A clear explanation of key underpinning economic theories relevant to the EU.
The EU and UK Business
AVCE Business
Task 1
A clear explanation of key underpinning economic theories relevant to the EU.
The Institution of the European Union and Theories
Economies of Scale, Firms operating in the European Union can benefit economies of scale which is where a firm expands and lowers costs for consumers and makes profits. Official definition is cost advantage through increasing in sale, the main advantages of this are especially being in the EU are that firm has large market to sell to, there is increased demand and sales to be made and above all more scope for large firms. Large business such as Boots can compete more effectively than a smaller business due to greater monopoly and lower unit costs which derive from economies of scale.
e.g. a firm by entering the EU has access to larger market, larger potential of sales and increased output resulting in economies of scale. By increasing in size and producing more average costs are lowered and firm makes a profit.
Supply & Demand
The EU enables firms from member states to operate any where in the EU, there are advantages and disadvantages of this,
Supply increases as there are so many firms operating so supplies increases but one can also have a disadvantage as there are so many firms operating supply has increased so prices would be lowered, in-order for firms to compete with each other. Consumers will benefit from this is cheaper products and services but some firms might find it hard to compete with low prices, or compete with major firms.
Supply and demand will definitely change as Larger market, increase number of consumers, increased sales and increased output.
The diagram shows that as supply increases price lowers so consumers will benefit.
Consumers in return will benefit from lower prices.
International trade, (trading without barriers)
Free trade, the single European market benefits a firm and the economy of each member state, and the removal of trade barriers leads to reduction in business costs as well as in increasing competition and stimulating consumers and encouraging the creation of jobs and wealth. Today the single market is home to around 360 million consumers and a firm can make huge profits as of this.
The single market also allows countries to specialise in domestic products,
e.g. France is good at making cheese and wine so they specialise in these and sell to the rest of Europe, would. This gives the French an advantage with its products and helps economic growth.
Specialisation
Some countries will benefit of this as they specialise in certain products or services. Countries can produce what they are best at this is also known as comparative advantage. E.g. France specialises in wine and cheese and many consider these products are of a better quality when they are produced in France. France takes advantage of this opportunity by producing what it is good at. In return results in production increases, benefit to the country, and could also benefit from economies of scale.
The single European market dose not implement the following trade barriers and by doing so trade is encouraged between member's states: (treaty of Rome)
Quotas, These are limits in terms of quantity, on the amount of goods or services that one country will buy from another. This trading bloc has been removed in the single market and this makes the movement of large quantities of goods acceptable.
Tariffs, These are taxes on imports of goods and services and this rises the price. By doing this the product or service becomes un-competitive as its costs are high. There is no tariff in the single market that encourages trade and lower prices.
Exchange controls, Governments can reduce the amounts of imports coming into their country by placing restrictions on the amount of currency that individuals and businesses can buy. The ability to buy foreign currency is essential to international trade as sellers insist on being paid in their own currency. This can not take pace in the EU as their is single currency the (euro), except in UK, Denmark and Sweden.
By the removal of the above, it is easier for firms as there is no export bureaucracy. Spanish firms will not have to pay for trading with France or with Germany as no trading restrictions but UK will have to pay for exchanging currency as UK has not adopted the Euro yet.
International trade, competition tends to push prices down,
increase quality
lower price
maintain profit level
lower unit costs.
Single market attracts inward investment from overseas and non EU countries. Trade rises which increases variety of products available, allows countries to specialise in certain products which they are good at making.
The aim of the EU was to bring down barriers so firms from different countries can benefit from large consumer markets. Consumers will have access to a wide range of products and services at lower prices. This encourages in GDP and increases international competitiveness.
The EU is made up of European Commission and the European parliament, which takes care of the day to day running of the EU. There are three pillars of the EU:
*European Community
*Common foreign and security policy
*Justice and home affairs
The parliament is based in Brussels, Luxembourg and Strasbourg. This parliament decides laws and the EU's budget. It also has the power to sack the European Commission. Every six months a different country takes the presidency of the EU.
The European Union is trading bloc. The steps in the creation of a trading blocs are:
*Free trade, one of the main purposes of the EU is to get rid of the trading blocs and barriers to introduce free trade in particular area.
The removal of quotas and tariffs between members of the trading community.
*Customs Union, in addition to free trade area, member's states operate a common external tariff. This means that an import to the European Union from non member country,(Iraq), there would be a tariff.
*Common market, this involves the free movement of factors of production (land, labour, capital and enterprise) and the free movements of goods. The European Union is characterised by four freedoms:
*The free movements of goods
*The free movements of services
*The free movement of people
*The free movement of capital
By being in the European Union a country can acquire these benefits, which can help to improve trade and growth.
The 15 member states of the European Union are:
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom
(B)
A description of EU the treaties, including a clear explanation of how this has generated opportunities and treats for UK businesses.
The EU treaties are international laws which are written by the nations in the European Union. All countries in the European Union must adhere to them in good faith. There are several treaties which can be classified as either political or commercials agreements.
Brussels Treaty
The treaty was signed in 1948 by France, Belgium, Luxembourg, the Netherlands and the UK. The main purpose of the treaty was to prevent further conflict between countries after the Second World War, European integration would be used to prevent this.
The treaty agreed on military assistance as well as economic, social and cultural co-operation between the countries. The treaty paved the way for Western European Union Nato. The treaty improved relationships between the countries and also increases trade. This treaty created benefits for firms as customers can buy products from different countries.
Paris Treaty
The Paris treaty was set up by the European coal and steel community. The Treaty came into effect in the 1950s and the main purpose was to improve relations between France and Germany and prevent future outbreaks between the two. The treaty was later signed on by Italy, Belgium, Luxembourg and the Netherlands this would results in better relationships between the countries.
Treaty of Rome
The treaty of Rome was signed on March 25th 1957. This treaty was signed by,
*France
*Germany
*Italy
*Belgium
*Netherlands
*Luxembourg
to establish the European Economic Community (EEC) also known as the common market, as an economic association of western European countries. The treaty of Rome has been amended several times to take account for the new member states joining the EEC. Once a treaty has been signed , it must be ratified by all member states before it comes into force. By 1973 more countries joined the treaty of Rome and these are United Kingdom, Denmark, Republic of Ireland and more.
