Of wheat
Imports
v-w
Shows the number
of imports after a tariff has been imposed
The euratom was then introduced in 1957. The Euratom Supply Agency's (ESA) mission is to ensure a regular and equitable supply of nuclear fuels for Community users. The Euratom Supply Agency acts under the supervision of the European Commission, which shall issue directives to it, possesses a right of veto over its decisions and appoints the Director-General. In 1973 The United Kingdom, Ireland and Denmark joined the economic community followed by Greece in 1981 and Spain and Portugal in 1986 making the total of countries in the European Community to 12.
The next factor in Europe was the single European Act. The Single European Act was implemented on July 1 1987. The objective was to allow citizens of the member countries move freely. This also included a single market in goods, monetary affairs and goods. This allowed firms to be entitled to the same rights in a foreign country as their own. This treaty meant the abolishment of quotas and tariffs so businesses were allowed to sell as much of their products as they want therefore maximising their profit margin. For any business this is a major breakthrough as companies were not limited to sell their products and there was a better chance companies being more profitable and expanding.
Also introduced in the Single European Act were the first stages of the lay out of an economic and monetary union. The idea was taken up by Jacques Delors who felt with the E.M.U along with the single market will ‘promote economic and social progress, which is balanced and sustainable’. The first stage began on July 1 1990 by a decision of the Madrid European Council to remove the exchange controls in 8 of the 12 member states, the inclusion in principle of all currencies in the narrow band of the exchange-rate mechanism and measures to encourage convergence. Convergence included a high degree of price stability, which basically means that no country will not dramatically slash or increase their prices of goods without good reason. Secondly, there will be an elimination of the public sector while the third states that there will be an observance of the normal fluctuation margins provided in the exchange-rate mechanism for at least the minimum of two year, with no devaluation against the currency of any member state. Finally member states must record their level of long-term interest rates, which should not exceed the three best-performing states by more than 2 percent. The second stage began in January 1994, when the Economic Monetary Institute assumed the role of co-ordinator. All countries except for Sweden, Denmark and United Kingdom (all did not wish to proceed to next stage) and Greece (did not qualify) were allowed to go onto the next level. In the next level, all participating members were forced to adopt the idea of fixed rates at which the euro could be substituted in as the single currency when the European Union see fit. A European Central Bank was also introduced to handle Europe’s money and be in charge with the distribution of euro bank notes.
Social Policy
The social policy first made a big impact on the European Union Act as European Commission were given wider powers to implement the first part of the policy. The social policy looks at many key areas including:
- Unemployment
- Health
- Education
- Work: Wages (minimum wage), Equality (regardless of sex and culture)
- Living standards
A part of the social policy is the social charter, which was implemented in 1989 to improve the lives of the European citizen. 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 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 of elderly persons
- The rights of the disabled
- The right of health and safety in the workplace
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 forms to improve their daily lives.
Competition Policy
Competition policy is essential for the completion of the internal market. The raison d'être of the internal market is to allow firms to compete on a level playing field in all the Member States. Competition policy seeks to encourage economic efficiency by creating a climate favourable to innovation and technical progress. It protects the interests of consumers by allowing them to buy goods and services under the best conditions. It also makes it possible to ensure that any anti-competitive practices by companies or national authorities do not hinder healthy competition.
1. OBJECTIVES OF COMPETITION POLICY
EU competition policy must guarantee the unity of the internal market and avoid the monopolisation of certain markets by preventing firms from sharing the market via protective agreements. Markets can come to be monopolised as a result of restrictive agreements or company mergers. It attempts to prevent one or more firms from properly exploiting their economic power over weaker firms (abuse of a dominant position). It must also prevent Member States' governments from distorting the rules by discriminating in favour of public enterprises or by giving aid to private-sector companies
2. PROCEDURE
The Commission has the task of ensuring that the EU competition rules are respected. It may act:
- on its own initiative;
- following complaints from Member States, firms or individuals;
- following notifications of agreements by firms; or
- Following notifications of state aid planned by a Member State.
The Commission has wide investigative powers. It can carry out inspections on business premises without giving prior notice and can demand to see the necessary documents.
