The Emergence of Global Competitors - Example

European Union Table of Contents: Page Number 0. Introduction………………………………………………………………….3 2.0. Economic background of theissue………………………………………....4 2.1 European Union (EU) economic block………………………………….4 2.2 China economic bloc……………………………………………………..4 3.0. Current policy solutions……………………………………………………..6 4.0. Alternative economic policies to counter the threats……………………...6 4.1 Acceleration of economic reforms………………………………………7 4.2 provide financial assistance to weaker economies……………………..7 4.3 Invest in industrial research, innovation, and technology…………….8 4.4 Address challenges of enlargement policy……………………………..8 4.5 Invest in renewable energy sources…………………………………….9 4.6 Strengthen the financial markets and improve access to capital …….9 5.0. Recommendations………………………………………………………….. 9 6.0. Conclusions……………………………………………………………….....10 7.0. Bibliography………………………………………………………………...11 The emergence of global competitors like China is going to threaten the economic competitiveness of the EU 1.0 Introduction The European Union is losing the control of the geopolitical order to China in the recent overseas development. China has a robust policy to exert it influence in the global market with an approach of developing infrastructure and fewer precondition than that of the European Union. The EU has preconditions such as emphasis on good governance, democracy and respect of human right to advance support to developing countries. These precondition hinder furtherance of it influence and makes China favourable to many nation seeking financial aid and technological knowhow. The authoritarian model used by the Chinese has attracted nations in Africa and a few nations in Asia and Latin America. Therefore, EU does have an upper hand among Asian and Latin American countries. The current authoritarian regime in China is effective it is hard to predict that future government would effective and would exact pressure on the European Union policies. However, the challenges of the Eurozone threaten the Union with sovereign debt crisis and this is weakening the European Union compared to China, which has more stable financial institutions. This policy paper is for the attention of the European Commissioner, designed to explore measures that can counter threats to competitiveness posed by emergence of global competitors like China. 2.0 Economic background of the issue 2.1 European Union (EU) economic outlook The European Union economic indicators are currently declining since the GDP volume has declined by nearly 1 per cent over the past year while private consumption in volume has declined by similar percentage (World Bank, 2014). The investments in volume declined by 1.5 per cent and unemployment rate remained at a high of 10.7 per cent on average. The government deficits remained at high of 85.2 per cent while the economic sentiment indicator declined due to fears of sovereign debt defaults by some member states (World Bank, 2014). The EU relies mainly on machinery and transport sector that accounts 42 per cent of the exports, manufactured goods that account 22 per cent of exports and chemical and related products that account for 16 per cent of the exports (World Bank, 2014). The services sector accounts for about 70 percent of the entire nominal GDP of US $ 16.589 trillion while the industrial sector accounts for only 27 percent. The main export partners are the United States, Japan, Switzerland, China, Russia and Turkey while the main import partners are China (16.2) per cent, Russia (12) per cent and United States (11) per cent (World Bank, 2014). 2.2 China economic outlook China has the second largest economy and has gross domestic product (GDP) of almost $ 11 trillion and economic growth potential of overtaking the United States in terms of the GDP size. China has trade surplus and 2 per cent inflation rate (OECD, 2013). The country has attained consistent GDP growth rate of 10 per cent over the last few years and has established close trade partnerships with the Asian countries and the United States. China’s real GDP growth will moderate at 7.7 between 2014 and 2018 as it rebalances its economic model towards spurring domestic consumption (OECD, 2013). China will remain in current account surplus, and fiscal deficit will narrow thus leading to low public debt-to-GDP ratio. The investment in China will improve due to private-public partnerships and infrastructure development as contained in the government’s long-term economic plans (OECD, 2013). China and India are capable of withstanding short-term economic volatility from economic uncertainties in trading partners due to the strong macro-economic variables, compared to European Union economy that is vulnerable to economic and financial shocks from Western countries. Furthermore, China has 12 five-year plans of deepening fiscal reforms, investing in education and social security. China has economic growth policies that attract foreign capital and reduce the overall costs of production. The country has invested extensively in infrastructure, SMEs development and innovative technologies (Dijck 2000). Current EU GDP trend (source (Source: http://www.tradingeconomics.com/euro-area/gdp-growth). (Source: http://www.tradingeconomics.com/euro-area/gdp-growth). 