Advantages and Challenges of European Integration for Business - Essay Example

Advantages and Challenges of European Integration for Business in the 21st Century Introduction The 21st European integration has presented the region with a range of advantages for individuals within the said area. Of importance to note is the fact that it has in deed led to a remarkable improvement in the overall livelihood levels of house holds in the recent past; an aspect that the business fraternity within the area has contributed to greatly. In particular, this has been brought about by the single market creation in the 1992 facilitated by the establishment of a single European Act. Although there have been considerable opportunities brought about by these developments, European integration has also presented challenges to the business community from this zone. This essay shall therefore seek to explore the concept of European integration from a business perspective. By so doing, both the benefits and challenges that have been presented shall be analyzed exhaustively. In this way, the essay shall examine the benefits in terms of the opportunities that are presented to the business community at national and regional scopes. Challenges on the other hand shall be looked at from the standpoint of the draw backs to the business community with particular reference to the European single market. Benefits of European Integration to the Business Community According to Staab, (2008, p. 117), majority of economic decisions are not usually based on economic considerations but rather as an aspect within the wider political process. Evidently this led to the creation of a single European market in which case the politics played a great role to facilitate for its establishment in 1992. With this in mind, one of the benefits of the implementation the European Single market to the business community is the creation of economies of scale. In its implicit meaning, economies of scale entail the scenario whereby there is a significant reduction in a firm’s average cost of production. The concept of economies of scale necessitates that a business must change to become efficient to be able to enjoy the said benefits. As a result therefore, the creation of a single market has brought the need by the various market players to be efficient in terms of reducing their cost of production without however, affecting their market profitability. In addition, the creation of a single market has presented the business community with the opportunity of free movement of goods and services amongst the member states. According to Mankiw and Mark,(2006, p. 439), free movement of goods and services has the obvious benefit of increasing the market portfolio of business due the resultant increase in the market size. It is imperative to note that free flow of goods and services has been promoted within this region due to the removal of trade barriers among the member states. As such goods have been able to move from one country to another due to the removal of taxes, technical standards as well as physical borders among nations within the European Union single market. For instance, before the establishment of the said single market, any business entity was required to go through a lot of customs clearance before being allowed to enter another market. One of the associated benefits of increased market size to the business community is the fact that such business organizations shall be enabled to access a larger pool of customers in the international market. To this end, businesses are thus presented with the chance to increase sales revenue and turnover brought about by the expansion of the local market due as a result of this integration. At the national level, a sustained increase in market performance by the domestic business organizations shall lead to positive growth in the countries’ economy. A general improvement in the economy at the national level in most cases provides an impetus for the growth of business into strong regional market players. According to the Economist (2006, p. 13), trade within the European Union has increased with a remarkable 30 percent from the period of the single market creation in 1992. Closely related to the idea of free flow of goods and services is the fact that monopolies are destroyed. This is usually brought about by the opening up of the market to the other external market players which in turn allow for the creation of diversity within the market. The breaking of monopolies at the national level shall imply that other local and upcoming business organizations will be presented with the opportunity to expand at this level. In this regard, these businesses are able to enjoy higher profit margins due to the resultant expansion of their respective domestic market which was brought about by the entry of external market players into the domestic market. In single market scenarios, monopolies are usually faced with a range of hardships due to the removal of protectionism tools in domestic markets. Away from the monopoly, the European integration has further opened up new market opportunities especially to the smaller businesses of this region. The other advantage is that the European Integration through the creation of single market has brought to the business organizations enhanced organizational growth. Business growth in this sense has been encouraged through mergers and acquisitions by firms across the region. To this effect, the established business organizations in one country have been able to merge with their counterparts from other countries of this area and