The Global Service Sector Enterprise in the United Kingdom - Term Paper Example

THE GLOBAL SERVICE SECTOR ENTERPRISE The United Kingdom was the largest and most influential economy in the world during the British Empire. This wasdue to being the motherland of the first Industrial Revolution in the world and leading technological advances during the eighteenth century. The United Kingdom thus got a strong economic advantage over the rest of the world’s Countries. Its peak was in the nineteenth century when the empire covered a quarter of the world’s surface .Driven by competition between European powers and development of science and technology the empire greatly managed to develop. The first and second world wars resulted from these two forces leading to a collapse of the British Empire. In the meantime the United States managed to firmly establish itself as the leading economic power in the world Other countries especially the United States began catching up with the United Kingdom in terms of technological advancement. Its global influence was also almost at a collapse with most British colonies anticipating independence. The greatest prosperity in Britain came about in the nineteenth century from colonial expansion, industrialization, social reforms and improved transport. By 1914 Britain was no longer the dominant economic power in Europe, though it still had the worlds largest shipbuilding industry but in other areas such as coal, iron, chemicals and light engineering, it was out-performed by Germany (Spartacus Educational, 2012). The Second World War brought about a shift in the influences and statuses of the then major powers in the world. A new error of superpower conflict was ushered in between the United States and the Soviet Union, an expedited decline of the British and French Empires. It also triggered the appearance of new democratic governments in Japan and Germany and beheld the emergence of communist China (Foster, 1). The two world wars led to a breakup of the British Empire, this changed the position of the United Kingdom economy from top as other countries began advancing technologically and the nation has not been able to recover its position as the highest economic power worldwide. The UK economy is the fifth largest country economy in the world by real or nominal GDP, and the sixth largest by purchasing power parity. In 2010, the United Kingdom was rated the sixth largest economy in the world with a Gross Domestic Product of 2.172 trillion United States dollars which was 2.982 percent of the entire world Gross Domestic Product. Being a member of the European Union and part of a single market, there is free movement of people, goods, services and capital within the member states of England, Wales, Scotland and Northern Ireland. The United Kingdom maintains its own economy and still uses the pound sterling as national currency. London, which is the top world financial centre, is the capital and it is located in south-eastern England. London has a population of some 7,000,000, including its suburbs. The economy of London contributes approximately seventeen percent of the United Kingdoms total Gross Domestic Product; it is comparable in size to that of Sweden, Belgium and Russia. A major centre for e-commerce and other sectors, London has great infrastructure, massive experience in research, innovation and manufacturing and development with most leading international companies investing in London. Other thriving industries have been established including media, film, design, fashion, arts, computing and law. Around 85 percent of UK fashion designers and 70 percent of the UK film and television companies are based in London; tourism is another important industry for London with typical yearly expenditure by tourists being in the region of £7-10bn (USA Today, 2011). Heathrow which is the world’s busiest airport is located fifteen minutes from the centre of the city through a new express rail link. Manufacturing United Kingdom has a diverse manufacturing sector with industries ranging from Chemicals, aerospace to automobiles. Half of the British aerospace industry focuses on manufacturing of military aircraft and parts with defence manufacturers being the largest in arms manufacture. Export weapons include tanks, missiles, ships and aircrafts. Top publishing companies in the world are also located in the United Kingdom; more than fifty thousand book titles are published each year. Automobile manufactures for example Jaguar, Aston Martin, Rover and Bentley all have roots in the United Kingdom. Japanese automobile manufacturers have plants in the United Kingdom producing at least seven hundred thousand cars each year. Automobile manufacturers and car part makers employ many British workers; United Kingdom firms produce cars mainly for the export market. British manufacturers also produce commercial vehicles, mainly trucks; a large number of commercial vehicles are made for the domestic market. The growth of the chemical industry in Britain is mainly focused on the pharmaceutical sector. This has been caused by the demand for new medical products such as prescription and over the counter medicine. Since 1999, there has been an overwhelming increase in the United Kingdom housing market. This has been after a few years of substantial economic growth with resultant increase in wages, many workers were able to expand existing homes and also purchase new ones. Government spending on new projects like hospitals, public housing, and government buildings has also helped stabilize the housing market. Telecommunications Approximately ninety six percent