Before taking a decision, it gives the firms and Member States concerned the opportunity to explain their position at specially organised hearings.
Firms or Member States, which are the subject of a Commission decision, may challenge the decision before the Court of First Instance and the Court of Justice in Luxembourg.
It is also possible for individuals or firms that believe they are the victims of anti-competitive behaviour to take their case before the national courts.
In 1999, for example, following an appeal by ten European steel firms and their professional association Eurofer, the Court of First Instance essentially confirmed the Commission's decision imposing fines on them for price fixing, market sharing and the exchange of confidential information.
In 1992 the Treaty of Maastricht was signed. The European Community changed its name to what we know as the European Union. 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 a single currency.
This treaty helped many businesses as it created more money for these firms. Plans for a single currency were being laid down at this time, which when implemented means that their will be a fixed exchange rate system so businesses can plan ahead with what deals they want to make. The Social Chapter was also part of this treaty, which indicates equality for men and women. It has a great impact on the way businesses operate and the rights of their citizens. The chapter involves the following issues: movement between countries, payment for employment, living and working conditions, state benefits, Trade Union membership, Training, Equality, Information, Consultation and participation at work and rights for the disabled.
The movement between countries involves peoples being allowed to move from one country to another without any barriers. This means people are allowed to move from one country to another no matter if it is for work or for a holiday as immigration laws are not a difficult to get through.
Payment for employment involves a minimum wage of £3.50 after the age of 18. This makes sure that employers do not take advantage of their employees. Women are also entitled to maternity pay while they are pregnant. Employees are also entitled to bonuses from their employers.
Training allows all employees to learn and be educated in their field of work. This allows them to develop their skills. State benefits entitle people who are unemployed or disabled to receive money. This allows them to get by and get the necessities they need.
A Trade Union membership allows workers to take industrial action if they fell their employers do not have their needs in mind.
Living and working standards means that the workplace must be of sufficient quality and must be safe for employees to work in. Living conditions have to be good so that they can live their lives to a sufficient quality. Employees are also entitled to know changes a business is going to make, which is going to affect them. In some cases employees and their employers will have meetings to discuss the changes being made. Article O of the Maastricht Treaty specified that any European country could apply for membership of the European Union. To do this the country must go through a number of procedures:
- Application by the candidate state to the Council of Ministers
- Delivery of formal opinion by the European Commission and consultation with the European Parliament
- If the council, acting unanimously, decides to go ahead, negotiations then begin between the applicant state and the presidency of the Council and the Commission
- A draft accession treaty is installed by the applicant state and by representatives of the member states
- All member states must be in agreement that the state in question meets all the requirements needed
- Entry into force on an agreed date
New member states, 1973-
In 1993, the single European Act enters into force on January 1 while Maastricht came into force in November after the final Member State, Denmark agreed to sign it after a referendum. More member states, including Austria Sweden and Finland joined the E.C on January 1 1995 to bring the total number of countries in the European Union to 15.
The Amsterdam treaty was agreed by all the leaders of the E.U countries on 17 June and was signed on October 1997. This treaty enabled the European Union to meet the challenges of the future such as rapid evolution of the international situation and the globalisation of the economy and its impact on jobs and the lives of the citizens living in the EU. This treaty can be split into four sections:
Freedom, security and justice
This shows the fundamental rights of the citizens within the EU, which includes equality between men and women, non-discrimination and data privacy. It also introduces new laws on the free movement of peoples, which includes variations to visas, asylum and immigration within the EU.
The Union and the citizen
There are several ideas which will be used to help the improve the lives of the citizens within the EU:
- The development of the concept of the European citizenship, with additions to their current civil rights and a link between their national and European citizenship.
- The incorporation into the Treaty establishing the European Community of a stronger social agreement with a commitment to tackle social exclusion and uphold equality between men and women.
- An improvement in the instruments available to the European Union for promoting higher standards of public health.
- The clarification of the aims of consumer protection policy and better integration of the measures taken in this area with other policies.
