The Potential Challenges in the UK Automobile Branch - Statistics Project Example

Data analysis report Table of Contents Introduction 3 The UK Automobile Sector: Vulnerability of the industry 6 Investment Potentials Underlying UK Automobile Industry 8 Conclusion: Potential Challenges and Recommendations 14 References 16 Ali, A. J. (2000) Globalization of business: practice and theory. New York, USA: International Business Press. 16 Central Intelligence Agency, USA (2009). ‘Europe: United Kingdom’, The World FactBook. Available at (Accessed: April 9, 2010). 16 Cooper, D., Doucet, L. & Pratt, M. G. (2005) ‘Understanding Appropriateness in Multinational Corporations’. Available at < http://www.business.uiuc.edu/Working_Papers/papers/05-0122.pdf> [PDF] (Accessed: April 10, 2010). 16 House of Commons, Business and Enterprise Committee, Great Britain (2008-09) The automotive industry in the UK: ninth report of session 2008-09. 16 The Institute of the Motor Industry (2009) ‘Automotive Retail Sector – Quarterly Report’. 16 Jolly, A. (2003) The European business handbook, 2003 (10th Edition), p203-204. London, UK: Kogan Page. 16 NAIGT (2006) ‘An Independent Report on the Future of the Automotive Industry in the UK’. Available at [PDF}. (Accessed: April 10, 2010) 16 Taylor, J. B. (2006). ‘Economic Reform and Current Account: Implementing the strategy’. Available at, [PDF] (Accessed: April 9, 2010). 16 United Nations (April, 2002). ‘Global Economic Outlook’. Available at (Accessed: April 9, 2010). 17 Introduction Of all the significant socio-economic and socio-political changes which ever upturned the preconceived ideas of the world, globalisation had been one of the most significant of all. In fact, the change cannot be considered anything less than a revolution of sort which liberated the pre-emptive stance posed by various economies. It gave them a new idea about their individual growth potentials which now seemed to have been dwarfed so far. It bared new grounds for the investors around the world to pour their resources and soon, they were left awestruck at the substantial yields that the same quantity could reap by a sheer change of location. The entire world reached a new height of economic growth with every inch of the globe enjoying the waves of the new phase. There was a sudden surge in trade activities around the world accompanied by changes in the tastes and preferences of people. The consumers could no longer restrain their choices to indigenously produced commodities. A flurry of activities led to a rise in the average level of income throughout the liberalised world and very soon it was realised that people could no longer maintain their previous standard of living. In short, the liberalisation move (which was the one triggering globalisation) appeared to be one of the most prudent ones which had the potential to lead the world to an epitome of success (Ali, 2000). However, what missed the perceptions of the global leaders at that time was that, “liberalisation” was just another version of experiencing a “multiplicative effect”. Like the gains arising in one part of the world were transmitted to the others linked to it, so did the losses arising in them proliferate to other parts. On the whole, liberalisation or globalisation led to a large scale contagion effect among various parts of the globe. The most significant or rather the most malicious demonstration of the reality was revealed when the global meltdown trapped the entire world in its clutches soon after the beginning of the new millennium. Though initiated in the financial market of USA, its impact soon spread to other sectors of the economy as well, all of which were integrally connected with one another. In fact, by virtue of globalisation, the corresponding sectors in peer nations could not prevent the consequences too. With liberalised trade becoming the new-age mantra for economic development and growth, there was hardly any leeway left for a region to escape the ripples of an external shock. UK being a major trade partner of the USA happened to be one of the earliest ones to suffer from the shock. Actually, more than commodity trade, the two are linked together financially. But irrespective of the basis of their association, the nation badly suffered the brunt of the financial shock. The following graph depicting the GDP growth rate reveals the bitter episode that the nation went through during the period. Though the world is gradually healing from the impact of the crash, it has left behind substantial economic losses met basically on account of reduced demand. The present paper is an attempt to capture the impact of globalisation that the economy of UK faced; it has enveloped both the positive and negative consequences of the same supported by empirical research work. The primary objective of the paper is to analyse the situation prevailing in the UK with a focus on the fate of MNCs operating in the nation. In fact, to pin point the area of examination, the investigation is primarily based upon the UK automobile sector which went through a tumultuous phase within the last decade but otherwise is considered as one the booming sectors in the nation. The UK Automobile Sector: Vulnerability of the industry Automobiles are often conceived as a necessary item in fast developing economies around the world. The luxury tag attached to them cannot be denied as well though, especially when the question of private cars crop up. Nevertheless, the speed with which the world is developing, fast communication will be soon appraised to the position of an utmost necessity. Hence, conducting business in the sphere of automobiles is considered as one of the most lucrative ones, with chances of reaping huge turnover figures and eventually, hefty profits. A large number of automobile companies