of British homes have a telephone and the demand for second telephone lines for fax or computer access is increasing. Many United States companies run the telecommunications sector in the United Kingdom, they include AT&T, Sprint and MCI. Four companies are licensed to offer cellular network services; they include British Telecom Cellnet, Vodafone, One-2-one and Orange. The e-commerce market in the United Kingdom is ever expanding with approximately nine thousand companies involved in e-commerce and seventy two thousand doing business over the Internet. The computer software market and personal computer use is expected to rise in a few years. Financial Services The maritime insurance market is dominated by British insurance firms providing insurance to approximately twenty five percent of world’s merchant ships. A substantial percentage of the European Union banking assets are located in the United Kingdom with the kingdom’s banks taking part in cross-border lending. There are four hundred and twenty banks in the United Kingdom with a hundred and ninety incorporated in the kingdom; a hundred and three are from the European Union and a hundred and twenty seven from other countries in the world. Retail The retail sector is mainly made up of franchises, Specialty clothing stores such as The Gap, Calvin Klein and Tommy Hilfiger from America have flourished in the United Kingdom. Seventy percent of the retail food market is controlled by five major supermarkets namely; Tesco, Sainsbury, Asda/ Wal-Mart, Safeway and Somerfield. Restaurant and bar sales also have a significant contribution in the kingdom’s economy. Twelve American restaurant franchisers run in the United Kingdom, McDonalds solely operates seven hundred and fifty restaurants in the kingdom. Tourism The United Kingdom has a flourishing hotel industry with many economy and medium to high class hotels. The industry is worth ten billion dollars with increasing numbers of tourists visiting the United Kingdom. The revenues generated from these activities contribute greatly to the kingdom’s overall economy. The largest experienced cumulative loss of United Kingdom output was experienced in 2008.Recovery efforts have been slack, a struggle that the United Kingdom economy is experiencing to recover from the financial crisis of 2008. Global economic prospects seem to be picking up but economic forecast have been rather negative. The International Monetary Fund scored its 2011 growth forecast for the United Kingdom’s economy to 1.75 percent. Another report by the Organization for Economic Co-operation and Development ranked United Kingdom as the slowest growing economy in the G7 with the exception of Japan. The slow economic growth can be partly attributed to the United Kingdom’s austerity programme which was introduced as a method to reduce record level debts that were very high by the time of the 2008 global financial crisis. Public spending and services have been reduced and a new wave of tax increases implemented, these methods reduce the debt but prevent short term economic growth. There are concerns over the likelihood of stagnation and a more serious recession since the austerity plan could turn out to be a vicious cycle. The austerity programme could however have long term economic benefits since by reducing debt the economy of the United Kingdom could be more sustainable in future. According to a government report, the austerity plan will lower Londons budget deficit from over 11 percent of GDP in 2010 to nearly 1 percent by 2015 (Economy Watch, 2012). The ever increasing trade deficit is one of the effects of the United Kingdom’s debt, the kingdom has the second highest trade deficit in the world after the United States. Reports show an ever increasing trade gap despite the government efforts in trying to reduce the deficit. The trade deficit has also led to high inflation rates; this has in turn caused real depreciation of the pound which is now a lot smaller than the nominal depreciation. There has also been encouraged borrowing and discouraged savings from the pushed interest rates that are below those of other countries. In 2011, the United Kingdom’s inflation rate was expected to be more than double of what the government anticipated, predictions by the International Monetary Fund report that the kingdom’s economy will recover sufficiently by the end of 2012.The Gross Domestic Product is hoped to improve in the next five years. According to statistics1.4 percent of the United Kingdom’s Gross Domestic Product is comprised of agriculture, 22.1 percent of industries and 77.1 percent of services. Agriculture produces sixty percent of the United Kingdom’s food needs despite contributing only 1.4 percent of the Gross Domestic Product, it combines advanced technology and modern farming methods making bit efficient. Industries and manufacturing are also very important with the United Kingdom ranked the sixth largest manufacturer of goods in the world considering the value of the outputs. Services remain the supreme constituent despite the great importance of agriculture and industries, finance and banking are the most important services. Large plots of arable land in the United Kingdom remain uncultivated despite 23.23 percent of the land being arable. Coal and iron were major players in the United Kingdom economy in the past, the kingdom was the fourth largest coal producing nation in the world in 1981. Today the nation is ranked fifteenth in coal production. Iron ore supports the steel and manufacturing industries assisting in the production of automobiles and aerospace equipment. The United Kingdom has the thirtieth largest proven oil reserves and the thirty-ninth largest proven natural gas reserves in the world. However, due to the limited supply of natural gas, the nation is a net importer of both oil and natural gas. The United Kingdom has the fourth highest labour force participation rate in the world, with 28.988 million workers. However, unemployment remains high at 7.841 percent, and is likely to remain so in the wake of the nation’s austerity plans. The nation’s government warned that nearly half a million jobs could be lost in the public sector alone if the government continues its reduction on public spending (Economy Watch, 2012). 