The main purpose of this treaty is:
*The removal of trade barriers between member nations
*Freedom of movement of capital, labour, and entrepreneurship across borders.
Benefits
This benefits firms as they can set up branches in all EU countries meaning business growing, resulting in economies of scale. Business can attract more customers as it has now expanded new to new territories. Boots has several stores in France and Spain.
Treaty of Maastricht
Maastricht is perhaps the best known and the most controversial of the European treaties, Maastricht is officially known as the treaty of the European Union and with it came the EU into existence for the first time. This treaty was approved at Maastricht in Netherlands by the 12 heads of government of the European Community in December 1991 and signed on February 7th 1993.
This treaty states that:
*To promote economic and social progress, which is balanced and sustainable
*Strengthening of economic and social cohesion
*Establishing an economic and monetary union, which will lead to single currency
*Right to move and live in any EU state
Amsterdam treaty
This treaty came into effect on the 8th June 1997. The main aim of this treaty was to expand the Maastricht treaty, the sections that were going to be expanded are:
*Public health
*consumer protection
This treaty aimed to make the EU democratic in preparation for its eastwards enlargement. The European Parliament was given power to legislate in co-decision with the council of Ministers on a range of new issues such as:
*Employment
*Social exclusion
*Customs and data protection amongst other issues.
This treaty helped to create jobs, improve border checks and the protection of the environment.
Opportunities and threats for UK business
Today, over £130 billion of Britain's trade is with the European Union and 3 million people employed as of the European Union. The enlargement of the European Union has created opportunities and treats for UK businesses.
These treaties have created opportunities and treats for UK businesses, the Treaty of Rome allows movement between countries without any barriers. This means people are allowed to move from one country to another no matter if its for work or for a holiday. This would benefit a firm as it would mean more customers can be attracted and a firm can cater for foreigners and can open branches in other countries. On of the main advantages of this treaty is that consumers can so easily travel from one country to another that businesses will be attracted by huge number of customers. Firms do not have to pay taxes on imports and exports in the European Union so less costs are incurred. This in return will benefit the firms as more sales can be achieved and increase in profits.
The Maastricht treaty helped many businesses as it created more money for these firms. Plans for single currency have also benefited firms as there is now a fixed exchange rate system so businesses can plan ahead with what deals they want to make. There is a clear benefited of single currency as there is no transaction costs no conversation costs meaning firms can benefit form higher profits.
Single currency has helped Boots as foreign suppliers are willing to trade as no extra costs but UK not being a member Boots in UK is making less profits as from the one in the Single currency states.12 members have adopted the single currency and by doing are paying less costs and increases in profits.
The Treaty of Amsterdam is to promote equal opportunity, free movement and economic growth. This treaty allows workers and businesses rights at the work place. The workers have the right to be treated fairly and confidentially. This in return improves employer and worker relations and improves employee performance.
The treaty has created more jobs and by doing so firms have been able to access people with wide range of skills and abilities. Resulting in an outstanding workforce which also improves company performance.
Boots had to make considerable changes in its strategy to be able to operate in the European Union.
Opportunities for Boots
The opportunities offered by the European Union are:
*Boots operates in the UK, the UK market share is 64 million whilst the EU consumer market is 375 million. This offers Boots scope for considerable economies of scale and increased profits. This is a major benefit to Boots as there are more consumers to sell to. The above have been allowed due to the signing of the Treaty of Rome, which allows movements of goods and capital and labour without any barriers and restrictions. The treaty has enabled Boots to transport goods from one country to another without having to pay taxes such as tariffs and quotas. By doing so Boots costs have been lowered .
*The scale of the European market means that firms can specialise in particular niche markets and earn sufficient profits.
*Firms throughout the UK can seek mergers and commercial agreements with other European businesses. By co-operating with businesses whose strengths are complementary, organisations can derive benefits. Alternatively, take-overs might be the means by which businesses increase their scale to cope with the European market.
Threats
*Boots faces much more competition from other European businesses, even in the United Kingdom. This can result in the prices forced down; giving lowers profit margins or even resulting in ...
This is a preview of the whole essay
*The scale of the European market means that firms can specialise in particular niche markets and earn sufficient profits.
*Firms throughout the UK can seek mergers and commercial agreements with other European businesses. By co-operating with businesses whose strengths are complementary, organisations can derive benefits. Alternatively, take-overs might be the means by which businesses increase their scale to cope with the European market.
Threats
*Boots faces much more competition from other European businesses, even in the United Kingdom. This can result in the prices forced down; giving lowers profit margins or even resulting in bankruptcy. As firms have access to your country as well as you having access to theirs. This is the result of The Treaty of Rome.
*Some UK businesses may be liable to hostile take-overs by larger European businesses intent on dominating the new European market.
*Boots has to consider the marketing of its products carefully as it operates in the single market and their are many different cultures and languages which might be offended by its advertising. This is the result of The Treaty of Amsterdam which states on equal opportunity, public health , consumer protection, customs and data protection and social exclusion. The treaty has had an affect on Boots as many key points must be considered when employing, advertising, and worker rights. If Boots fails to operate by the rules it is likely to be fined and could result in loss of reputation.
The treaties have more advantages than disadvantages,
The Treaty of Rome has enabled Boots to operate in a larger market, by a firm operating in the EU its can potentially sell to over 380 million consumers. Goods and companies can sell to their products anywhere in the member states and consumers can buy where they want with no penalty. The advantages to firms are huge, the treaties have removed all tariffs, and customs barriers so firms can operate freely. By doing so Boots incurs lower costs as no taxes on movement and profit rises.
Another benefit is that citizens of member states can live and work in any other country and their professional qualifications would be recognised so fee movement without restrictions. Boots benefits of this as it has now access to a variety of candidates with many different attributes. As a result Boots will have a quality workforce who can provide a high level of customer service. This will allow new customers to be attracted and Boots even increasing in size benefiting from economies of scale. The Masstricht Treaty allows, Boots to trade with many different suppliers and dealers as one currency and no exchange rate costs easy transactions. Boots benefits from lower costs and increases profits. Currencies and capital can flow freely between the member states and European citizens can use financial services in any member state without any charges or difficulties. The treaties also provide better consumer protection, e.g. all toys must meet European safety standards and students have the ability to learn in any of the member states, the British government is encouraging this as it wants its students to be experienced. Boots is offering work experience places to students meaning attracting employees from the European Union. This treaty allow employee rights and resulting in a better quality workforce also environmental issues must be considered by Boots as what to do with waste and testing products on animals which falls under the Treaty of Amsterdam.
