Business in Context. UK Economy - Essay Example

Business in Context "Final" Table of Contents Overview 3 UK Economy: A PEST Analysis 4 The Progress of BRIC Countries in Recent Years 7 Impact of BRIC Nations on UK 9 Are Limitations of BRIC Hope for UK? 10 References 11 Bibliography 14 Appendices 15 Overview The global market faced a tremendous change because of globalization. The global market for FDI (foreign direct investment) has undergone a considerable transformation in the recent years with a significant role played by rising market of multinational enterprises (MNEs), which is most important among them (Sauvant & Et. Al., 2009). USA is the leader of Triad regions but the economic power concentrations in certain regions are shifting towards BRIC (Brazil, Russia, India & China) countries (Ionescu & Oprea, n.d.). The intensity of business environment related to the opportunities, threats and potentials are similar in all the BRIC countries. An HSBC statement put forward that, it might be feasible that in less than 40 years the four national economy of BRIC could be advanced than the ones of the G6 countries. The association would cover over forty percent of the worlds populace and grasp a collective GDP of 12.14 trillion international dollars. The economy of any country is affected by its domestic and international economic conditions that are largely due to the operations of the business units. UK might be stronger in the financial activities and market condition but the international economic situations have a higher influence in the domestic market. The US economic and the housing bubble of financial crises that had not only affected the domestic economy but also its effect were felt in other countries economy. The economic predictability is volatile. The systematic risk up to certain extent can be predicted with different techniques but it is still not exact as unsystematic risk is also involved that is unpredictable. The UK business environment affected by the economic power shift from the Triad region to the BRIC countries can not be exactly predicted but to a certain extent it can be. As per Goldman Sachs report China would encounter an 11.9% GDP and India with a 7.8% GDP (gross domestic product). UK Economy: A PEST Analysis In the analysis of the economic environment, PESTEL analysis is appropriate as generally corporations follow this analysis to find out the opportunities, threats, strengths, weakness and other factors that may or may not be favourable for the business environment to operate in the economy. Political Factors Political factor have a huge influence upon the economy as the policies and legislatures are drafted and implemented by the political parties are mostly related to the business trade practices. It not only has a political influence upon businesses but also the businesses create an attempt to influence environmental policy by endeavouring to position the political programme and to influence regulations and legislations. The recent UK political situation had undergone changes an there exists an unstable political situation which is favourable for any business corporate. The instability of the government might have a negative impact towards the business operations. The policy related to trade practice in domestic and international market might create a positive or negative impact depending upon the regulations framed. Economical Factors The economic factors of a country play a vital role in the business environment. The recent recession had hit the global economy which also affected the UK economy. Especially in the financial sector not only the stock market but also the other businesses connected to it suffered financial crises. The UK policy was strong enough in this sector so the impact was not that worse than the US. The new chancellor George Osborne had made certain policy in reducing the impact so that the companies can get an opportunity to develop. He committed to reduce down the deficit amount within next five years. The reduction in corporate tax up to 4% was an initiative to promote new entrepreneurs for international operations. There was an increase of 2.5% in VAT (value added tax) that affected the domestic businesses. Economic conditions are very difficult to predict. The market force can be predicted but other hidden factors operate which are very difficult to identify and affect the business operations. Socio-Cultural Factors The population tends to rise and the consumption habits too. The culture and the society generate demand for certain merchandises and services which are offered by the business houses as per the consumers demand. UK has shown a rise in the GDP. This is due to the socio-cultural affect. The GDP has increased by 0.8% in the Q3 of 2010. The development in the third quarter is due to enhancement in each of the constituent collective series, like production, services and construction. This trend is due to the societal behaviour and the social engagement in the economy. Total services output rose 0.6% in theQ3. The major involvement to the development in the Q3 was from finance sector, business services, government and other services. The societal demand made the development of these sectors (Government of United Kingdom., 2010). The water supply, gas and