Macroeconomic Assessment of the European Union - Report Example

Contemporary Business Environment Executive Summary This report is prepared with an intention to conduct a macroeconomic assessment of the EuropeanUnion (EU). In the course of successful completion of the report, the major drivers affecting the businesses within the EU were analysed. For the easier analysis, PESTLE analysis was done for EU, which gave a clear picture of the patterns of trade conducted within the economic region. Keeping the external environment into consideration, various challenges affecting EU, resulting from few of the global developments such as globalization and policies undertaken by the WTO, has been identified. The report also consists of enough propositions to prove that those affects were acting as barrier for the international organizations operating in the EU. After the complete analysis of the subject, it was ascertained that the major conflicts was arising in the filed wherein the policies of the WTO and the EU was very much different. Despite of the arising challenges, the EU has been successful in acquiring a significant position in the international trade system within its recent conduct. Table of Contents 1 Executive Summary 2 Table of Contents 3 Introduction 4 Key Drivers Impacting Businesses of European Union 5 PESTLE Analysis 5 Business Challenges Affecting the European Union 9 Propositions on the Effect of the Challenges of Business in EU Organizations 12 Conclusion 13 References 15 Bibliography 17 Introduction In the modern day scenario, the business environment has become quite challenging for international trade to flourish as it used to during the traditional era. The contemporary business environment has also become dynamic and competitive for all the key players of the market. Contemporary business is termed as dynamic due to the ever-changing styles and trends of the market, which further imposes considerable impacts on the trade relations persisting amid countries. In the daily activities of the business, newer technical innovations and changes have been observed in the business environment due to which, it is termed as a dynamic process. In the similar context, it is also termed as competitive due to the variety of reasons such as trade liberalization and globalization. It is said that trade liberalization affects the business and causes it to be termed as competitive as liberalization has a special criteria, which entails that in such market conditions any particular player can enter the market and exit at any point of time, sufficing the criteria of a perfectly competitive market. However, as the perfectly competitive market structure also presents many challenges and risks related to the economic, social as well as environment development needs, the free trade policies practiced by the EU have been countered by many other nations and world organisations such as the World Trade Organisation (WTO). On the other hand, contemporary business environment is quoted as challenging as all the members of the business has to struggle substantially to maintain their position within the dynamic market. With regards to the similar context, the contemporary business environment of the European Union is also going through a number of changes such as technological alterations, under the influence of the elements of globalization or global development (Boone & Kurtz, 2009). In the similar context to the aforesaid conditions, this report will analyse the various factors or drivers affecting the contemporary business environment of the European Union (EU). During the course of analysing the business environment of the EU, the report will provide a description of the various challenges affecting the business environment of economic region and offer clear propositions stating whether the factors are affecting the business environment of EU along with elaborating on the ways in which EU is responding to those changes. Key Drivers Impacting Businesses of European Union Since long, the EU has been significantly influencing the system of international trade, especially in case of the countries, which are the members of the EU. Similarly, there are many factors, which have been affecting the global trends of the EU in the recent past. In order to analyse those factors affecting the business environment of the EU on the global scale, it is necessary to assess the external environment of the country from a critical perspective. PESTLE analysis can prove to be of much help in this regard to ascertain the external business environment, which also can be termed as one of the major key drivers affecting the business environment of the EU. PESTLE Analysis Political EU is one of the open border territories wherein there is no restriction on the entry and exit of the business organizations. In the EU, it is largely observed that the immigration policy has been playing a significant role in the business environment of the member nations. It has been acting as a crucial political issue in the EU since a long time. Due to the electoral impact of the EU, many newer parties have evolved along with raising numerous challenges to the business environment. For instance, due to the Schengen agreement in 2001, 13 member states of EU were identified to have lost the control on border movement along with allowing free movement facility for the residents of the states. This freedom of movement between the borders was allowed by the Parliament as well as the European Commission. The political situation has provided the members of EU with the facility of easy transfer of the goods and capital for the purpose of business. Although it has provided the ease of transfer of goods, the evolution