Task 2 /A
An analysis of relevant cultural attributes
Culture is the attitudes, values and beliefs that are shared by people in the business. Ronen and Sinker with their cross cultural studies were able to derive eight world wide clusters based on shared societal attitudes and work related values.
There are three categorises of cultures:
Different culture in the EU
There are 15 member countries in the EU with all their respected cultures, customs and beliefs. The cultures differ greatly from one country to another.
Below I will state all the different culture and beliefs and certain key facts on the member states.
*France, with its population around 58.3 million differs from each and every other member state.
The official language of France is French, with many minor languages spoken, Arabic, German, Portuguese. Over 55% of French people identify them selves as being Catholic and around 10% visit the church regularly. Another religion which takes place in France is Protestant. There are a number of Muslim's which makes the countries largest religion as well as there being Jews and Hindus. French standard of living is consider to be one of the best in the world, although the French are paid less compared to British, the French spend more on leisure and outdoor activities. Culture, arts and history are very important to French people. Certain groups in France in-order to preserve this have tried to ban English movies, songs and the use of the English vocabulary.
Italy the official language of Italy is Italian with some minor languages such as Sardinian and Cheetic. The population is roughly 50 million. Italy has the most beautiful buildings and architecture in the world with galleries. The country has a huge number of tourist every year and also many high quality brands.
Germany, the official language of the country is German with many minor languages such as Turkish as many workers from Turkey. Also spoken in Germany is Frisain and English. English is taught is all German schools and this is mandatory. The Germans have adopted the single currency and the country has the unmissable museums and art galleries. The majority of Germans class them selves of being Catholic, there are also other religions such as Islam and Judaism. German is considered to be the second most richest country in the world with one of the most effective education systems.
Sweden, the official language of Sweden is Swedish and Lapp. The population is roughly 40 million and the country has not adopted the single currency the Euro. Sweden is economically struggling and many people are leave for UK and France for work. Religion is quite important to the Swedish people the main religion is Christianity, with small pockets of other religions such as Islam and Protestants. The cost of living in Sweden is relatively lower to the rest of the European Union countries. Joined the EU in 1995 but has not adopted the single currency.
Belgium, the official language is German. The capital of the country is Brussels this is where the EU is based. Education is taken to be very serious and attendance is obligatory for all children and young people aged between six and eighteen. The economy is export oriented as they're mainly exporting goods to other countries. Religion is important to the Belgians especially after the great war many believe in Christianity.
Austria, the official language of the country is Solvene, Croat, Hungarian and Czech. The population is roughly around 30 million,, the country is diverse defined by culture and historic differences. Since the war the Austrians have undergone great transformations. Many people are now working in the services sector instead of the farming, this change is increasing and now 1 in 8 are only in the primary industry. The religious practice of the country is mainly Catholic. Austria is visited by approximately 10 million tourist every year, who come to see the war grave yards and war history. Education is the governments number one policy and large amounts of money is invested into the education system, the languages taught in schools are English and Spanish.
UK and Ireland the two are said to relate to the USA as their are exhibiting more similarities to the USA than to the other EU members. The languages spoken in cluster one are English, which is the official language. Some Celtic languages, Welsh, and Asian languages are also spoken such as Urdu, Hindi and Cantonese. Religion is important in cluster one, the main being Christianity, the two types are Protestants and the Catholics as well as many other religions, such as Islam. There are many different cultures and languages in the EU, the United Kingdom has a different culture to Germany as the way of living in both countries is different.
The United Kingdom joined the EU in 1973 and its population is roughly around 60 million, the population increases roughly about 1/2% every year. The GDP produced per head is around $223.550 and overall around $1,407bn, the United Kingdom has the unemployment level of 5.2% that is considered low to some countries.
Tourism is one of the major growing industries in the UK, and the services sector has seen major boom with UK specialising in insurance and banking. The services sector has the majority of workers whilst the manufacturing and agriculture sectors have seen a declined in the number of workers.
English is the official language of the UK but there are variations in some regions. Immigrants and their children speak a number of Asian languages in the UK. such as Persian, Urdu, Hindi, Bengali, Cantonese and many more. The United Kingdom has a multicultural community with people from all over the world.
With the UK being in the far west it climate is mostly different from other EU countries, there is variation between north and south, with the north being generally wet and colder then the south. London is densely packed whilst the countryside areas are lightly populated.
The citizens of the United Kingdom find that their costs of living are much higher then the rest of the EU countries, many essential items such as food, public transport and petrol are higher priced then most if not then all the EU countries. UK is one of the most expensive places to buy a house especially in the capital London.
Portugal, the official language of the country is Portuguese. Customs procedures in Portugal are generally simple and problem free. One of the things that the Portuguese hate and the law states no fresh meat can be brought into the country. The Portuguese don not take ease to animal testing and have strong thoughts to this. The main religion in Portugal is Christianity. Education systems is being improved every year Portugal. Portugal has adopted the single currency the euro after major debates and now the country is benefiting from this.
Spain, The main language of Spain is Spanish, Basquie. The population is roughly 54 million. The education system is teaching students at school English and many people from around the world especially from rest of Europe are buying second homes in Spain. The tourist industry is booming every year in Spain. Roughly 50 million tourist making Spain the second most visited country in Europe after France. The Spanish Island are visited by many British visitors every year and they are not taken kindly as the British are considered to be loud and said that they cannot behave in an orderly manner. Culture and arts are very important in every day Spanish life with many films being shot in Spain as of the beautiful buildings and surroundings.
Greece, The official language of the country is Greek, Macedonian, Turkish, Albanian. The main religion is Roman Catholic and with many minor religions such as Islam and Judaism. Some of the worlds most beautiful architecture is in Greece with Folk art and Classic Greek sculpture. The tourist industry is also of a high standard as around 30 million visitors very year.