electricity have shown a decrease of 0.2%. Agriculture, fishing and forestry have shown a decrease of 0.3%. This shows the interest of the populace in UK. Government should focus upon this issue and develop the culture to promote these sectors (Government of United Kingdom., 2010). Technological Factors Consumers are the central point of the business. The technological advancement has made the consumers expectation more. This creates the gap between the expectation of the consumers and the predicted expectation of the business towards the consumers. To enhance the satisfactory level of the consumers the businesses have adopted new advanced technology to grow with the market trends and consumer satisfactory level. The UK Government have various programs in R&D towards technology especially in the agricultural and biomedical research. There are various projects that run in enhancement of technology. The government support towards such initiative is a positive sign for the business environment. But the project budget constrains are making the progress very slow and results are being delayed which adds cost to the economy (Mowery & Et. Al., 2009). The new changes in immigration law and intellectual property law stated by the UK government have gained international attention and many international corporations are looking forward to this policy. The policies have been able to attract many foreign players like Google, Intel and many other corporate. Technical advancement for any country aids in development of the business houses. Technical aspects are very important for development. Like Korea they focus more upon technology development to generate more business. The risk to UK economic growth remains significant as 2010 and 2011 there are many factors involved and predictability is not stable. The Progress of BRIC Countries in Recent Years According to the United Nations survey the yearly standard development rates of real GDP of developing, developed and transition economies in 1992-2007 accumulated to 5.0%, 2.5% and 2.7%, respectively. The outcome of BRIC economies in the same period was that, the yearly average development rate of Chinese real GDP amounted to 9.5%, in case of India, Brazil and the Russian Federation were - 6.5, 2.7 and 2.6 respectively. The economy of China and India grew faster than other countries from 1992 to 2007 (Gryczka, 2010). Brazil The GDP of 2010 is expected to grow to 7.7%. The fiscal balance (% of GDP) in 2009 was -3.3% and in 2010 it is -2.4%. There has been an increase in the export growth of 13.0% in 2010 and is expected to be 18.0% in 2011. The external debt (% of GDP) in 2009 was 17.8% which had gone down to 15.7% (EDC, 2010). Russia In 2009, the GDP was down by 3.9%, lessening from the drop of 10.9% in the Q2 in 2009. But it is expected to grow in 2010. The inflation rate has dropped from 7% to 6% in 2009. There has been 4.25% of growth in the economy (RTT News, 2010). The increase in oil prices has been an important aspect in Russian economy recovery. It is predicted that an 88% rush in Urals crude prices forced the government to increase expenditure by 27% in 2009 and consequently it supported broad economic development (Fedec, 2010). India The economy is expected to grow at 7.2% in 2009-10. The GDP growth that has been recorded was 7.9%. The service and the industrial sectors are growing at 8.7% and 8.2% respectively. The GDP rate is growing with an increased rate in the growth of different sectors. The economy is expected to develop and FDI inflow is estimated to be expanded in the Indian market with lot of investment opportunities (IBEF, 2010). China Even though there was recession in the financial sectors, China has recorded a 9.2% growth in 2009 in the third quarter. The government policy towards a sustainable growth strategy is making the economy stronger. Government has planned to increase the industrial output to develop the economic conditions (Global Economy Outlook, 2009). Impact of BRIC Nations on UK The recent economic downturn has produced a lesser impact to BRIC. But still the demands for merchandise from Brazil and China have decreased. Indian service sector has suffered losses. Russian reliance upon hydrocarbon sector was also hit by falling prices. Goldman Sachs predicts that India and China will turn out to be the global suppliers of services and manufactured products. Russia will be the largest supplier of raw materials for oil and natural gas. Brazil, for soil and iron ore will lead in this category for providing the raw material in the global market. India and China are able to reduce the effect of financial recession and has started developing at a quicker pace as compared to the UK economy. The Indian economy has shown great strength in recovering than the UK economy. Are Limitations of BRIC Hope for UK? In Brazil, the infrastructure is absent (e.g., investment in energy and transportation) and public debt has stayed high and was exposed to domestic interest rate movement. The Russian investment rate is the least among BRIC. Due to this, Russia has lacked industrial competitiveness. There is a force connected with the obsolescence of capital equipments. The financial situation in the Indian public sector is still the weakness. In the Chinese economy the increasing