thereby improving their market visibility. At the same time, some businesses have been able to acquire other smaller market players with the primary objective of increasing their market coverage. This type of growth has the merit of increasing market profitability as well as enhancing business growth. The other advantage of this European single market is the ability for the business organizations to access competent labor force both within and without. At the national level, local firms have been enabled to access human labor from the other parts of the region which in turn has led to such firms operating efficiently and effectively. In particular this has been facilitated by the free movement of individuals from one country to another within this region. Also, free movement of labor implies that trans-regional firms are able to move with their competent human resource or personnel to their other regions in which they operate. One major merit of free movement of human labor is captured in terms of acquisition of new skills or technical knowledge to these businesses in the long run. This in turn would lead to remarkable improvement in the overall service delivery by such business in which case it shall help to strengthen their market leadership position in the region. A part from human labor, integration has also made it possible for the various business organizations to access capital in terms of land/space and finances from other nations across the region. Consequentially, firms have been able to develop and grow both in space and time. For example, the European integration has made it possible for business to get loans from other countries of the region to sustain themselves especially during periods of economic turmoil. Companies have also been able to access funds for their expansion programs within the region. The other benefit of European integration to the business community is brought about by increased competition in the area. Increased competition has the associated benefit of encouraging innovations among the market players. Although in principle, innovations serve to provide product variety to the consumers. Innovations in products or services usually results to improvement in the quality of such products or services. An improvement in quality means a potential increase in sales turnover to businesses which would eventually lead to better performances. Innovations on the other hand have the associated merit of reducing the production costs in terms of new technological invention; and hence allowing firms to enjoy economies of scale. In addition, the European integration has the obvious effect of increasing access to a large pool of customers to businesses operating within this region. According to statistics by the European Commission, (2006, p. 34), the 27 member states market has offered the business community with approximately 488 million potential customers. An increase in customer potential has the added advantage of increase in revenue and turnovers especially among the efficient firms that are able to maximize on the economies of scale. Further, the European integration has resulted into more opportunities to businesses owing to the opening up of procurement. In this regard, firms from other countries have been allowed to bid for tenders or contracts of supplying services and or goods to the other member countries’ public authorities and institutions. Just as the other benefits, this has had the impact of encouraging the growth of such businesses. With particular reference to the Small and Medium-sized Enterprises (SME’s), Carbaugh, (2008, p. 226), argues that they have been able to benefit from a significant reductions in electricity costs in the countries where this market segment is operational. In addition, the removal of barriers and subsequent opening up of the region provides the Small and Medium-Sized Enterprises with a chance to venture into export business which was initially left to the established market players. To this effect Pinder and Simon, (2008, p. 69), argue that the sustained growth of these types of businesses within the region carries the potential advantage of improving the overall economic standards of the region comparative to other zones. This is further enhanced by the fact that the opening up this market presents these businesses with the chance to seek technical skills from their colleagues both at the across the region through consultations on a range of issues. Challenges of European Integration for Business Community From the above presentations it is justifiable to note that the European integration which culminated to the creation of a single market with much emphasis on the manufacturing firms as well as the capital markets as noted by Buckley,(2003, p.84). On the other hand, there have been minimal labor market and services reforms in the recent past despite the fact that they were part of the initial reform aspect. As a result the creation of a single market has emerged to be non-responsive in relation to the present-day context owing to the creation of a services economy. According to Jones, (2001, p.67 ), the world has undergone tremendous market changes within the last twenty year period and therefore, the traditional integration framework upon which the single market was created may not be as effective as before. Today services play a major role in the economy than before and hence the single market ideology is faced with a range of challenges in terms of how to create an integrated market. To this end, the single market has been faced with the challenge in terms of regulating the