Multiactive culture
Language, should be thought from the point of view of both the written and spoken language. Language should be considered when marketing the product internationally and when representing the product. Language should be considered when launching a product as instructions might be hard to understand and to satisfy all needs. Language is linked to education if a country has a good education system then there would be less difficulties.
Attitudes and values, are different in some countries in relation to matters such as time keeping and appointments. Attitudes and values differ from countries to countries, it might be considered rude to question elders but in some acceptable.
Religion, this is very important to a lot of individuals, such matters as prayer times and religious meetings and rituals a company must consider these when launching products as it can offend some religions.
Aesthetic consideration, this is regarded as things which are beautiful or of a good taste. This could include branding, visual appearance, colouring or shape a firm must consider the following when launching a product internationally as some colours and brands are seen to cause offence in certain countries. These can be historic sights such the leaning tower of pizza in Italy or the Dome in UK.
Education, in certain countries if not all is very important, as this shows levels of understanding and literacy and firms can use specific marketing strategies to represent products to all people with different levels of understanding.
Law and politics, this is very important and must be considered when marketing products as some laws and regulations are different form one country to another. Firm must make sure it does not cause a dispute with its strategy or major loses could be suffered.
International organisation, this is very important because of its commercial infrastructure, which can change from the way business is conducted to the state of the road and general transport systems.
B
A Grouping of EU countries by means of 1 set of cultural attributes.
There are eight world- wide clusters, five of them being in the European states.
I will now analyse a set of cultural attributes, I will look at all the different languages spoken in the 15 European Union member states. There are many different languages spoken in the member countries, A firm when marketing its products needs to consider many key essential facts and some of these are,
*Language
*Attitude and values
*Religion
*Aesthetic considerations
*Education
*Internal organisation
*Law and political issues
Below I will present all the languages that are spoken in each of the member states, there are various languages spoken in the European Union below I will represent the language that are spoken in the EU countries via by a grouping.
Groups
Celtic,
The languages that come under this category are,
Britonic that which includes Breton, Welsh, Cornish, and Pictish. Spoken in UK, Ireland the Eu members.
Gaelic also comes under this category and the languages that are in this category are Irish, Scottish and Manx. Spoken in Ireland
Romance, there are several languages in this category and these include,
Ibero-Romance this group includes,
*Portuguese, spoken in Portugal and Spain
*Galician
*Spanish, spoken in Spain
*Catalan
Gallo-Romance includes,
*French, spoken in France
*Occitan, spoken in Luxembourg
*Franco Provencal, spoken in France and Netherlands.
Italo- Romance includes,
*Standard Italian, spoken in Italy
*Dialects of Italian, spoken in Italy and surrounding area
*Corsica
*Sardinian, spoken in Italy
Rhaeto- Romance includes,
*Swiss Romance
*Dolomitic Latin, spoken in Spain
*Friulian
Dcao-Romance includes,
*Romanian
Baltic, several languages spoken in this category.
North Germanic
*Icelandic
*Faroese
*Norwegian
*Swedish, spoken in Sweden
*Danish, spoken in Denmark and some areas of Netherlands
West Germanic includes,
*English, spoken in England, Ireland, and various EU states as most common language
*Frisian
*German, spoken in Germane & Austria
*Yiddish
*Dutch/ Flemish, spoken in Denmark
*Luxembourgish, spoken in Luxembourg
The above shows the languages spoken in the EU member's states. Vast numbers of languages are spoken, as travel has been so easy as of the treaties so people can move around so easily. The treaty of Rome has allowed the movement to be so easy as of this a variety of languages are spoken in the U and the UK. The above tables show the languages spoken in EU member states and there origin.
Task 3
A
A description and analysis of the impact of EU monetary policy
In the1979, European Monetary System (EMS) is introduced on the initiative of the Commission President Roy Jenkins setting Europe on the road towards the euro.
The main aim of the EMS was to introduce a single currency, this consisted of the Ecu- an artificial currency unit- and the exchange rate mechanism, which tied the European exchange rates together.
Stage 1 of the EMS
*Free movement of capital
*Narrowing of ERM band
*Closer co-operation between central banks
*Closer co-ordination of economic policies
STAGE 2
*Convergence of member states ' economic and monetary policies
*Establishment of European Central Bank
*Independence of national banks
*Participating countries fix their exchange rates
The main aim:
Joining the euro could enhance both growth and employment prospects, and create an attractive area with low inflation and stability, which would increase the level of investment and create more opportunities. The EMS makes the single market more competitive as fewer restrictions and a single currency.
Stage 3
*Introduction of single currency as an electronic currency
*Launch of euro notes and coins
2 out of 15 countries adopted the Euro currency and gained many benefits as of this such as:
Advantages
*Lower costs for management of money- no currency conversation costs, will benefit firms as costs reduced
*Fast transactions- no delays in arranging currency conversations
*No exchange rate fluctuations, as single currency, therefore greater certainty. No need for business to use safe margins in import and exports.
*Transparency of costing- easier for business to secure supplies which reduces costs.
Disadvantages
*Cost of conversation, new software may be needed to handle this,
i.e. computers need to be updated
Loading cash machines with new currency
*The understanding of the new currency
Effects/ the impacts of the Monetary policy
Before a country could join the single currency it must meet five tests, UK has the ability to join the euro but has not joined as a results UK firms are at a disadvantage because currently most of the UK trade is with Europe and since UK has not adopted the euro its firms are at a loss.
The pound has been relatively strong against the euro this has made the price of UK exports more expensive and imports relatively cheap so UK firms are losing trade as of this.
As of this Boots prices their goods in Euro's across the Euro zone as a whole rather than with individual countries and currencies.
Benefits/ affects to Boots/ Business
The induction of the euro will have an impact on Boots, whether or not the UK decides to join the EMU. Boots has business in nine of the first wave countries. *Boots is prepared for the induction of the euro since 1999. Boots has been preparing for the euro currency and this has had an impact on the business as vast amounts of money has been spent on systems changes, updating systems to take the new currency. In-order to be ready for the trading with the new currency, Boots has incurred costs but predictions state profit margins will increase via using the euro.