Effective and coherent external policy
This section includes two sections, an economic one dealing with extending the scope of the common commercial policy, and a political one on the reform of the common foreign and security policy (CFSP)
The economic section elucidates the challenges and practicalities of extending the scope of the common commercial policy to include international agreements on services and intellectual property rights. The section on the common foreign and security policy looks at the following reforms:
- The creation of a new instrument: the common strategy;
- Improved decision-making thanks to greater use of qualified majority voting in the council;
- The establishment of a policy planning and early warning unit to encourage joint analysis of international developments and their consequences;
- The creation of the post of High Representatives for the common foreign and security policy to give the CFSP greater prominence and coherence;
Institutional Questions
This section explains the institutional reforms envisaged by the Amsterdam Treaty with a view to the enlargement of the European Union. Clarification is provided on several points:
- The weighting of votes in the Council of the European Union and the extension of qualified majority voting;
- The structure and operating of the European Commission, particularly the number of Commissioners, the Commission’s power of initiative and the role of the Commission president;
- The role of the Court of Justice in areas such as fundamental rights and certain matters closely affecting the internal security of the European Union;
- An enhanced role for the Court of Auditors, the Economic and Social Committee and the Committee of the Regions;
- Consolidation of the subsidiarity principle by the inclusion of a protocol containing legally binding guidelines;
- The possibility of closer cooperation between member states;
The final treaty used in the European Union at this moment is the Treaty of Nice 2000. In this treaty, the countries made decisions on expanding to include 12 or 15 more countries during the next few years. The treaty states that:
- National vetoes will end in more than 30 policies however it will still apply in areas such tax and social security
- The European Commission will be slimmed down to one commissioner per state by 2005 when 21 countries could be in place in the E.U. When there are 27 member nations, countries will take turns serving on the executive panel.
- Groups of E.U countries will be allowed to start integrationist initiatives of their own.
Every business wants to gain economies of scale. This is when the average cost of producing a commodity falls as output of commodity rises. For instance, a firm or industry, which would less than double its costs, if it doubled its output, would enjoy economies of scale. There are two different types of economies of scale. These are internal and external. Internal economies of scale involve the expansion and growth of one particular business with the average costs falling. On the other hand, external economies of scale involve all the firms in a specified industry.
On the economies of scale diagram, the curve on the graph is a ‘U’ shape, which shows how economies of scale operate. This shows how the fixed costs of a business are spread over the business to create depreciation in the amount of money owed by a firm. When diseconomy of scale is created, goods become more expensive to buy as the variable cost rises and an increase of materials is needed to match the demand. The drop in average unit costs could drop for several reasons according to the internal and external factors. For instance capital equipment will result an increase in the quantity of the goods produced, which will overall save the business money. Also there will be a division of labour so machinery will used to produce the goods more cheaply, which again, will cut the business’ costs. The way average units costs rise, in accordance of the internal and external factors are down to if fixed costs and variable costs rise without any warning. One of the reasons for this could be if the price of producing your product starts to increase which could be down to the cost of raw materials increasing. For the business to still make a profit and cover their costs, an increase in the price would be appropriate. Another reason could be higher labour costs, which means businesses, will have to make more cutbacks throughout the business. Therefore their costs will increase.
mmO2 Scenario
If there was a demand for this product in Europe, mmO2 could capitalise as they could gain extra revenue. To maximise their profits, mmO2 could increase the price of each mobile phone thus bringing more money into the company. For mmO2 to maximise their profits, more mobile phones will have to be supplied in Europe and increase their prices.
However if the demand is not matching the supply in Europe, mmO2 will have to lower their prices in order to sell the rest of their products that they have produced. This would be seen as a failure for BT because as a result they would not exceed their profit margin. BT must make this gamble if they want to compete against other European firms. If this gamble does pay off then there will be a larger demand for the product and can then increase their prices.
In order to reduce the threats of supplying too much, mmO2 must be more aggressive and competitive in the market. Setting prices really low that you are able to gain a foothold in the market can do this. This is known as penetration pricing. BT can then slowly but surely build up a reputation of providing a quality service and when it is better known, increase the prices to take advantage of the market.
Barriers of Entry
It is very difficult for any new firm to get into a market if there is already a monopolistic stronghold on it. This is because firms such as these already have a brand name so they don’t have to spend vast amounts of their money on advertising, as the public is already aware of your product. This is known as barriers of entry.
