In this report, I will be addressing the implications of the European monetary union and the problems Zeus will have in developing their market in Europe.

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HND UNIT 29: European Business

In this report, I will be addressing the implications of the European monetary union and the problems Zeus will have in developing their market in Europe.

The UK and EMU

When the UK decided not to join the European monetary union (EMU) in 1999, it affected UK businesses, especially those who trade within the EU.

Does it matter whether sterling is in or out?

For many UK Businesses, trading within the EU has become more competitive.

After the introduction of the Euro, an Italian company for example, competing for a German companies business could cut 3% of costs due to their common currency, making it harder for UK business to compete. Currently UK businesses are paying £3bn per year in exchange rates, which hit small firms like Zeus the hardest.

Advantages

By joining the single currency, British businesses will benefit from a fixed exchange rate allowing businesses to plan and budget for future activities more accurately.

Fixed exchange rates will deliver stability and increase confidence that will lead to more investment and jobs. By staying out of the Euro Britain will be at a disadvantage to competitors in the Eurozone who already trade with each other using the same currency.

The development of free trade has contributed enormously to the economic prosperity across the EU, with the strong position of the wealthier nations and helping to bring the poorer nations more stability and economic success. The introduction of a single currency removes one of the final barriers to free trade i.e. the transaction costs and the uncertainty involved in currency conversion.

The removal of national currencies will encourage cross-border investment since the traditional reluctance of many investors to move their money into a currency other than their own will no longer be a factor. Businesses across the Eurozone will therefore be able to attract more investors from other Eurozone countries, and investment will be based on the competitiveness of a business rather than its nationality. This will increase the pressure on uncompetitive businesses to improve their efficiency. An increase in cross-border mergers and acquisitions will also lead to more streamlined and efficient businesses across the Eurozone.

Disadvantages

Most of Britain' international trade is carried out in US dollars, a currency against which the pound has enjoyed far more stability than has the Euro. The fact that the pound has risen so much against the Euro since the Euro's launch is a sign of the Euro's weakness.

Changeover to the Euro would be endured by all businesses in the UK, whether or not they trade with Eurozone countries. Most British companies, sell to local markets. These firms would still incur the costs of conversion and not see any benefit from the removal of currency transaction costs. While there would be a saving from the absence of currency transactions for exporters, these would be offset by the costs of the changeover.

There have been fears that inward investment in British based industry would suffer as a result of staying out of the Euro, the reality has been very different. In 2001 the Office of National Statistics reported that inward investment in Britain for the 2000/2001 financial year was £341 billion, an increase of 36% over the previous year.

The theory that a single currency will lead to the harmonisation and lowering of prices across Europe seems hard to support. Regional differences in prices are a result of differences in levels of taxation as well as variations in labour, property and transportation costs. The cost of living in different parts of the UK varies considerably, even though all regions share the same currency.

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Less scrupulous retailers would use the introduction of the Euro to round-up prices, just as they did during decimalization 30 years ago.

How This Effects Zeus

Being part of the EMU will benefit a small company like Zeus, (see advantages above) however, there are some other factors that Zeus need to be aware of.

 

Promotion and packaging will also have to change. The language and content on the wrapping and will have to that of the country it is being sold in.

Health and safety requirements of products would have to meet one standard rather then ...

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