of the newer parties always created complexities of business with its new policies and frameworks for conducting business. Thus, it was criticised to have resulted in numerous challenges to the organizations performing businesses within the EU region (Givens & Luedtke, 2004). Economic In the last few decades, it has been largely observed that the unemployment rate of the EU member states has been rapidly increasing and has arrived at 14% as recorded in the year 2013. Due to the recent global recession in the world, it has been observed that the falling intensity of the growth has created a barrier in the growth and development of the member states of EU. The interest rates of the EU are quite higher due to which, it creates complexities for the business owners to make further investments. One of the major benefits that have been derived from the higher rates of interests is that the labour market has gone through huge improvements in its recent performances (Koumparoulis, 2013). Social The member states of the EU record sufficient household income in general, which has also created a positive effect on the trend of financial partnerships within the international trade levels. Hence, looking into this factor it can also be stated that the poverty level of the state is quite lower, which signifies that the social conditions of its member states are largely influenced by the economic factors of EU. In almost 15 countries of the EU, wherein the level of income per capita is quite lower, do not possess much of the complaints regarding the rent, mortgage and utility bills of the people, which further imply a stable social growth within the economy (European Commission, 2008). Technological EU is one of the fastest growing economic regions in terms of technology advancements and integrations. It is regarded as one of those states with most expanded networks of global communication. It is also observed that the rapid growth and development of the technology has created a huge positive impact on the business environment of the state. The evolution of the internet and the other internet-based devices has further facilitated the business organizations with newer technologies and methods of operating efficient business system. It has also been observed that the EU has a long term and strong relationship with the various modes of science and technology. Hence, it can be stated that due to the high utilisation of the advanced technology, EU has been able to raise its technological advancements competitive enough to position itself within the international realm (European Union, n.d.). Environmental Regulatory measures within the EU deliver much emphasis towards the protection of the environment during the performance of businesses within its member stated. It is worth mentioning in this regard that since 1970, EU has created 200 acts of the legislation for the protection of the environment. During the design of the EU’s environmental policy, emphasis is given on the findings of cost effective measures taken by its member states to protect the environment and utilisation of proper natural resources in the trade processes. EU’s environmental norms can be identified as based on the philosophy that where there are no favourable markets, the exact environmental costs of the product can be portrayed through the establishment of targets as well as caps and trade schemes on the price charged for the product. Implementation of this particular philosophy has been significantly helpful for the member states to ensure productive use of their resources causing minimum ethical issues in terms of environmental degradation (European Union, 2013). Legal It has often been argued that the legislation policy of the EU is based on the rule of law, which states that each and every action taken by the EU is based on the development of treaties, which have been democratically and voluntarily approved by the legislation of the member states. However, as per the currently prevailing legislative norms, the European Parliament is supposed to have the full authority to block any project of trade if any kind of complexities arise. The legislation of the EU takes the form of two of the following aspects, i.e. treaties of the EU and regulations, directives and decisions of the EU legislation affecting the member states of the EU (European Union, n.d.). From the above discussion, it can be ascertained that the external environment for the contemporary business in the EU is quite favourable. Hence, all the member states of EU have been performing international trade with adequate efficiency and effectiveness with the help of the legislation and system framed by the European Union Commission. Business Challenges Affecting the European Union With the application of the PESTEL analysis, it has apparently become easier to analyse the current situation of the business environment persisting within the EU. However, during the analysis of the contemporary business environment of the EU, few barriers can be observed in the performance of successful international trade between the countries. Few of the barriers that come along in the path of international trade between the borders are the globalization policies and the policies of World Trade Organization (WTO) (Hay & Rosamond, n.d.). The effects of globalization or the different trade policies of global business have also created a huge business challenge or risk for the member states of the EU. Globalization can be explained as one of the greatest and fastest incorporations of economic and interdependence wherein newer agents of business and production along with the cost structures can exercise the local markets and the mobility of both the factors