*will concert their normal systems in line with the government conversation plan in each country
*be able to take euro notes and coins in retail stores in the Republic of Ireland and the Netherlands in January 2002, this has had an impact on Boots as their staff had to be trained on how to use the new currency which has incurred costs for Boots. Time for training is consumed as significant costs will be incurred to change IS systems to support the change over to the new currency in the UK or the rest of Europe. .
*be ready to handle the consequences of UK entry
*Boots customers as of the policy may be confused with the change over of the currency, pricing may thought to be suspicious as quoted in euro's and customers may be concerned that retailers are concealing prices. Boots in-order to prevent this, had to train its staff and change labelling of the prices and the displays in-order to make the customers life easier. The change has effected Boots as large amounts of money is being used to carry out the above procedures.
It will cost Boots approxmently 40 million in preparations for the euro, this 40 million will be used to update systems and get the company ready for the euro.
Benefits to Boots will be less conversion costs, suppliers more like to trade as same currency. Customers would be confused over the prices and might wonder if they are being charged to much. Significant costs will be incurred to change IS systems to support the changeover to the new currency.
B
A description and analysis of the impact of the EU competition policy
Competition policy is essential for the competition of the internal market, competition is the main factor of the single market, as of this a competition policy was needed so firms can not take advantage of consumers and to encourage efficiency by creating a climate favourable to innovation and technological progress.
Its main objective is protect consumer interest by allowing them to buy goods and services under the best conditions
Objective of competition policy
*To ensure firms are not charging monopoly prices in excess of the competitive equilibrium
*Follow the complaints from member states, firms and individuals
*Following notifications of agreements by firms
*Following notifications of state aid planned by a member state
The competition policy allows the Commission to carry out inspections on businesses and premises without giving prior notice and can demand to see the necessary documents. If firms are to found to be exploiting the consumers the Commission gives the concerned firm an opportunity to explain or could even fine the firm concerned. The main objective of the competition policy is to stop anti- competitive behaviour.
The Commission can also declare the following:
It can aid and promote the development of certain activities and regions, it can also promote culture and heritage all this can help the economy grow.
With the single market comes a lot of competition and firms can be affected by this so one of the ways to get around this is to enter into vertical or horizontal agreements with object of foreclosing rivals markets. Simply companies in an oligopoly
Market could join with competitors and fix price so increased profits can be made. Cartels are introduced to challenge these practices so consumers will not be exploited.
Competition policy can affect a business; there are many benefits of this policy as well as there being impacts. The policy is tough on price fixing where firms fix prices in-order to compete with competitors or even put them out of business. This act does not allow mergers, which will not benefit the consumer. This has an effect on business as there would be competition existing and a choice for the consumer as there being many firms supplying.
State aid
State aid is considered to be a scrutiny under competition policy, in many cases it is deemed as justifiable. State aid is expectable when it promotes economic growth in less funded areas.
But it is deemed unfair when it is given to firms to have a competitive advantage over another firm or in the industry. The commission has the right to bloc or force the repayment of such aid.
There are some measures introduced for firms so that they can not unintentionally fall foul to the above:
Notification of agreements and mergers
Companies attempting to merge must put forward their plans and the Commission checks to insure consumers would not be exploited. A firm must put their plans forward to unsure that they are not breaching any rules.
This can have an impact on firm such as Boots if the government is helping a firm that firm will have an advantage over the others. As its finances are being helped with and could in-order to compete reduces prices this will effect the other firms.
Ground rules for state aid
State aid would only be acceptable when a sector is in desperate need of funding and the Commission makes sure that the state aid would not give a firm an advantage over another.
This is designed so that a firm in difficulty can overcome it, it is not designed to give a firm an advantage over another.
Take-overs
This is where big firms by obtaining smaller firms as they potentially have higher finances. Smaller firms can not compete with larger firms, larger firms by reducing their prices can put smaller firms out of business. Larger firms can even acquire the smaller firms assets and obtain the company this is another method of a take-over.
The benefits of this is that competition will be reduced and the larger firm increasing in size. Some take-overs can be referred as hostile in other cases some mergers are welcomed by companies as by linking there may be substantial benefits for the business and for the consumer.
The competition policy can have an effect on a business as there are many watchdogs who keep track on prices and if a firm is charging higher than it should be the watchdogs can exploit the firm as of this a firm can lose it reputation and sales. There are also Cartels who keep track on mergers and if firms exploit consumers they can react. A firm like Boots must be aware of these terms or could result in loss of sales and reputation
C
A description and analysis of the impact of EU social policy
In 1989 all member states with the exception of the UK signed the social charter agreement. The charter looks at fundamental social rights of workers. The social policy first made a big impact in the European Union and its the social policy looks at many key areas such as,
Unemployment
Health
Education
Work/ wages (minimum wage)
Living standards
A part of the social policy is the social charter, which was implemented in 1989 to improve the lives of the European citizens. The social charter included these main parts:
*The right to freedom of movement
*The right to employment and remuneration
*The right to improved working and living conditions
*The right to social protection
*The right to freedom of association and collective bargaining( right to join the trade
union)
*The right to vocational training
*The right of men and women to equal treatment
*The right to worker information, consultation and participation
*The right to protection for children and adolescence
*The rights for elderly person
*The rights of the disabled
*The right of health and safety in the work place
These rights look at the livelihood of the citizens in the European Union. The Social charter was first introduced to Britain in 1997 and it helped citizens in all shape or form to improve their daily lives.
The Minimum Wage
The UK government introduced a minimum wage applicable to all employees in all employment sectors in 1999. The level was originally £3.60 per hour and since then has moved to £4.20 per hour. As a result UK workers benefited of the minimum wage receiving an average of 20% pay rise. This helped public spending but also incurred extra wage costs on businesses. A fixed wage was introduced so UK is paying the same level as the rest of Europe as a part of the single market.
This has had an impact on businesses as they're having to pay extra costs. Firms are now having to pay all workers at the age of 18 or above a fixed rate which is been introduced by the Social policy. Firms must pay this as this is mandatory which is increasing costs for a business.
