The Business Environment in Europe - Essay Example

The Business Environment in Europe Introduction The business environment in Europe is systematized within the framework of the European Union. Through the establishment of the EU the European region has been successful in integrating the earlier fragmented market system to a unified business environment. As a result, the European Union has contributed to a plethora of changes that have shaped the European market and consequentially changed the lives of its people. Through the adoption of rules, such as the Freedom of movement laws and its policies in the consumer market, the union has shaped the economic, social and political aspect of its citizens. Moreover, its enlargement throughout the European region has facilitated the region’s growth. In this article, functions of the EU will be analyzed so as to comprehend the implications of EU operations to its member states. The Establishment of EU The European Union is currently the world’s largest market. This political-economic union currently boasts of 28 member states, majority of which are European States. Since its establishment after the aftermath of World War II, the union has been successful in its expansion and success in the political and economic scene (Gilbert 2012).The EU is driven to achieve its five main objectives for the overall benefit of its member state. First, the EU strives to establish freedom, security and justice without internal frontiers among member states, secondly, the EU is determined to promote an internal market where competition is free and undistorted. Third, the Union strives to promote innovative technologies among member states and lastly, the union strives to promote economic, social and territorial cohesion and solidarity among member states (Europa 2014). Since its genesis, the union has significantly achieved its purpose of market integration and cohesion 28 among member states. Background Information The genesis of EU dates back from 1945 to 1993. However, its integration had been proposed as early as the 14th century (Artis & Nikson 2007). The Second World War had led to detrimental effects in the economy of European states. Consequentially, 20 million lives were lost during the war in Europe alone. Moreover, the region had incurred numerous capital losses. Inevitably, the political and military reconstruction of World War II facilitated the need for an economic integration (Artis & Nikson 2007). The cold war of 1950 also worsened the economic situation of the region. The dream of an integrated EU was strongly influenced by the historical experiences of its founding fathers (Artis & Nikson 2007). The pioneers of this integration sought to avoid the excess of Nationalism and the impacts of a Nation State System that had been demonstrated by the German-Nazi regime (Artis & Nikson 2007). The eventual defeat of the Nazi Germany and of the Axis powers coupled with the economic dislocation caused by the wartime destruction facilitated he need for a unified Europe (Artis & Nikson 2007). Through the tireless efforts of the founding fathers, such as Konrad Adenaur, Joseph Bech amongst others, the European Union became a dominant political-economic party. In 1950 the European Steel and Coal Community unified the European countries. In 1957, the 1st European Economic Community (EEC) was established under the Roman Treaty. The purpose of EEC was to unite the European countries economically and politically for the purpose of securing lasting peace among its neighbouring states. The first countries to work together in the formation of a European Union were motivated by political, economic and security considerations (Artis & Nikson). The European Union The EU formerly came into being in 1993. This was after the ratification of the Treaty on E.U (Maastricht treaty). The union was established for the purpose of unifying European countries economically, politically for the purpose of securing lasting peace among member states (Johnson & Turner 2007). The union begun as an economic union with 7 member states, later, it developed into an organization that cuts across economic, legal and political spheres of member states. The European Union currently made up of 28 sovereign, independent states. These states have pooled some of their “sovereignty” so as to draw strength from the size of the Union (Europa 2014). Originally the organization was majorly for economic purposes. However, over the years, the union has progressed to become a policy making organization co-ordinating a single market. All member states operate under a single currency-euro, which is currently a major world currency (Europa 2014). The EU is also the largest supplier of humanitarian aid policies in the world. Decision making in the organization is carried out by the contribution of member states. The European Parliament, the European Council, the Council and the European Commission are the institutions that make up the union. When the members negotiate and agree on an action, then the action is implemented through a treaty. Decision making in the EU takes place in three main levels. In the first level, the commission develops a proposal and presents it in parliament, this is the 1st reading. Once in parliament, the proposal is discussed with the members of parliament. If no agreement is reached in the 2nd reading, then the proposal is presented before a conciliation committee for further discussions (Europa 2014). During the third reading, the proposal is finally adopted as law. At least a half of the total number of member states that represents two thirds of the population, must vote in favour of the proposal. The main decision making body of the EU is the council of the European Union. Member states enjoy a series of benefits. First, all member states are part of the Economic and Monetary Union. This means that policy making and decision is a matter of common concern (Europa 2014). Thereby, there is an economic relationship between member states and EU institutions. As a result, member companies get to enjoy the economic benefits of working in a group .Moreover; the establishment of a common market greatly boosts trade between member states and the rest of the world. The citizens also enjoy free labor movement across member states. There are three criteria’s that countries must have in order to become member states. First, the state should contain institutions that uphold democracy and human rights. The state is also expected to contain a functioning market economy and lastly, the country should be willing to adhere to the obligations and intent of the Union (Europa 2014). Once a member, the state complies with the EU treaty, the Copenhagen criteria and the 1993 treaty of Maastriacht. Each member state