Monetary Policy of Portugal - Essay Example

?Environmental Audit (Data Response) • Key economic drivers in the host country Most economists hold the school of though that the best indicators orkey economic drivers for measuring the growth of the economy of any country is highly dependent on the supply-side factors that exists in that country because supply-side factors help in determining the trend rate of growth (Riley, 2006). Harper (2011) on the other hand explains that “supply-side economics tries to explain both macroeconomic phenomena and - based on these explanations - to offer policy prescriptions for stable economic growth.” Because of the basis and role of macroeconomics in determining the key economic drivers in the host country, which is Portugal, the main economic drivers to be considered will be tax policy, regulatory policy and monetary policy. Together, these three indicators or drivers should adequately give an investor a clearer idea about the feasibility of any economic investment in that country. Against this background, the three key economic drivers are discussed as follows. Tax Policy of Portugal The payment of taxes is mandatory as an economic policy in almost all economies of the world. Taxes are targeted at all groups of persons living in a country, who make an earning. The tax situation is no different in Portugal. There exist two major forms of taxes in Portugal. These two major forms of taxes in Portugal are individual tax and corporate tax (Abednego, 2003). Individual tax taxes are those that are paid by earning or income making citizens and foreigners. In this direction, the Investor Glossary (2011) explains that “An individual tax return is used to determine a person's personal income tax liability. On the contrary, corporate tax may best be referred to as business tax because it is paid by people in business. It is the kind of tax that is paid by companies, organizations and institutions. Corporate taxes are generally higher than individual taxes because corporate entities are profit making bodies are believed to be earning more than individuals. Any of the two forms of taxes affect businesses and by extension the company wishing to enter Portugal. This not withstanding, the tax environment in Portugal is one that can be described not to be too hostile; especially in comparison with what exists in other countries. In Portugal, individual taxes come in different forms as far as the executives in the company seeking to enter are going to make income they are likely to pay one form of individual tax or the other. The AngloINFO Lisbon (2011) explains that individual taxes paid in Portugal include taxes on salaries, capital gains and real estate income. On the broader scene, there is a 25% individual tax paid on earnings even though “income derived from real estate is subject to a tax rate of 15 percent” (AngloINFO Lisbon, 2011). The corporate tax payment regime that exists in portugal presently is not as lucrative as it used to be before the coming of the European Union and OECD. This is because before these era, Lowtax (2011) observes that “Portugal used to offer a number of special corporate income tax regimes by which businesses either paid reduced corporate income tax rates, were exempted from certain taxes altogether or were able to artificially inflate tax deductible allowances so as to reduce taxable profits.” Today, these tax incentives do not exist any longer. There is however other prudent measures taken by the government to ensure that the payment of taxes does not become a burden unto foreign investors. On the whole, there is “25% + a municipal surcharge (up to 1.5% of the taxable income): Effective rate: 26.5%” for foreign companies and taxes are exclusively on income made only in Portugal (Emporiki Bank, 2011). Regulatory Policy of Portugal Regulatory policy refers to the kind of rules, regulations and laws that binds businesses and corporate entities that which to establish themselves in Portugal. Contrary to the ascertion that regulatory policies are in place to sabotage the progress and development of foreign investing companies, “regulatory policy aims at building policy support and skills which promote high-quality regulations in member countries” (OECD, 2011). As a member of the European Union, Portugal has a number of measures that ensures that all foreign companies operate within certain means and regulations. The regulation enforcement is directed at ensuring fairness, professional development and equity of growth for the human resource that are used by venture companies. The belief has always been that investors and venture companies use natives as their main source of human resource basis. For this reason, there have always been regulatory policies that ensure that venture companies give the workers the very best of labor entitlements. Some of the ways by which the Portuguese government maintains high profile of employees and staff of foreign companies is by institutionalizing training programs, salary and reward program, recruitment and selection policies as well as laying off procedures. Companies therefore do not have the right to act outside the standard regulations. On regular basis, there are regulation management departments within the labor sector that regularly evaluates the performance of companies to see if they are conforming to the laid down regulations. Monetary Policy of Portugal Portugal has some of the European Union’s best monetary policies that account for the fiscal economic growth of the country. Portugal’s monetary policy is crafted around the Eurosystem. According to the Banco de Portugal (2011), “The primary objective of the Eurosystem, whereof Banco de Portugal is an integral part, is to maintain price stability, thus protecting the purchasing power of the euro, as stipulated by the Treaty establishing the European Community.” The Eurosystem initiative is very ideal for the success and development of all venture companies entering the Portugal. This is because by virtue of the monetary policies, which ensures that there is price stability, investors are assured of prudent economic management plans that reduces and slows the pace of inflation, reduce interest rate as well as ensures very good exchange rate. By all indications, in an economy where there is low inflation, reduced interest and good exchange rate, there is rapid growth not for big companies but also for SMEs as well. One would argue that when inflation goes up, production companies benefits because their prices go up. Sight must not however be lost of the fact that once inflation goes up, the cost of production also goes up and this does not auger will for companies. • A comparative analysis of HR systems in both Europe and the US The human resource system that exists in a particular destination has a lot of influence on the success or otherwise of a company; especially for new entrants. Before any major market entry therefore, it is important to undertake a comprehensive audit that will clearly define the kind of human resource system that exists in the target market. A well comprehensive human resource audit is identified by Orbit (2006) as one that is makes comparison