with their origins rooted in different corners of the world have chosen UK as their host. Two primary causes could be cited behind such a move; firstly because UK happens to be one of the most developed nations in the world ranked fourth in terms of GDP growth, and secondly since the government of UK is renowned for the warm welcome they shower to such entrepreneurs. The national administration has, in fact, designed attractive policies in the likes of tax exemption, subsidies, etc. to lure such enterprises based all over the globe. Such measures being undertaken by the domestic government have converted UK to a business haven of sorts and grilled out its investment potentials, which has contributed to the economic growth statistics of the nation. However, the global meltdown heightened the sufferance of these companies which could no longer attract as many customers as before. Hence, their profit margins narrowed down gradually beginning from the early years of the new millennium. People could no longer afford their previous life styles with poor supply of money in the economy following the bankruptcy of major financial houses. National production came down as well due to a deficiency in productive resources and lack of market demand. This dire situation was reflected in a large number of sectors around the world, especially the ones which played a major role in national accounts. Though the data briefing about the contribution of the automobile industry is unavailable for UK, it could be comprehended from the fact that the manufacturing sector is entitled for nearly one-fourth of the national income statistic (Central Intelligence Agency, USA, 2009). The adjoining graph illustrates the trends in the retail sales of Motor Vehicles and their ancillaries between the years 1999 to 2008. If the sales figures represent the demand that the industry enjoys, there is a clear indication of a sharp fall during 2003, while an escalation of the same in 2002. However, over the years, the industry has maintained regular oscillations so that the effects seem to have neutralised on the whole. It is also a clear indication of the fact that the industry is featured by regular business cycles so that a period of boom is always followed by that of a recession and vice-versa. Nevertheless, the downturn experienced in 2003 had devastated the industry, besides many other major manufacturing houses in the nation (Jolly, 2004). On a more subtle note, the monthly changes seem to be minor, although between 2002 and 2003, there had been more declines in the sales figures rather than mount ups. The irony of the fact is that, similar to the growth in 2002, the slump in 2003 had been the consequence of globalisation. The year 2002 was characterised by many expansionary policies being implemented by various domestic governments in order to recover from the sudden global downturn following the terrorist attacks in USA in 2001. There a worldwide downward revision in the market rate of interest on loans and tax rates so that people all over the world were now encouraged to spend more (United Nations, 2002). In fact, the policies which had been designed so as to deal with the massacre being conjured in 2001, nearly attained success had the year 2003 not seen a slight economic downfall. This slump was mainly the effect of a sudden realisation about a current account deficit by the US national government. They discovered a gradual outflow of their resources, mainly due to their import activities and went on a procurement spree. The economy promptly decided to withdraw their money otherwise invested in a large number of projects beyond national premises. However, such an action threw a heavy impact on other nations and the industries underlying them, which is the reason behind the bitter experience of the UK automobile industry during 2003 (Taylor, 2006). On the other hand, there had been a fall in the demand for new cars beginning from the middle of 2008, and has continued hitherto. Possessing new cars might be considered as a bit of luxury. Luxurious items are characterised by high elasticity of demand, i.e., people forgo their consumption at really critical periods, but cherish the same during affluent times. Hence, a sharp fall in the demand for cars by the middle of 2008 signifies the brunt with which the sub prime crisis, originating in USA, shook the automobile industry of UK. Investment Potentials Underlying UK Automobile Industry Despite of the fact that automotive industry of UK had to bear the brunt of the global meltdown, the truth is that, it had left little scars on the activities of the latter. Though a slump had made its way to the sector as is evident from a fall in the retail sales figures, there had hardly been any repercussions of the same, i.e., the industry soon got over its injuries. The fact could be inferred from a number of significant facts and figures of the economy of UK, being discussed in the following paragraph. Number of Firms The following graph is a proof about the fact that the automobile industry in UK is actually a booming one. It shows how the percentage of automobile units in the nation had actually been on a rise since the year being considered. In fact, even beyond the period, the industry has not stopped growing in size, as is reflected from the constant rise in the number of automobile units as well as enterprises. The following table is proof of the same. Thus, one relevant point over here is that, the automobile industry, despite all the difficulties which it had faced in the past, is one of the fastest growing industries in the UK manufacturing sector, as far as size is concerned. This also implies an entry of new players in the business and hence, a rise in the number of competitors making the business environment a tough one. Number