1.4 percent of labour force is in agriculture, 18.2 percent in industries and 80.4 percent in services. The aging labour force and lack of interest in agriculture may however lead to a labour crisis in the agricultural sector. Gross Domestic Product Growth, unemployment rate, Bank of England interest rate, inflation rate, three month treasury rate, public debt and imports and exports are the key indicators in the United Kingdom. In 2008 the United Kingdom had the fourty third largest relative national debt at 47.2 percent of the Gross Domestic Product. Inflation that had risen exponentially in 2008 has dropped back with the collapse of the economy. The three month treasury rate has also dropped and the number of unemployed seemingly increasing (Economy watch, 2012). The Bank of England plays a major role in monetary policy, management of national reserves and maintaining the stability of Britain’s banking, financial systems and overall economy. It was established for the following roles; 1. Maintaining price stability. 2. Supporting policies of Her Majesty’s government. 3. Issuing bank notes. 4. Controlling money supply and circulation. 5. Acting as a banker for the government. 6. Acting as a lender of last resort for banks. 7. Managing banking regulation and oversight. During the first quarter of 2009, the bank had reduced interest rates to a never seen low of one percent; up to one hundred and fifty million Great Britain Pounds were expected to be pumped into the economy in 2009. Special emphasis is being placed on business startups and growth and development of small and medium sized companies. From records, more than half a million jobs were created by companies employing less than twenty people between 1987 and 1989 which was more than employment in larger firms. Small firms make disproportionate contributions to job creation in several major countries, in the United Kingdom, macroeconomic policies have been put in place to maintain this trend by small and medium sized companies. A growing, healthy Small and Medium Enterprises sector is important and desirable for the growth of a nation and economic wealth generation. In the UK, the macroeconomic policies driving support and investment in SMEs appear to be based on the assumption that firms of similar size have similar developmental needs. Small and medium enterprises mostly have access to capital during innovation and early stages of start up, however access to finances for long term growth and development are scarce. Due to this most enterprises are sold into larger firms and sometimes forced to close up for lack of developmental funding. The struggle by the nation to move out of the economic recession could increase the problem of insufficient funding or even prolong it until enterprises can slowly raise funds themselves. Investment funds provision in the United Kingdom also places bias towards some regions and specific sectors. The slow growth of the United Kingdom economy after the 2008 recession and introduction of the austerity programme has a greater negative impact on Small and Medium Enterprises due to their inability to raise funds compared to large international firms that are able to easily and effectively raise funds. While government interventions have a key role in facilitating Small and Medium enterprises access to private financing, political objectives are usually taken other than commercial objectives. Small and medium enterprises face difficulties in accessing finance from other countries and these pose problems in overall enterprises development leading to negative impacts in performance. Interventions by governments in other countries such as the United States, Finland, Germany, Australia and Scotland may lead to improvements in United Kingdom’s Small and Medium Enterprises access to funds. In conclusion, focus has gradually shifted from Small and Medium Enterprises to the large flourishing firms in the United Kingdom, consequently there has been rise in unemployment since break down of Small and Medium Enterprises has a negative effect on employment. References Department for Business Innovation and S (COR), Growth Capital Review and Great Britain Department for Business Innovation and Skills. (2009). The provision of growth capital to UK small and medium sized enterprises. Belfast: TSO publishers.  Perry, F. W. (1988). The Commonwealth Armies: Manpower and Organisation in Two World Wars. Manchester: Manchester University Press. Economy Watch, 2012. The Economy of the UK, GB, British Isles (or Whatever You Want to Call It!). [online] Available at: [Accessed 6 March 2012] USAToday.com, 2011. London-Overview. [online] Available at: [Accessed 6 March 2012] Black history for schools, 2012.The British Empire and Commonwealth in World War II: Selection and Omission in English History Textbooks. [online] Available at: [Accessed 6 March 2012] Spartacus Educational, 2012. Britain in 1914.[online] Available at: [Accessed 6 March 2012] Read More