3.0 Current policy solutions In comparison to other regions, EU has performed well in ensuring inclusive societies due to the strong welfare states that support the citizens during economic difficulties. In this case, the sharp rise in unemployment, in some countries of the EU, has put pressure on the national resources and reduced the ability of the member states to provide gainful employment opportunities on a sustainable basis (Garayannis & Korres, 2013). Although EU has better social cohesion policies, there are weaknesses in providing enabling conditions that will ensure the workforce get gainful employment during economic downturns (Eichengreen, 2008). The labour market is characterized by sharp increase in unemployment and vulnerability to slowdown in certain critical sectors of the economy such as the manufacturing, agriculture and real estate sectors (Lundvall & Rodrigues, 2002). Furthermore, the fiscal imbalances of countries such as Greece and Italy have put pressure on the government’s capability of supporting the existing social protection measures and ensuring investments in economic recovery (World Bank, 2014). 4.0 Alternative economies policies to counter the threat Competitive economies are capable of providing higher living standards to their members of the society and sustain economic development through innovation and attracting higher foreign exchange inflows from increased exports (Pinder & Usherwood, 2007). Although Europe 2020 strategy aims at ensuring ‘sustainable, smart and inclusive’ growth due to coordination of the national and European Union level policies, the current economic indicators point out that the emergence of global competitors such as China and India is going to threaten the competitiveness of European Union in global trade (World Bank, 2014). Therefore, there is a need to change policy measure that make the region stagnant and embrace vibrant policies that increase the use of technology to increase the production of goods and services. 4.1 Accelerate economic reforms As the EU emerges from the recent economic and financial crisis, acceleration of economic reforms through competitive-based strategies will be essential in ensuring the region gets back to its economic growth trajectory (Pinder & Usherwood, 2007). The EU economic region will benefit from the policy position by reducing the inflation rates of the member states, creation of more job opportunities in the export sector, reduction in the current deficit of the member states and increase in the average economic growth, in the EU region (World Bank, 2014). In addition, the Euro zone stands to benefit from high volumes of exports that will facilitate the appreciation of the Euro currency due to surplus on trade and high demand of the Euro in the international financial markets (Molle, 2011). Competitiveness of the Euro zone will attract high influx of foreign direct investments and ensure economic development in other supporting sectors such as tourism, real estate development and technology (Prasnikar, 2006). 4.2 Provide financial assistance to weaker economies Weaker performance of a majority of the member states threatens the overall decline of the EU in global trade and investments. The EU market confidence has been dwindling due to fiscal imbalances that have led to risk of outright sovereign debt defaults in countries like Greece and political discontent on the future of the common currency by some member states. The European Investment Bank and European Financial Stabilisation fund should ensure additional financing to member states that are experiencing an economic slowdown and sovereign debt crisis (Nello, 2011). The EU should provide priority to supporting weaker economies through economic reform and investment programmes that encourage innovation and investments in infrastructure development in order to facilitate growth of new enterprises (Stajano, 2009). 4.3 Invest in industrial research, innovation and technology The European Parliament and European Council should ensure member states are committed to the competitiveness and innovation framework programme (CIP) that consists of entrepreneurship and innovation programmes, information and communication technology policy and intelligent energy Europe. The European Agency for Competitiveness and Innovation (EACI) should lobby for more funding towards Eco-innovation fund that funds innovative technologies and production processes and European Investment Fund in order to increase the participation of private equity investors and venture capitalists in the economic growth (World Bank, 2014). The fund should improve the current funding to high growth and innovative SMEs and support guarantees through securitization structures in order to improve the dwindling business confidence in some countries (Nello, 2011). The EU will benefit from the reduction in production costs and economic diversification due to the emergence of alternative supporting SMEs firms (Stajano, 2009). 4.4 Address challenges of enlargement policy The EU enlargement policy should ensure accession countries have addressed their competitive weaknesses by setting economically fundamental that will accelerate growth and ensure sustainability of their individual economies (Nello, 2011). The EU should be strict in enforcing standards and rules for accession such the functioning of the market economy in order to ensure such countries comply with the increased global competition and economic obligations of the monetary union (Nello, 2011). 4.5 Invest in renewable energy sources Availability of cheap and renewable energy source is paramount for competitiveness and Intelligent Energy Europe must ensure businesses meet their EU’s environmental targets (Golub, 2013). The manufacturing firms should be encouraged to invest in innovative technologies and renewable energy sources that minimize the overall energy costs in order to reduce the overall production costs and improve the export volumes (Pinder & Underwood, 2007). 