services. According to Alex, (2008, p. 79), regulation of such services is very complex and heterogeneous as opposed to the regulation of manufactured goods. This has further been complicated owing to the fact that services in most cases exist in a range of industries. The other challenge is the continued globalization of the financial markets within the region. Today the financial markets have indeed extended across the domestic borders and thereby providing firms and investors with increased possibilities of accessing capital. Though this is the case, currently there is no unified financial market regulatory frame work to allow firms within this region access capital. It should be noted that the success of European integration’s single market is pegged on the creation of a properly functioning regional capital market. The other challenge facing the European Union’s single market is the lack of full implementation the existing rules among the member states. This has in turn led to the lack of cooperation among the member states and thereby affecting the free movement of factors of production in the region. Also, the European Union single market paid a lot attention to the idea of creating economies of scale as well as the associated benefits arising from competition in which case innovation was supposed to be one of them. However, firms have opted to focus on low production costs due to the absence of an innovation policy for the entire region. In this way, issues such as patenting among other intellectual property rights violations have emerged to be an area of great concern. According to Pelkins,(2001, p. 248), this has been brought about by the lack of European union to allocate sufficient resources in terms of investments aimed at fostering for innovation. The European Union market is characterized by not only low investment for innovation s but also the concentration of such investments within a smaller number of organizations. To this end Cateora and John, (2007, p. 279), argue that the creation of innovation policies shall provide the much needed impetus for increased productivity. The other challenge facing the European’s single market is in terms of this single market in the context of the global economy. As observed by Hill, (2008, p. 173), the present day has turned out to be more interdependent and global than the past two decades. Accordingly therefore, the European Union single market policies not affect the region but the rest of the word as well. This has in turn created pressure to the internal market policies of this region due to their spill-over effect to other parts of the world. Lastly, the European integration is currently facing the challenge of global production chains as put forward by Eusepi and Friedrich, (2004, p. 112). This has greatly been encouraged by the technological advancements which has made possible for the off-shoring as well as outsourcing. In this way firms have been able to operate in different regions depending on their own efficiency criteria. Evidently, this calls for the re-designing of the of the trade integration policies within the region as one way of responding to this new challenge. Conclusion From the above discussions the European integration has presented a lot of benefits to the business fraternity in this region. Most importantly to note is the fact that business has been promoted by the removal of barriers among the 27 states of the region thereby reducing the overall cost of doing business in the region. At the same time the growth of business has been encouraged due to the opening up of the market; a move that led to the increase in customer base to the various business organizations. This has resulted to the overall economic growth both at national and regional scope. However, the 21st Century developments have presented this single market concept with several challenges. In particular efficiency has been defined at individual level by businesses owing to the technological developments that has brought to the fore the idea of outsourcing and off shoring. (Word Count=2,686) Reference List Alex, W., (2008), European Union: The Basics. Taylor & Francis. London. Buckley, P.J (2003), The changing global context of international business. Palgrave Macmillan, Washington, D.C. Cateora, P. R. and John, L.G. (2007), International marketing. 13th Ed. McGraw-Hill, London. Carbaugh, R. J., (2008), International Economics, 12th Ed. Cengage Learning, New York. European Commission, (2006). Better off in Europe: how the EU's single market benefits you. Office for Official Publications of the European Communities, London. Economist Newspaper, (2006), The economist, Volume 381, Economist Newspaper Ltd. Eusepi, G. and Friedrich, S., (2004). Changing institutions in the European Union: a public choice perspective. Edward Elgar Publishing, London. Hill, C. W.L., (2008). Global business today. McGraw-Hill Irwin, London. Jones, R. A., (2001). The politics and economics of the European Union: an introductory text. 2nd Ed. Edward Elgar Publishing: London. Mankiw, G.N and Mark, P. T., (2006), Economics. Cengage Learning EMEA, New York. Pinder, J. and Simon, U., (2008). The European Union: a very short introduction Oxford University Press. Pelkins, J., (2001). European integration: methods and economic analysis. Financial Times/Prentice Hall, New York. Swann, D., (2002), Single European Market Beyond. Routledge, London. Staab, A., (2008), The European Union explained: institutions, actors, global impact, Indiana University Press: Indiana. Thompson.G, (2001), Governing the European economy. SAGE, London. Read More