between the present market and the target market and draws plans on how differences can be catered for in the new market. He further explains that the human resource system in the target market may be better or worse than what exists in the present market. Whichever way things turn, investors are supposed to strike the right balances. Researching on the human resource system that exist in the US and Europe, Pudelko (2006) concludes that there are four major contexts that influences the human resource systems in these parts of the world. The contexts are managerial, economic, socio-political and cultural contexts. However, socio-economic contexts are found to be the most influential context in the American system whereas cultural context is found to be the most dominant context in Europe. This not withstanding, a very closer relationship is drawn between the two systems that makes it ideal for multinational companies to undertake transfer of human resource across border from America to Europe. • Organisational issues that influence the development and implementation of HRM strategy The Portuguese human resource management models adapted by most companies are rooted from the general human resource system that exists in Europe as discussed above. There are however specific organizational issues that influence the development and implementation of these human resource management strategies. At all stages of the model – that is strategy formulation stage, implementation stage and evaluation stage, there are specific issues such as corporate laws, labor laws, regulatory policies and corporate bureaucracies that affect the successful implementation of strategies (Krishnan and Singh, 2002). The roles that these factors play in influence come in diverse ways and some are positive whereas others are generally negative. For instance there are procedural bureaucracies and restrictions that limit the creativity, innovativeness and dynamism of a particular company. This is because most labor laws in Portugal enshrine managers to handle their human resource issues in non-flexible ways that limit companies from acting outside the scope. A typical example can be sighted as recruitment and selection laws that prevent companies from towing certain selection lines and approaches, which they find most workable for conditions that prevail in the company. The positive aspect of the issues and factors mentioned can be traced to the fact that companies are protected by the same factors such that human resource base of organizations are also expected to give out certain degree of compliance to their superiors. This makes the implementation of strategies quite easier because as far as the strategies are approved and implemented, conforming to them is nonnegotiable. • Parent country issues that influence the development and implementation of HRM strategy In the parent country, there exist similar factors that influence the development and implementation of human resource management strategies. On the whole, there are obligations for both human resource executives and employees to adhere to. From a myopic viewpoint, one is tempted to conclude that these factors are all burdensome but some of them really have positive influence. The fact remains however that in the parent country, the employee, who is the potent behind the human resource concept is protected more often by the factors than the employer. The belief has always been that individual employees are weaker to defend themselves and so there are corporate regulations that protect employees. Employees also have a lot of unions and associations that trumpet and drive at home their defense. Due to these situations, there is an influence of partial dominance of the employee force over the employer front in the name of employee protection (Gardener, 2007). As such conditions and factors deepen, there is an influence on human resource management strategy because employers have very little room to freely operate, implement and evaluate their human resource management strategies. This is not as if employees have absolute control over employers and get all that they want. The same regulations that give employees much freedom and protection also embed on them to play their roles without any compromise to the success of their individual companies. This means that at the parent company, co-operation among employees to get human resource management strategies working are very high. • Cultural issues that influence the development and implementation of HRM strategy Much of the European context of human resource system is dependent on culture than exists in America. This means that in Portugal, culture has a lot of influence on the development and implementation of human resource management strategy. On the whole, within the skilled labor front, there exists almost clearly sided pattern of cultural influence on human resource management as far as Hofstede’s cultural dimensions of power distance, collectivism, uncertainty avoidance, and femininity are concerned. For instance the people of Portugal have a system whereby power is evenly distributed among all the populace. This means that there is relatively equal level of development. The influence of this is that most employees are elite and always stand for their rights. They are therefore highly critical of all human resource management strategies adapted by companies. Again, there is much individualism because everyone seem to care about him or herself. The influence that this can have is that strategies that demand teamwork and co-operation may hardly be instituted and successfully carried out. Finally, equal room is given to women as to men to operate and people try to avoid risk. This means that even though there may be a very large human resource base because of the inclusion of women, not all people will be adventurous enough with risk and this may affect the company negatively. REFERENCE LIST Abednego R. A., 2003, ‘The Situation in Selected European Economies’ Dunwell Printing Press: Lisbon AngloINFO Lisbon, 2011, ‘Personal Income Tax in Portugal’, Retrieved November 22, 2011 http://lisbon.angloinfo.com/countries/portugal/intax.asp> Banco de Portugal, 2011, ‘Monetary Policy’, Accessed November 29, 2011 Emporiki Bank, 2011, ‘Country Trading Profiles – Portugal’, Accessed November 25, 2011 Gardener, R. D., 2007, ‘Introduction to Human Resource Management for Beginners’, Penguim Press Limited: London Harper D., 2010, ‘Understanding Supply-Side Economics’, Accessed November 26, 2011 Investor Glossary, 2011, ‘Individual Tax Returns’, Retrieved November 23, 2011 Krishnan S. and Singh M., 2002, ‘Strategic human resource management: three-stage Lowtax, 2011, ‘Portugal: Special Corporate Income Tax Regimes’, Retrieved November 22, 2011 Orbit, D. G., 2006 ‘Human Resource Audit’ Press Corp Publications: London Process and influencing organizational factors’ Accessed November 23, 2011 Pudelko M. 2006, ‘A comparison of HRM systems in the USA, Japan and Germany in their socio-economic context’, Human Resource Management Journal. Volume 16, Issue 2, pages 123–153, April 2006 Riley G, 2006, ‘Theories of Economic Growth’, Tutor2u, Accessed November 24, 2011 Read More