of production and the final product. Fundamentally, it has been observed that globalisation provides the producers, labours and consumers with high opportunities regarding the identification of the larger market and competition among the traders. In case of the EU, it is noticeable that majority of the markets require restructuring and adopting modern techniques of international trade in order to cope up with the trends of globalization. Regardless of the impressive rate of interest, the economic situation in few of the member states of the EU has been concentrating on its trading system in the sectors, wherein the level of competition is too high. One of the major benefits that EU has derived from the globalisation is the evolution of technological advancements, which can be a beneficial tool for the growth and development of the international trade patterns. On the other hand, there are few other challenges that the EU has been facing due to the introduction of the globalization policies of trade. One of the major challenges that the EU has been facing exhibits that the dynamic growth of the global patterns of international trade are not evenly distributed to all the regions of the state. Rather, the level of growth has been distributed in the regions of the EU wherein the labour market can withstand higher degree of competition and attract newer economic business activities (Hay & Rosamond, n.d.). The excessive inflow of Foreign Direct Investment (FDI), which is also a consequence of the globalization in the international trade patterns and can augment competition for the local companies along with becoming a pressure for the salaries and wages of the unskilled labours. In the similar context, it has been observed that the increasing demand of the resources, because of globalization, has the potential of creating an inflationary pressure (MacLeod & et. al., 2010). Specifically, in the EU regions, it is quite likely that due to the globalization policies, the member states may experience hike in the consumer prices disrupting the overall per capita growth of these states. In terms of employment, it has been observed that due to the challenge of growing competition, the structural adjustments has the full potential of causing unemployment challenges in the regions, especially with low skilled labours. As mentioned in the above section, globalisation has blessed the regions of the EU with the advanced technology in the patterns of business but it has also brought about certain complexities in the business module. Notably, with the introduction of the advanced technology, it is quite likely that there will be a great need for proper education and training of the labours and other workers involved in the international trade business, which might prove to be a challenge for many smaller member stated to deal with (Mastrostefano & et. al., 2009). Apart from the above-mentioned factors, there are other basic grounds on the basis of which, the probable challenges for EU can be identified. The newly designed trade policies of World Trade Organizations (WTO) can create adequate business challenges to the international trade policy of the EU. The trade policies of the EU focuses on the improvement in the transparency of the trade policies along with creating a strategy through which, all the countries in the world shall come under a single roof of the trade system. To strengthen its international trade performances, the EU has long been designing policies, which are applicable for all the countries involved in the international trade. However, this criterion becomes one of the greatest barriers for the international trade policy designed for the traders of the EU at often instances. The reason behind this is that the EU largely depends on the performance of trade policies between its member states. The other area in which the policies framed by WTO become a challenging aspect for the EU is that WTO never allows free trade at any cost. EU emphasizes the existence of free trade, as it is one of the most cost effective measures of international trade and due to the open territory border among its member states. On the contrary, WTO policies of trade entail that free trade must not be encouraged in the international trade system, as it creates complexities for the domestic producers or traders in performing business operations proficiently. The other conflict identified among EU and WTO international trade policies is in effect of the extensive priority offered to the issue of environmental protection, which often raises considerable challenges for the members states to function their international trade policies smoothly. In the earlier sections of analysing the EU’s business external environment, it was observed that it conducts international trade with complete attention towards the conservation of the environment and its natural resources. However, in regards to the policies or rules enacted by the WTO, it can be stated that the protection of environment must be considered as equally important to the interest of the manufacturers or the producers operating in its various member states (Bertucci & Alberti, n.d.). Propositions on the Effect of the Challenges of Business in EU Organizations In the above-mentioned sections, it has been assessed that the policies designed by WTO and that of the globalization may create certain hindrances or barriers for the smooth operations of the international trade in the EU member states. In the globalization trend, it is highly required that similar kind of policies must be there for all the countries involved in the international trade. However, in case of the EU, it has been largely observed that it prefers to operate its