Working Hours
The Social Policy has also set the number of hours an employee can work in a week. Working time directive,
Employees to work no more than 48 hours per week averaged over a 12 week period. This makes it harder to operate annualised hours arrangements. Firms must consider this as employees can only work set number of hours and firms making their employees work longer can be fined. This can have an impact on the firms reputation and effect trading tomes as staff working hours need to be considered.
Parental leave directive
This gives both parents the right to take unpaid time of work to look after their children, up to the child's fifth birthday.
All firms must apply with these and this can also have an effect on a firm as replacing the person can incur training costs or even a new recruit which applies costs to a business.
Training and development
Training and development are vitally important for the overall efficiency and competitiveness of an organisation. There are several types of training and development programmes designed to fulfil a variety of company needs:
* coaching
* apprenticeship
* in house training
* external training
Training can either be on the job or off the job, both are very important to the business. Proper training and development are essential if an organisation is to retain its employees and remain competitive.
By training employees and motivating them employees feel valued and work harder which improves the business performance and increases profit.
All employees have the right to trained at the workforce as a part of the Social Policy, this will benefit the firm as having a trained workforce will give customer satisfaction and increase company loyalty but it will costs the business to do.
D
Many organisations in the EU would have been affected by the above rules and legislation's, but businesses can take advantage of the above as the social policy states that workers have the right to be trained and equal opportunities by following the above a firm can have a well trained workforce who is committed and working under safe conditions which will attract more workers and improve efficiency.
A firm will definitely face challenges but the above will make it more competitive and increase profits.
To overcome some of the above a firm can move production to a cheaper labour country this will save the firm huge costs.
E
Justifications
The above theories will help firms to compete more effectively as there is ground rules set and firms will have to follow them. The social policy helps to satisfy worker needs, the minimum wage bill has been introduced so firms cannot take advantage of workers.
Task 4
A
Brief analysis of the size and the characteristics of the market available to Boots.
Boots is a pharmaceutical /cosmetics chain, it has 299 stores through out the UK and employees 4400 staff. The size of Boots stores ranges form 5 members in rural to 55 members in the city locations. Boots is the leader in the health care market in the UK, with its many brands and medicines such as Strepsils. Boots has the largest electronic point of sale network in Europe with over 13000 tills this shows that vast number of consumer purchases are made.
Net Sales in the UK market
2002 2001
st quarter
Cosmetics 15,300,479 13,357,182
Dermatology 252,407 183,225
Pharmacy 3,109,013 2851,401
Other 112,936 116,690
2nd quarter
cosmetics 15,770,791 14,336,297
dermatology 230,708 167,082
pharmacy 3,114,149 2,897,167
other 67,753 89,701
3rd quarter
cosmetics 15,164,331 13,992,742
dermatology 252,811 207,941
pharmacy 2,923,334 2,831,676
other 92,283 120,135
Nine months total 56,390,885 51,181,239
The above figures indicate the number of net sales made in the two years. It clearly shows that Boots has increased sales from 2001 to 2002. The UK cosmetics market is controlled by Boots, with more than 60% of the market. The main competitors for Boots in the UK market are Superdrug, House of Fraiser, Debenams and John Lewis. The above shows that the sales have grown by 8.5%. This is due to the strong performance of the company and sales made during Christmas period.
Boots and the EU market, Boots already has several stores operating in the EU, in Italy, Netherlands and even Spain. It plans to open more stores throughout the EU as is increasing in economies of scale. Boots will opening stores in the following EU member states,
France
Germany
Finland
Turkey (Turkey not member of the EU at present).
Boots operating in the UK had potentially 60 million consumers to sell to, by operating in the single market it has now increased to 360 million consumers being larger market/ wider market. Boots by operating in the UK sells to approxmetaley 24 million consumers a year, and the profits are in the billions.
There are many opportunities and threats of Boots operating in the single market, these can have a major affect on the way a business performs.
The single market allows companies form all over the member states to sell its products and services anywhere and consumers can buy where they want without no penalty. A firm has potentially 360 million consumers to sell to and this in return the business can face a lot of competition.
The market is very competitive and not balanced, Boots has to decide how they would increase sales in the EU and what type of marketing techniques to use.
Evidence of the EU cosmetics market, there are many firms in the EU competing for the cosmetics market and some of these are, Sainsbury, Douglas, Revlon Europe, and Wella. This is the competition Boots faces in the single market with the main competitor being Alberto- Culver which has a high profile in Europe.
There are mixed reports of success in the men's cosmetics market across Europe in 2001 and 2002. Growth has been noticed in France, UK, Italy and Spain whilst the cosmetics market sales in Germany have seen a decline. There is stiff competition for Boots in the single market from many major and small firms. There is stiff competition faced by Boots but the advantages the single market are greater as companies can sell their products anywhere in the member states and consumers can buy where they want without any penalty.
Boots Europe 2001/2002 faced challenges as of the euro, but Boots in the Netherlands opened 15 new stores and profits have increased by 8%.
Boots in the EU market has access to potentially 360 million consumers if Boots only operated in the UK market it would have access to only 60 million consumers. The EU market is very competitive with competition from many foreign and local firms. The main foreign firms are Loriel and Revlon.
Below is a comparison between the first three months of sales in 2002 between Boots and Loreal in Spain Europe.
Boots Loreal
Health 4..2 4.1
Beauty & Toiletries 10.9 10.3
Other 7.7 6.5
Total 8.1 7.5
The above clearly states how stiff the competition is in the EU cosmetics markets so Boots is facing increased competition.
Maximising opportunities and threats
By operating in the EU a firm can encounter many opportunities and threats, Firms such as Boots has to identify competition and plan how it would face it. Any firm operating in the single market will face competition from two sources either local companies and other foreign organisations. The nature of the competition will be affected by the type of demand already being satisfied in the market and the characteristics of the goods being sold. To be the front-runner Boots had to extensive market research in order to competitive in the market as there is so much competition.
Opportunities
*The single market allows a firm to sell to 380 million consumers
*New customer categories- New market opportunities are born when a firm identifies groups of customers who aren't being satisfied with what's available
*Opportunities can be recognised and production to meet demand resulting in profits
*Access to highly skilled people- Boots can recruit many different people with different skills form different backgrounds. Resulting in a multi skilled and flexible workforce
*Additional locations- Boots has the opportunity to open a store anywhere in the European Union and start operating, resulting in economies of scale
*Gives Boots the opportunity to merge or work with other similar firms and produce quality products
*New distribution channels, finding new customers, marketing campaigns.