of Employees The percentage of work force in UK manufacturing sector, employed in the domestic automobile units has almost stayed stagnant between 1996 and 2005. It is found to have minutely fluctuated between 6.2% and 6.6% as the lowest and highest limits. Ever since 2001, the figures had been on a rise, till the year 2003 when it reached its peak at 6.6%, but soon declined marginally to 6.5% the following year. The following graph compares the total number of employees in UK automobile industry with that of UK on the whole. It reveals that the rate of employment in the former had historically been better off than the average situation in all the core sectors in UK. However, the contrast in the two trend lines is quite clear, which says that though the employment figures in UK on the whole have been rising over the years with slight disruptions in the otherwise smooth line, that in context of the UK automobile industry is rather a falling one. It experienced a sharp decline in the beginning of 2007, from which it revived during the middle of the year, but slumped down soon after reaching a peak. This is a clear indication about a fall in the total amount of production in the automobile industry. But given insignificant changes in the percentage of total workforce being absorbed in the industry, it can clearly be deduced that the manufacturing sector shrunk down following the downturn and people inclined themselves to other non-manufacturing industries. Hence the situation in the automobile industry of UK could not be considered as a promising one as far as employment figures and thus, productive activities are concerned (IMI, 2009). Wages in the UK Automobile Industry Nominal wages in the UK Automobile industry have remained almost stable over the years, with a sudden rise in the figures during 2000, which soon dropped down to a near-crest fall, significantly. It became approximately equal to 6,383 and then continued to rise bit by bit. Ever since 2000, the figures have maintained a slow and slight annual increase in the wage rate or labour costs. In fact, the truth is that labour costs had been making lesser and lesser additions to the gross output being produced, indicating a decrease in the profitability of productive activities. As the graph indicates that the value additions had slashed down in 2001, but have been recuperating quite slowly. Since the two factors move in proportion with one another, this could be cited as the reason behind a negative change in the amount of wages being granted to the employees in the automobile industry Investment Flows and R&D Expenses To revive from the downfall that the industry is facing at present, there is an urgent need to conjure up investment activities in the nation. The primary objective of investment would be to instigate R&D in the sector so as to surge up consumer demand for the same, by one way or other. Though UK had never remained far behind in R&D activities especially in case of the automobile industry, there had been a steady decline in the same since 2003, as the underlying graph depicts. Lack of funds to finance such moves is the reason that had been preventing a boost up and ultimately, the industry has landed up in a situation closely described as a vicious cycle (New Automotive Innovation and Growth Team, 2006). Conclusion: Potential Challenges and Recommendations One of the potential challenges that the MNCs in UK face is that about a relatively increased trade union activity compared to any other part of the developed world. Encouraging such activities infiltrate politics into the work environment and often pollute the atmosphere through their undue demands. On the other hand, they also find it very difficult to integrate between the working habits of people who belong to diverse cultures by birth, which might ultimately end up in a chaotic situation (Cooper, Doucet & Pratt, 2005). Given all the information about the situation in the UK automobile industry, it is wise to retain any potential investment moves in the sector. Even the government of the nation seems sceptical about the promises underlying the sector at present. According to the national administration, there is a need to prop up the industry through considerable financial aids from the administration, over a long period of time. Though the national government has already begun its part, it is always advisable for any external investor to restrain their desire for a few more years and wait for the administration to settle down things (House of Commons, Great Britain, 2008-09). References Ali, A. J. (2000) Globalization of business: practice and theory. New York, USA: International Business Press. Central Intelligence Agency, USA (2009). ‘Europe: United Kingdom’, The World FactBook. Available at (Accessed: April 9, 2010). Cooper, D., Doucet, L. & Pratt, M. G. (2005) ‘Understanding Appropriateness in Multinational Corporations’. Available at < http://www.business.uiuc.edu/Working_Papers/papers/05-0122.pdf> [PDF] (Accessed: April 10, 2010). House of Commons, Business and Enterprise Committee, Great Britain (2008-09) The automotive industry in the UK: ninth report of session 2008-09. The Institute of the Motor Industry (2009) ‘Automotive Retail Sector – Quarterly Report’. Jolly, A. (2003) The European business handbook, 2003 (10th Edition), p203-204. London, UK: Kogan Page. NAIGT (2006) ‘An Independent Report on the Future of the Automotive Industry in the UK’. Available at [PDF}. (Accessed: April 10, 2010) Taylor, J. B. (2006). ‘Economic Reform and Current Account: Implementing the strategy’. Available at, [PDF] (Accessed: April 9, 2010). United Nations (April, 2002). ‘Global Economic Outlook’. Available at (Accessed: April 9, 2010).  The Auto Industry of UK (2006). Available at (Accessed: April 10, 2010). Read More