business within the defined periphery of its member states. Subsequently, it has introduced the free trade system, which is again argued to be in contradiction with the policies of the WTO. EU gives much of its emphasis to free trade system as it provides immense benefits to the trading patterns of the region. Free trade allows the countries to involve in the trading of those products in which they have complete comparative advantage. Free trade system also emphasizes the improvement of resource allocation efficiency amid the member states on a continuous basis (Mu, 2009). In addition, free trade, which was not allowed by the policies of WTO, affected the organizations of EU. The members states of EU were gaining lots of tax benefits along with enjoying the higher rate of interest. However, not all these aspects were being allowed by WTO and it became the major hindrance for the states of EU. If the EU organizations continue following the policies of WTO, the benefits derived through the free trade shall get reduced, further creating challenge for the EU organizations. On the other hand, the EU organizations were lacking the prevalence of globalisation in their business process as they completely followed the business policies designed within its member states. The system of trade liberalisation prevalent in the regions of the EU also resulted towards the increase in the employment opportunities for the skilled as well as the unskilled labourers. Apart from the above-mentioned criteria, there were other global challenges observed in the trading policies of the EU. Among these challenges, EU organisations were able to obtain the opportunities to consider the role of active policy and design positive responses towards the challenges faced accordingly. With the introduction of the free trade and open territory borders among its member states, EU aimed to arrive in such position of international trade that its citizens, presently and in future, can enjoy the continuous economic growth and improved quality of life standards. Thus, it can also be suggested that the EU organizations must design strategies in a manner that it fulfils both the criteria of EU and WTO so that the EU organizations can take the complete benefit of the global developments such as globalisation and few of the policies of WTO (Mark & et. al., 2010). Conclusion Based on the above analysis and discussion, it can be ascertained that the economy and business environment of the EU is largely developed principally owing to its adoption of technological advancement strategies and the labour markets of its members states with due significance to the various factors of productions operational within the economic region. EU is one of the regions with open territory borders wherein any kind of goods or products can be easily transferred within the member states. The other major characteristics of the EU is that it has introduced the system of removal of taxes and duties in the trading within the EU states, due to which the environment for trade and competition has flourished to a large extent within the region. Despite of all these flexibilities in the trading patterns of EU, it has been observed that due to the introduction of the trade policies of WTO, EU has been facing significant challenges in its trade patterns. The major challenge witnessed by the EU is the obstructions fuelled by the WTO policies, which attempts to prohibit free trade policies within its region. In accordance to the WTO policies, it has also been mentioned that the organizations must consider for the benefits of the members states along with the consumers and local entrepreneurs. The trading policies of the EU have also provided the regions with the proper allocation of resources along with sufficient cost effectiveness in conducting international trade operations to gain the desired level of comparative advantages. Conclusively, it can be asserted that despite of all the global changes or developments, EU has been successful in handling its challenges with due efficiency taking the virtues of its various policies to facilitate traders within its member nations. References Bertucci, G. & Alberti, A., No Date. Globalization and the Role of the State: Challenges and Perspectives. Globalization: A Multifaceted Phenomenon. [Online] Available at: http://unpan1.un.org/intradoc/groups/public/documents/un/unpan006225.pdf [Accessed March 24, 2014]. Boone, L. E. & Kurtz, D. L., 2009. Contemporary Business 2010 Update. John Wiley & Sons. European Commission, 2008. The Social Situation in the European Union 2007. Social Cohesion through Equal Opportunities, pp. 1-220. 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International Journal of Economy, Management and Social Sciences, Vol. 2, No. 2, pp. 31-36. MacLeod, A. & et. al., 2010. Evolution of the International Regulation of Plant Pests and Challenges for Future Plant Health. Food Sec, Vol. 2, pp. 49-70. Mark, B. & et. al., 2010. Facing the Future: Time for the EU to Meet Global Challenges. JRC Scientific and Technical Reports, pp. 1-41. Mastrostefano, M. & et. al., 2009. Globalisation Challenges for European Regions. Globalisation Challenges for European Regions, pp. 1-24. Mu, J. Y. M., 2009. The Effect of the WTO Agreement on the European Union. Tamkang University, pp. 1-17. Bibliography United Nations and World Trade Organization, 2012. A Practical Guide to Trade Policy Analysis. World Trade Organization. Vietnam Chamber Of Commerce and Industry, 2010. 10 Common Misunderstandings about the WTO. The WTO Does NOT Tell Governments What to Do. [Online] Available at: http://wtocenter.vn/wto/introduction/10-common-misunderstandings-about-wto [Accessed March 24, 2014]. Read More