complies with the binding laws in exchange for representation within the common EU legislature and judicial institutions (Europa 2014). Citizens of member states enjoy the benefits accrued to the adopted treaties and established laws. One unique feature of EU states is the use of a single currency. In 1999 the European currency was introduced among member states. In 2002, the use of Euronotes and coins became compulsory among member states. According to Jonson and Turner, the integration of the European market changed the business environment into the most dynamic, knowledge based economy in the world (2007). The EU enhanced the capacity to sustain economies, growth, better jobs and social cohesion EU Enlargement and Cohesion One of the main objectives of the European Union is to establish cohesion. The union has carried out this task through the integration of markets and adoption of the free movement law. In 1992, the single market was launched with the involvement of 12 member states consisting of 345 million people (European movement 2010). The free movement was one of the basic freedoms stated in the 1957 Treaty of Rome (European movement 2010). In practice, the law states enable citizens of member states to travel using their passport without needing a visa or any other document. The purpose of the law was to set facilitate employment opportunities for citizens of member states. Moreover, the law was set up for the purpose of enhancing business opportunity, study and live in retirement (European movement 2010). This law resulted in a plethora of opportunities to the society. Social Cohesion The Implementation of Free Movement law has had numerous benefits in the region. Citizens from member states have an opportunity to study, work or invest in any of the 28 member states. Labor patterns have changed considerably in the society. Recent statistics show that 1 in every 10 citizens have worked in another member state. Out of the statistical figures obtained, 39% of the population had worked in Luxembourg and 21% in Ireland. The massive movement of people has resulted in a series of challenges. One of the major issues attributed to the free movement law involves citizenship rights and privileges. One of the obstacles facing EU citizens from certain Member States is their right as political actors. According to the EU Citizenship Report, citizens lose the right to vote (they are "disenfranchised") in certain member states (European Commission 2014). The TEU law, article 4(2) prohibits the interference of EU on the national identity of member states. Therefore, member states are free to their own electorate and national elections. Some of the policies on elections prohibit the freedom to vote. This limitation inhibits the enjoyment of rights attached to the EU membership. The Free movement law is the causal factor to Immigration. The expansion of the EU in 2004 resulted in the inclusion of 10 New Member States (NMS). This made it possible for workers in some Central and Eastern European countries to take up work in the EU-15 (Barrell, Gerald & Riley 2007). Currently, the Union consists of 28 member states with a population of approximately 500million. The enlargement of the European Union has contributed to the immigration issues in some member states. Countries in the Eastern and Central European region have been negatively affected with EU enlargement. This is because the free movement law makes it difficult for countries to bar entries into their countries. Moreover, some immigrants have been able to override their employment restrictions and thus being able to get jobs in the country. Poland is a member state of the EU and is one of the countries that are greatly affected with the free movement law. The country has been the largest exporter of cheap labor in the EU, with people migrating to Western Europe (Iglicka 2010). Consequentially, Polish number of nurses, plumbers and other workers increased in other member states. This change in demographic pattern negatively affects the development of certain states and results in anxiety over job loss from countries experiencing the immigration issue (Dale 2005). Unemployment is one of the cons attributed to the enlargement of the EU. Many citizens in member states are anxious due to the internal and global competition resulting from EU enlargement. According to Dale, competition of countries such as Latin America, U.S, and Asia are a threat to the business environment (Dale 2005). The author observes that some European car industries have migrated to the West (Dale 2005). Moreover, the private sector in Europe has been greatly affected with EU policies, resulting in the 20 million unemployed individuals in the 1970s (Dale 2005). I n 2005, a survey carried out in Italy showed that 38 percent of respondents perceived unemployment as the most persistent social problem (Dale 2005). The same anxiety was recorded amongst other countries such as France, where, the figure was 58 %( Dale 2005). Dale states that, “Countries at the heart of the euro zone are stagnating economically and appear unable to cope with the liberal­izing variations that are characteristic in a world of globalization, competitive labor markets, and the mobile capital demands of the economy (Dale 2005).” EU and Cultural Cohesion The integration of member states and continual enlargement of the European Union affects the cultural diversity and language of member states. Previously, EEC did not venture into cultural integration (Munich 2012). However, the EU purposed to promote cultural cohesion through the adoption of several policies. Through the Maastricht treaty, the union obtained the power to take unambiguous cultural-political action (Munich 2012). Currently, the EU has established culture policies in an attempt to promote Economic integration (Munich 2012). One particular policy that the Union adheres to is the promotion of the flowering of cultures of the member states while respecting the National and Regional diversity of the member states (Munich 2012). This cultural integration will inevitably increase the European cultural diversity The EU promotes cultural heritage through the promotion of cultural programmes, funding of cultural projects and through the efforts of some non-governmental organizations. Organizations, such as the European Cultural Convention, were established for the purpose of promoting cultural co-operation (Compendium 2014). This cultural interaction facilitates innovation, interaction and understanding. Despite the various languages, the various member states will live as one people under the EU. EU and Economic Cohesion The Business environment in Europe is unique and has significantly benefited the European region. Through the EU, the member states were able