By introducing the above changes Boots will be able to expand to a greater extend and increase its profits margins.
This can be done so by moving production to lower labour countries so costs are lowered. The packaging of Boots products are undertaken by foreign firms such as Packago which is a Hungarian firm and Boots benefits of this as wages costs are lower in Hungary and costs as of this remain low. This is an advantage for Boots.
Threats
There are threats as well as opportunities and these threats are,
*New and aggressive competition for Boots as foreign firms can operate in any EU country just as Boots so competition is increased. The following is Boots competition in the single market which is by brands and stores,
Ascend- Hair care
Balsam- Hair colours and care
Cover girl- cosmetics line
Giorgio- perfume
Infasil- soaps
Laura Biogiotti- Perfume
Bobbi Brown Europe cosmetics in Europe
Clinique- cosmetics/ skin care/ perfume and also hair care and many more products
Dove
Calvin Klein
The competition faced by Boots in the single market is intense, the above are the few competitors who Boots will have to face in the market with many more. Source of information from, (www.cosmade.com).
The Europeans cosmetics industry continues to thrive and maintain its position as a world leader. The fact and figures of the European cosmetics market industry are indeed impressive. Generating almost 50 billion euro's in 2000, the European cosmetics industry continues to lead with almost twice the sales volume of Japan and one third more than USA.
Over 150 000 Europeans are employed directly by the cosmetics industry and an additional 350 000 indirectly in retail, distribution and transports sectors. This is due to the industry's considerable investment in scientific research and development, product innovation and expansion into new markets the globe.
The cosmetics market of the 15 member states of the European Union calculated at retail prices at the point of sale increased in 2000 by 4.5% to 49.4 billion euro's.
Portugal showed the highest market growth (+11.2%), closely followed by Ireland (11%). Sweden (+7.6%), Spain (+7.5%) which is also above average.
In contrast market growth in the three largest European markets: Germany France and the United kingdom were below average, compared to the above.
Nivea has increased sales almost all most five- fold since 1990. In 2002, the company growth of 6.9% shows that the growth strategy was successful at times.
The Zurich- based Juvena/ La Prairie group generated sales of 178 million euro's, sales of the La Prairie brand alone were up by 9.5% Boots has stiff competition in the market.
Sales of L'oreal in 2001 reached 13.7 billion euro's in line with the group expectations. Sales growth rate compared to 2000 was 8.4%. The groups cosmetics sector continues to grow faster than the market.
*Supply and demand could be changed as there would be so many firms supplying so prices would have to be lowered in-order to compete with each other. So Boots would be affected and prices would have to be lowered. This is a major threat for Boots and Boots can overcome this be merging with a firm and reduces to drive competition out.
There are many threats being in the single market especially the competition listed above, Boots has to market its products according top each country its operating as not all the EU countries speak language, have the same religion and they all have different beliefs. Boots has to ensure its does not offend any consumers in anyway or this could have a major affect on the way the business performs. Also pricing should be the correct amount as there are so many suppliers, Boots charges higher could result in losing customers as move on to a competitor as Boots is charging higher prices.
C
Justifications and recommendations
The above opportunities will help a business, as there are no trade barriers, Boots has access to over 360 million customers. The labour costs are much higher in UK then any other single market country, meaning Boots has benefit from lower costs and movement of goods in the single market is much easier, there is more flexibility of movement. Boots would benefit form lower costs and increased profits. As most production is and will be carried in lower labour countries in Europe this will save Boots millions in costs and as no trade barriers and no restrictions no charge on movements of goods so this will benefit profit. This is the result of the treaties. Trade for Boots is made easier and quicker by operating in the single market as there's no trade bureaucracy and establishing common product safety standards so that manufactures can sell their products all over single market without having to test product in every country. This method has saved Boots millions as all countries agreeing with same rules and regulations. Another main advantage Boots has benefited from is skilled labour with many qualifications which were not found in the UK, Boots has recruited staff from different countries to find out what consumers from each country want and how it could satisfy those needs. Boots has taken advantage of the above and increased choice and helped to bring price down through greater competition and liberalisation. Boots has benefited greatly from operating in the single market and its costs could be reduced to a greater extent if the UK joins the single currency.
Task 5/A
Recommendations on product adaptation to meet the needs of different cultures
About three quarters of Boots business is done outside the UK. In Europe Boots is leading the healthcare market it is doing this as of efficient market research. Boots has designed a specific policy when launching products throughout the single market.
Boots when launching products considers many factors such as, cultural differences, beliefs such as religion, customs and above all individual country laws. By following the above Boots has realised that it products have done considerably well all over the single market. Boots has recognised the need to provide a vast range of products for many diverse people.
When Boots launched its product No.7, it considered many cultural aspects, Boots launched the product in all the single market countries but had different advertising campaigns as different countries had different beliefs.
Firstly Boots did not test its products on animals and this is stated on all Boots brands, as most countries that Boots operates in do not take kindly to animal testing. Some of these countries are UK, Ireland, Netherlands and Italy. If Boots did not consider this it would have made huge losses and lost its reputation.
Product adaptation /language, Boots also had to consider such aspects as language, it cannot have the same instructions in every country as not all countries speak the same language so instructions in different languages had to be put on bottles. This is done so consumers can understand the details. Labelling and packaging is carried out by Packgo which is a firm that Boots employees to do this. Boots has to consider in each country they operate in and their language as Italian labelled products will be no good in Spain as the language is completely different. This links with the cultural differences listed in task 2 where all the language spoken in the EU member states are listed. Language difference is a major costs for Boots as labelling costs in each country they operate in, is different form the other. Language also sets another costs for Boots which is advertising as advertising campaigns also have to be adapted to meet each countries language. This is one of the major costs for Boots and language can not be standardised so this is one of the disadvantages of being in the market and having to meet different needs as they are costly.