4.6. Strengthen the financial markets and improve access to capital The EU member states are currently in the midst of sovereign debt crisis thus failure to address the crisis will further accelerate the loss of competitiveness to emerging global competitors. The current EU approach of conditional financial bailouts to the member states has failed to improve the competitiveness of the overall EU zone as a viable investment destination. Strengthening the financial system will minimise financial shocks and facilitate growth of enterprises through low interest rates and stable inflation (Marsh, D. 2013). 5.0 Recommendations The European Union need high level and increased economic prosperity which can only be achieved by increasing competitiveness in the European market. The European Union need to draw a comprehensive reform program that addresses the current non-competitive policies such as social programs and stimulus and bailout programs. Moreover, the EU needs to address fiscal imbalances to stabilize the economic variable in the short run and maintain investor’s confidence. Investment in research and development, education and innovation are important measures in establishing a smarter economy (Schwab & Brende 2012). China has emerged as the second best economies in the world after the U.S, and this has been attributed to its increase in competitiveness in the labour sector and also through technology advancement. Therefore, European Union should build a knowledge based population that can challenge the innovation coming out of China. Investment in research for new knowledge should be encouraged with the establishment of European Educational Area or European Research Centre (Schwab & Brende 2012). The current discontent among European nation hinders the achievement of the EU goals. Therefore, the Union needs political leadership that can overcome vested national interests so as to enhance a shared commitment and responsibility among members. Implementation of reforms should be a duty of every member state of the European Union. An engagement of giving and take by the business community, civil society and government ensures that the reform programmes are implemented effectively without disruptions. 6.0 Conclusion The global financial crisis has exposed the underbelly of European Union to emerging economies such as China and India. The region has had unsustainable growth patterns in some member states like Greece. The increased unemployment rates slowdown key sectors such as motor manufacturing and real estate sectors that form the economic background of majority countries within the economic bloc. Therefore, the EU needs a competitive economic hub that entails investing in innovation, superior technology and economic enhancers like labour market efficiency and increased market access. The most problematic factors that threaten economic growth and competitiveness of the EU include the restrictive labour regulations, inflation, and high sovereign debt, limited access to financing, inadequate innovation, and tax and market access regulations. However, adhering to the above recommendations would address the challenges that China poses on the influence of European Union in the world. Bibliography: Dijck, P., 2000. The external economic dimension of the European Union. Hague: Kluwer Law International. Dressel, M., 2007. The EU and the knowledge economy: how increasing interaction puts an end to European integration. Munich: GRIN Verlag. Eichengreen, B.J., 2008. The European economy since 1945: coordinated capitalism and beyond. New Jersey: Princeton University Press. Garayannis, E.G & Korres, G.M., 2013. European socio-economic integration: challenges, opportunities and lessons learned. London: Springer. Golub, J., 2013. Global competition and EU environmental policy. New York: Routledge. Lundvall, B & Rodrigues, M., 2002. The new knowledge economy in Europe: a strategy for international competitiveness and social cohesion. London: Edward Elgar Publishing. Marsh, D., 2013. Europe deadlock how the Euro crisis could be solved and why it won’t happen, New Haven: Yale University Press. Martin, R., Kitson, M & Tyler, P., 2012. Regional competitiveness. New York: Routledge. Molle, W. 2011. Economic governance in the EU: implementing policies with the financial and coordination modes. London: Taylor & Francis. Nello, S., 2011. European Union economy: issues and polices. 3rd Ed, London: McGraw-Hill. OECD. , 2013. Economic outlook for Southeast Asia, China and India 2014: beyond the middle- income trap. Paris: OECD Publishing. Pinder, J & Usherwood, S.M., 2007. The European Union: a short introduction. Oxford: Oxford University Press. Prasnikar, J., 2006. Competitiveness, social responsibility and economic growth. New York: Nova Science Publications. Schwab, K., & Brende, B., 2012, The Europe 2020 Competitiveness Report: Building a More Competitive Europe, Geneva: World Economic Forum. Stefano, A., 2009. Research, quality, competitiveness: European Union technology policy for the knowledge-based society. London: Springer. Winiecki, J., 2008. Competitiveness of New Europe: papers from the Second Lancut Economic Forum. New York: Routledge. World Bank. , 2014. Global economic prospects: coping with policy normalization in high-income countries. 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