The theory of barriers of entry states that a firm already in the market (incumbent) has an advantage over a potential competitor because incumbent firms are allowed to dictate and to raise or drop prices without letting new firms into the market. For a new business to be on the outside looking into the market is a very difficult situation to be in. This is because the cost of production and sunk costs are higher than those already in the market as they have to get themselves known to customers and the business world alike. This is a big gamble to take as there are only a limited number of businesses that have been successful otherwise the gamble has not come off. An example of this in another industry is the airline industry where at one stage there were three firms in the market. However two low cost airlines called Ryanair and Easy Jet. They were seen as the ‘working man airline’ as the prices quoted were considerably lower than their rivals but still got the same quality of service. To this day both firms are making more profits each year they are in the industry.
However in the mobile phone industry there have been no success stories concerning getting into market. There is such a hold on the market by the main competitors that firms trying to get into the market cannot compete against the prices. At the same time I have to still be aware of any threats. As I am a well known business I have to try and act against potential threats in the market. To do so I will put vast amounts of money into different promotions and advertising to make sure that customers are aware of my product and the prices that I have set them at. I will make sure that my prices are low so potential threats cannot compete against my prices. This method is known as predatory pricing as it gives potential customers no chance of competing against my prices if they don’t want to lose money before they even get started. Another way of acting against any potential threats is to use a strategy of acquisitions. This a strategy, which prevents a potential entrant from purchasing one of these smaller suppliers, which might provide it with an easier/cheaper entry into the market, compared with the cost of building a new productive capacity. Again this will mean if entrants want to compete in the market they will then have put more capital not only in advertising but production as well. Finally I could use exclusive agreements with suppliers to only use my product and no one else. This means that it will be harder for companies to break into the market as established firms as us, are already dealing with an established supplier.
Barriers of Entry Diagram
X
X X
X X
X X
X
X X
KEY:
X= Potential Threats
I= Incumbent Firms
= Market
As we can see from the barriers to entry diagram, there are a few firms in the market but the ones that are have a monopolistic stronghold. This allows them to dictate prices and advertise as little as possible as the product is already well known by the customers. There are many potential competitors outside the market but the small group of competitors are taken care of by a single firm as it has the power to keep them out of the market.
There are other Barriers of Trade that I will have to look at. There are numerous obstacles to trade that still exist, both in the form of tariff barriers and non-tariff barriers. Tariffs are the taxes that are imposed upon goods as they move from one country to another and take the form of custom duties, export tariffs and transit tariffs. Non-tariff barriers by the way of contrast are the less visible obstacles to trade such as quotas, laws giving priority to domestic suppliers, customs documentation requirements, marks of origin and labelling regulations that are used by nearly all governments to limit trade and provide a form of protection to their own home market. This could cause problems to increase sales in Europe for my company because the fact I have to meet quotas will mean that the supply will be limited. Governments will be more favourable on their home market as they do not want to import more than they export. This is because it is bad for the country’s economy for this to happen, as it will result in job loss and unemployment. It will also be difficult, as I still have to pay taxes and transportation, which will take up some of my capital. However there are ways of getting around these problems. For instance I could actually set up manufacturing in fellow countries in the European Union, which will allow me to trade in these countries without paying taxes and meeting quotas. This will give me the advantage of supplying as much of the product as I wish. Although it seems expensive to set up manufacturing facilities in these countries, it will actually improve profits in the long run as it will cut transportation costs and allow the managers in that specific country to decide how to sell the product, as he will have experience in his own country’s field
What market am I entering?
The market I am entering is a very competitive one yet is balanced concerning sales and marketing techniques. Firms such as Nokia have recently introduced a new line of mobile phones, which allows a consumer to call and text friends or family yet at the same time listen to the radio-a first for its kind. Sales of the product are mixed and time will tell if the product is successful. Vodafone have recently found an insurgence of sales over the last couple of months after a successful television and radio advertisement. Other firms in the market such as Orange and Ericsson have a steady amount of sales over Europe yet are still quite far away while Motorolla are becoming more and more popular with consumers because of their new ‘trendy’ designs of mobile phones which appear to becoming a firm favourite for the teenage consumer.