Product hair dryer, Boots has to consider many aspects such as plugs as not the same plugs can be used in the same country so for each country Boots has to meet the certain country need. Country laws and religions must also be considered as some adverts could cause offence to people and result in loss of company reputation. Country laws state that products should be fit for human use or consumption and this is done through the standardising the product. So this would not cause conflict with consumer needs and the product are safe. Some cultural differences can also have an effect as some of the French do not like the English influence and even object to speaking English. Boots has to consider this and if it fails to imply could result in losses of sales.
Product packaging that attracts the consumer attention at the point of sale. It is on of the most important things to consider when launching a new product, the packaging must be eye catching and Boots always ensures when launching its products that the packaging does not offend any consumer. This is because some colours are considered to be bringing bad luck or even misfortune so no consumer would buy a product with that coloured packaging. Some colours such as pink, is considered to be bad luck in the Netherlands so Boots must insure none of their products have this colouring as the product would not sell. Boots considers this as if not considered huge resources and funds could be lost as a result of this.
Boots has the ability to meet all consumer needs as in each country consumer needs are different to another. Boots spends large amounts of money finding out what the consumers in each country want and how they could be satisfied.
B
Recommendations on product features which should be common across the cultural groups.
Boots tries to standardise its products as much as possible and not to cause conflict between consumers needs. Boots is considering standardising all its products so they meet all country laws and in the single market most of the countries have a single health and safety regulation. All ingredients used in the cosmetics products are subject to stringent European regulations guaranteeing consumer protection and the well being of the industry employees. Under the cosmetics directive, cosmetics products are required not cause any harm to human health. A safety assessment is carried out taking into the account all the ingredients used in the products. Products safety continues to be primary consideration of the cosmetics industry especially to Boots as figures show that 1 unit in every million produced results in allegations over its safety. Most of these problems are minor but Boots takes every problem and monitors the safety and consumer protection levels. By doing so Boots will be able to reduce the cost of waste, costs of testing on product safety as all EU countries would soon follow one safety scheme.
If all the countries followed the same safety regulations Boots would incur less cots but no all countries have the same laws. Some safety laws are the same across the EU member states, one of this is products safety meaning the product should be safe enough for consumer use. This law is being introduced by the EU so firms have less costs and not to change product for each country, safety rules are being standardised across the EU. As a result firms will be saving huge amounts as less costs to meet each countries safety standards.
C
Justifications and recommendations
By operating in the single market Boots has now have the ability to a to sell to over 360 million consumers. These consumers have various needs and preferences Boots has to meet these in-order to be able to make a profit or even survive. The treaties have enabled Boots to operate in the EU and also the treaties have set certain rules on product safety and this must be considered by Boots when operating in the single market. Its products must meet safety requirements in-order to be sold if not a firm can be fined and this would result in loss of reputation. European Legislation through the EU cosmetics directive provides guide lines to guarantee consumer and manufacturing safety.
Boots follows six functions to insure its products are of the highest quality the product should perform the following,
*to clean
*to protect
*to perfume
*to correct body odours
*to change the appearance
*to keep in good condition
The above insure products of the highest quality are produced and the consumer demand is met. As safety is one of the main primary objectives at Boots. The above is a standard procedure for Boots and several thousand new products are being bought in the industry by Boots to maintain a competitive advantage and to increase market share.
The single market is an opportunity for businesses and Boots can use it to grow as the one of the aims of Boots is to open more stores across the EU, stores in the following states are being considered,
Finland
Turkey
Belgium
Boots is growing/ economies of scale. Boots will have to consider these countries cultures and by doing so can make phenomenal profits.
Boots will have to label its products according to the above countries languages and also meet the cultural aspects. Boots could in-return take advantage of the cosmetics market in the above countries.
Task 6/A
Link strategic solutions to operational change
Boots and strategic objectives are to open more stores across the single market and launch new products in the single market as a whole. Boots by doing this will increase in economies of scale, consumers will benefit of this through lower prices. The single market will allow Boots to expand and open stores throughout the Single market without any restrictions. Boots continuously monitors the single market for changes and how it can have benefits of this and disadvantages. Boots constantly reviews its plans with the single market and monitors the consumers by doing so can identify what the consumers want and how Boots can meet those needs.
Main strategic objective/ strategy
The main aim of Boots is to be ready for the launch of the euro in the UK and have its staff operating at the highest level of customer service.
In order to deal with the above Boots has introduced training for its employees. Every employee working on the tills must be trained on how to use the euro. On the job and off the job training has been used to increase and improve the managerial expertise.
One of the new programmes that Boots is introducing in late 2003 is Boots Hearing-care, which is designed to serve the 9 million people in the UK and those across the single market with hearing difficulties. Boots aim is to offer the highest quality of service to its customers by opening hearing care centres within Boots.
The centres will provide advice and service which is by qualified audiologist, the aim is to have workers who skilled in this area so highest level of service can be provided. THE MAIN objective is have a multi- skilled workforce who can provide the highest level of customer service so company profits can increase and gain high market growth the above will only happen by an effective workforce.
B/ Maximise opportunities and minimise threats
C/ EU common polices
The monetary policy will allow Boots to reduce it costs in huge amounts. Single currency will allow Boots and its suppliers more willing to business as there are no exchange rates this will reduce costs. This will allow Boots to become more competitive and meaning lower prices. The EU has allowed Boots to target a larger market around 360 million, meaning more recognition and increase in customers. Some of the polices have affected Boots as the systems had to be updated for the new currency and Boots will benefit even further when the UK joins the single currency as trade will be more easier as single currency gets rid of many exchange costs. The polices have allowed Boots to move its goods anywhere in the single market without any restrictions and the single market has allowed trade with new suppliers and new customers with wide range of needs. Boots will benefit of this and increase in size.
The EU polices have affected business in various ways, the EU polices have been explained in task 3 but now I will link them to my business to a further extent.
Due to the monetary policy Boots had to price goods in Euro's the single currency this meant changing pricing lists, catalogues and the reviewing of the distribution channels all this resulted in extra costs being incurred.
Production and management also had to respond to the EU polices as products had to be modified and suitable for all consumers from all different cultures.
Purchasing as of the single currency has improved purchasing as more suppliers are willing to supply, as single currency means no extra costs such as exchange rates.
The EMU has in long term-lowered cost for Boots and minimised threats and the supply chain has increased, consumers now have a wide range of choices and lower prices.
