. However the Governments of the member states should avoid these clashes of cultures by keeping a balance in adopting the new policies and blending them with the existing policies in a way not to harm the rights of the native workers. This will help in preserving the European identity and improved economic conditions of the region. Since it is according to the EU legislation that the member countries can re apply the national measures, which have been stopped due to the EU legislation in case of serious problem threat from the labour market. The member country will have to ask the Commission and the Commission will decide about which of the restrictions can be imposed and for what time period. The decision should also be required to be passed by a qualified majority in order to amended or annulled. With the EU annexation the states it is essential for the member states to apply EU laws in order to establish uniformity. Many of the new rules have not been tested. Most of the new members suffer the problem of limited administrative capacity of the public sector and the Judiciary to ensure effective application of EU law. Other legal implications include: Competition Law, Employment Law and the Free Movement of People, E-Commerce, Data Privacy and Protection, Taxation, Intellectual Property, Customs and International Trade Law and Environmental Law. (Dackiw, 2004) References Albracht, G. (2005). Unity Beyond Differences: The need for an integrated Labour Inspection Systems (ILIS), Co-ordinator of Labour Inspection Systems, ILO, Geneva Asel, P. (2003). International Entrepreneur ship Course Description. Retrieved June 6, 2005 from http://icp.gmu.edu/course/syllabi/03fa/ITRN769-001.pdf. Berry, M., (2005). Inflexible labour laws put EU third in productivity league, PersonnelToday.com, 07 September 2005, http://www.personneltoday.com/Articles/2005/09/07/31508/Inflexible+labour+laws+put+EU+third+in+productivity.htm Cateora, Philip R., (1997). International Marketing, Ninth Edition, McGraw Hill International Editions. The Bureau of Democracy, Human Rights, and Labour, (2006). France: Country Reports on Human Rights Practices, available at http://www.state.gov/g/drl/rls/hrrpt/2005/61648.htm Dackiw, B., (2004). The Legal Implications of EU Enlargement, 10 June 2004, Prague, available at http://www.era.int/web/en/resources/ 5_1796_870_file_en.1116.pdf Dawson, Drew, McCullock, Kirsty and Baker, Angela (2001) Extended Working Hours in Australia: Counting the Costs, Report Commissioned by the Department of Industrial Relations, Adelaide, Centre for Sleep Research, University of South Australia. http://www.ir.qld.gov.au/reports&submissions/workinghours/index.htm Deutsche Welle, (2006). Germans Debate Introducing National Minimum Wage, available at http://www.dw-world.de/dw/article/0,,1123026,00.html European Investment Report, (2005). Ernest and Young, available at www.eyeim.com Elizabeth Hunt Recruitment, Informing on business, HR and recruitment issues, available at http://www.elizabethhunt.co.uk/elizabethhunt/PDF/EU%20Legislation.pdf Chris Mallin, Andy Mullineux & Clas Wihlborg, (2004). The Financial Sector and Corporate Governance – Lessons from the UK, available from Subrtová, I, (2006). Wages and working legislation in the Czech Republic, Doing Business in the Czech Republic, PricewaterhouseCoopers Publication: prepared by PP Agency for the Czech Ministry of Industry and Trade, available at http://www.czech-real-estate.com/czech-wages-working-hours.htm Textiles and clothing sector in the EU-25, textile and Clothing industry in the Mediterranean zone Last update: 16/02/2005, retrieved from http://europa.eu.int/comm/enterprise/textile/euromed.htm Read More