inequality and obstacles to stabilise growth are becoming a threatening factor to the economic growth. The economy of BRIC is still predicted by many economists and countries to be of huge potential for the future. The development of the economy of BRIC will increase the economy in coming years. Though there are drawbacks but the government policies are minimizing issues and looking forward to develop with all business corporations in the future. UK government policy is focused upon the recovery of the economy currently. The UK government is looking for stability or recovery from the financial crises and then for the growth strategy. But overall in near future, it is expected that the BRIC economy will become stronger and lead the international market in various aspects. References Charles Schwab & Co. Inc., 2010. Schwab Market Perspective: So Now What? Advisor Analyst. [Online] Available at: http://advisoranalyst.com/glablog/tag/earnings-season/ [Accessed November 03, 2010]. Dhar, S., 2009. The First Summit of the Fastest Growing Developing Economies (BRIC) - An Economic Critique. Sanhati. [Online] Available at: http://sanhati.com/excerpted/1657/ [Accessed November 05, 2010]. EDC, 2010. Brazil. Economics. [Online] Available at: http://www.edc.ca/english/docs/gbrazil_e.pdf [Accessed November 05, 2010]. Fedec, A., 2010. Russia GDP Growth Rate. Trading Economics. [Online] Available at: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=RUB [Accessed November 05, 2010]. Gotte, S., 2006. Emerging Markets. Konstanzer Managementschriften. [Online] Available at: http://opus.bsz-bw.de/htwg/volltexte/2006/90/pdf/Komplett_2910.pdf [Accessed November 05, 2010]. Government of United Kingdom, 2010. GDP Growth. Office of National Statistics. [Online] Available at: http://www.statistics.gov.uk/cci/nugget.asp?id=192 [Accessed November 05, 2010]. Gryczka, M., 2010. Changing Role Of BRIC Countries In Technology Driven International Division Of Labour. Business and Economic Horizons. [Online] Available at: http://pieb.cz/docs/BEH/Volume2/11_V2_BEH_POLAND_Marcin_Gryczka_d.pdf [Accessed November 05, 2010]. Global Economy Outlook, 2009. The Shape of the Recovery in 2010. Deloitte Research publication. . [Online] Available at: http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Deloitte%20Research/dtt_dr_economicoutlook_Q409_281009.pdf [Accessed November 05, 2010]. Hult, T., 2009. THE BRIC Countries. Michigan State University. [Online] Available at: http://globaledge.msu.edu/newsandviews/businessreviews/gbr%203-4.pdf [Accessed November 05, 2010]. Ionescu, R. & Oprea, R., No Date. Global Economy and the Triad. Dunarea de Jos University. [Online] Available at: http://www.idec.gr/iier/new/3rd%20Panhellenic%20Conference/IONESCU-%20OPREA-%20GLOBAL%20ECONOMY%20AND%20THE%20TRIAD.pdf [Accessed November 05, 2010]. IBEF, 2010. Economic Survey 2009-10. Trade & Economy. [Online] Available at: http://www.ibef.org/economy/economicsurvey2010.aspx Accessed November 05, 2010]. Mowery, D. C. & Et. Al., 2009. Technology Policy and Global Warming. NESTA. [Online] Available at: http://www.nesta.org.uk/library/documents/technology-policy-global-warming.pdf [Accessed November 05, 2010]. RTT News, 2010. IMF Raises Russias 2010 Growth Outlook. Economy and the Numbers. [Online] Available at: http://www.rttnews.com/Content/AllEconomicNews.aspx?Id=1335537 [Accessed November 05, 2010]. Sauvant, K. P. & Et. Al., 2009. Foreign Direct Investment by Emerging Market Multinational Enterprises, the Impact of the Financial Crisis and Recession and Challenges Ahead. OECD Global Forum on International Investment. [Online] Available at: http://www.oecd.org/dataoecd/9/2/44246197.pdf [Accessed November 05, 2010]. Bibliography Bamford, C. G. & Grant, S., 2000. The UK Economy in a Global Context. Heinemann. Worthington, I. & Britton, C., 2009. Business Environment. Pearson Education Canada. Appendices Figure 1 (Gotte, 2006). Figure 2 (Gotte, 2006). Figure 3 (Charles Schwab & Co. Inc, 2010). Figure 4 (Government of United kingdom., 2010). Figure 5 (Dhar, 2009). Table 1 FOREIGN DIRECT INVESTMENT INFLOW TO THE BRIC ECONOMIES, 1995-2008 Region 1995 2000 2005 2008 2000-08 average annual growth (percentage)   Inward FDI stock (current billions of U.S. dollars) World 2 915 5 757 10 051 14 909 13 Developed economies 2 051 3 960 7 055 10 213 13 BRIC economies 160 365 678 1 003 13 Brazil 48 122 181 288 11 Russian Federation 6 32 180 214 27 India 6 18 44 123 27 China 101 193 272 378 9 Eastern European economies* 31 100 301 544 24   Inward FDI stock per capita (current U.S. dollars) World 510 941 1 543 2 209 11 Developed economies 2 164 4 068 7 039 10 027 12 BRIC economies 65 140 247 354 12 Brazil 296 702 975 1 499 10 Russian Federation 38 220 1 259 1 512 27 India 6 17 39 104 25 China 85 155 211 288 8 Eastern European economies* 298 986 3 003 5 451 24 Note: * Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia (Gryczka, 2010). Table 2 Key Trade Issues Country Politics & Freedom Index (1-30=Free, 31-60= Partly free, 61-100= Not free Tax Misery & Reform Index (lower score is better) Economic Freedom Index (higher score is better) Ease of Doing Business Ranking (higher score is better) Brazil 40 13 70 122 Russia 66 52 120 106 India 45 44 104 120 China 82 3 119 83 (Hult, 2009). Read More