to move from a fragmented system of National Markets to an integrated single market (Jonson & Turner 2007). The single market is the source of significant benefits for the EU economy. There are numerous profits and economies of scale accrued to the single market. One particular example is the 2.2 GDP increases that would not have been possible in a single market (BIS 2014). Moreover, the intensity and competition amongst firms breeds excellence in product development and innovation (Johnson & Turner 2007). The single market facilitated the growth and expansion of industries. This factor is aided due to the trade blocs adopted by member states. The common market allows companies to enjoy a large market of 500 million citizens. The EU facilitated the harmonization of technical and safety standards, convergence of excise duties and the protection of workers Moreover, business entrepreneurs have the freedom to establish their companies in any member states at a cheap price. There is no custom tax charged on goods that are distributed between member states (Knot 2012). Consumers also benefit from the common market. The consumers get to enjoy high quality products at an affordable price due to the competitive nature of the single market. The uneven economic capacities of the member states contribute to market pressures. In 2012, several EUROZONE companies experienced detrimental market pressures due to the uneven economic developments among member states (Nelson, Belkin, Mix, and Weis 2012). Market pressures such as the exponential debt and financial crisis facing EU have a negative impact on the global economy. The EU has a mandate to finance economic development of its member states. Consequentially, this contributed to high debt levels and public deficits in some EUROZONE countries. (Nelson, Belkin, Mix, Weis 2012). The weakness of the EUROZONE banking system is a major challenge in the business environment. This issue is as a result of the “periphery” bonds accrued to member states. Many analysts are concerned that there is insufficient capital to support these bonds. According the Nelson et al, “The bond crisis prompted capital flight from banks in some Eurozone countries. Furthermore, some banks are currently finding it difficult to borrow in private capital markets. Consequentially, there is growing concern amongst investors that the banking crisis in Europe that could have global repercussions.”(Nelson, Belkin, Mix, Weis 2012). The absence of economic growth in the EUROZONE, particularly in the peripheral countries complicates efforts towards economic development. In 2012, the IMF predicted recession in the EUROZONE by 0.3 % (Nelson, Belkin, Mix, Weis 2012). Peripheral countries were also reported to experience recession in the same year. The recession, coupled by unemployment issues in the peripheral countries, contributes to changes in the labor patterns and high costs in business growth. The persistent trade deficits in peripheral states, inhibits export-led economic growth in the international market. Analysts observe that peripheral countries are currently undertaking structural reforms in order to bolster exports and enhance their competitiveness in the market. However, the incorporation of these policies imparts negatively on the international market. Core EUROZONE countries have adopted policy measures in an attempt to curb this effect (Nelson, Belkin, Mix, Weis 2012). The use of a common currency is a unique feature of the business environment. The euro has positively and negatively impacted the economy. However, the decentralization of the euro without a proper fiscal union results in uncontrolled expenditure among member states. The uncontrolled use of the euro adds to the marketing pressures in the EU and resultantly affects the international market (Nelson, Belkin, Mix, and Weis 2012). The EU and Innovation The current changes in the international market due to globalization and the current issues facing member states creates a need for innovation. Innovation refers to the identification of opportunities and the development of new ideas or inventions. There is need to create new marketing and sales coupled with entrepreneurship development in order to enhance the EU s competition in the international market. Recent events in the global market indicate a need for innovation among member states. Currently EU is facing an innovation emergency that would lead to negative effects. Recent data show that Europe is spending 0.8% GDP less than the U.S and 1.5% less than Japan on an annual basis (European Commission 2014). Other countries are also catching up, such as, China and Korea. Innovation is vital for the future of EU in the World Economy. Through innovation, the EU will be able to achieve its targets of 3% in investment in GDP and Research and Development by 2020. Effective innovation would contribute to job creation by 3.7 million and a GDP of 795 by 2025(European Commission 2014). The rapid changes in the international market demand innovation. According to Gary (2011) today’s market place is hostile to its incumbents. Therefore, there is need to conduct a radical business innovation. Fagerberg (1999) attests that EU is losing ground to countries such as the U.S and Asia. The author observes that productivity growth in Europe has decreased relative to that of its competitors. Moreover, there has been deterioration in export competitiveness in all areas except the agricultural sector and raw materials. According to Fagerberg, majority of the losses occur in the technology or IT centre. Science based industries contributed to the exponential growth of U.S in the global market. The EU has responded to the need for innovation by establishing the Innovation Union. The union was established in 2010 as part of the EU’s 2020 strategy (European Union 2014). The resolution of this union is to improve structural funds for the purpose of facilitating research and innovation (European Union 2014). The body also purposes to utilize its innovation partnerships so as to achieve breakthroughs in the technological market. Maximisation of social and territorial cohesion is also prioritized in the operation of the union. In conclusion, the EU has been effective in establishing a competitive market that benefits all its member states. Currently, the EU strives to increase its member states and to enhance its benefits in the global economy. The depth, level and ambitiousness of the EU have shaped the unique business environment of its citizens and have also influenced the social, political and legal structures of member states. The Union continues to achieve its efforts of integration through strategic implementation of effective policies; the EU will manage to thrive in the ever changing world. Read More