We have to decide how we are going to increase sales in Europe. At the moment the sales of BT Cellnet in Britain have been going well after they had teamed up with Genie.Com to create the first Internet mobile phone. However sales in Europe has started to fall while other firms’ sales have started to increase.
That is why BT Cellnet has changed their operating name to mmO2. This is meant to be a new start for the firm and is meant to be the new generation of mobile phones and the name is meant to appeal to the customers. Although it still has the capital investment to be one of the big players in the market, mmO2 will have to start at the bottom of the market.
Maximising Opportunities and Minimising Threats
The essential elements of effective international marketing are the ability to interpret the business environment, recognise foreign market opportunities and appreciate how the firm’s resources can be best used to match and develop patterns of market demand. Before I re-enter the market I will have to re-identify the competition I will face in the market. Any firm in the market will face competition from two different sources: local companies and other foreign organisations. The nature of this competition will be affected by the types of demand already being satisfied in the market and the characteristics of the goods being sold. With regard to the first factor, there are three types of demand: existing demand, latent demand and incipient demand. Existing demand relates to products that are being bought to meet existing needs of the consumer. This is where firms like Orange are at the moment as the phones they provide do a specific job to phone and text. Latent demand refers to the situation in which new needs have been identified but which are currently not being met. Incipient demand is the sort of need that will emerge when the market becomes aware of a new product at some time in the future. This is where mmO2 wants to be as it wants to be the front runner in new mobile phone technology. To do so research and development must be used to find out what is needed out of this technology. Nokia have introduced a built-in radio within the mobile, which seems to appeal to the customer. It is now up to us to find something that will make us a front runner in the market. The nature of competition is analysed with three product types: competitive products improved products and breakthrough products. Competitive products are products, which have no advantages over other products in the market. Firms such as Ericsson and Orange are stuck in this position at the moment.
Although mmO2 has good levels of profits in Germany, Holland and Ireland, they should aim to go further afield to other countries in the EU. In all of the countries mentioned, manufacturing facilities have been provided and individual management was used, as they know what the needs and wants of the consumer are in that specific country. With this in mind I feel that we shouldn’t change this method and do the same in the countries we want to get more sales in. Research and development will be issued in each country and marketing departments as different people will have different tastes and cultures.
If this is a success we must look at opportunities and threats opposed to mmO2:
Opportunities
Major shifts in technology- When technologies change, companies are often slow to pick up on what's new because they have so much invested in what's old.
Availability of new materials- New-materials science can lead to innovative products and expanded market opportunities. If we stay updated with new technology we will stay as market leaders
New customer categories- New market opportunities are born when you identify groups of customers who aren't satisfied with what's available.
Sudden spurts in market growth- When a market suddenly takes off, opportunity passes to the companies that are first to ramp up production to satisfy the growing demand.
New uses for old products- Growth markets also spring up when new uses are found for old products. Pagers were used to be for emergencies only; now they're accessories for teenagers.
Access to highly skilled people- In many industries, skills are scarce and valuable resources. Business opportunities often arise when skilled workers become available. The more multi-skilled people working at mmO2 will result in the company being more flexible to deal with different scenarios.
Additional locations- Location means business. For example, movie theatres in shopping centres now represent a major percentage of the movie screens across the country. Mobile phones are used mostly by the younger generation. That is why we should also set up stores in shopping centres.
Fresh organisation models- New ways of doing business represent business opportunities in themselves. The urge to downsize, for example, has led to outsourcing all sorts of functions to other companies that now do nothing but manage computer systems, supply training programs, or produce corporate newsletters for their clients.
New distribution channels- Nothing is more exciting in the business world than finding a new way to get to customers. Distribution creates a market, whether it's a mega-discount store, a direct telephone marketing campaign, or the Internet. We must try and take advantage of this so we can
Threats:
Market slowdowns. A shrinking market, either predicted or unforeseen, takes its toll. Excess capacity can bring a company to its knees, whether the cause is a sudden slowdown in the sales of home computers or a projected decrease in the number of passenger jets ordered by international carriers.
Changing trends. Population trends can have profound effects on certain marketplaces.
New and aggressive competition- Although new competitors usually have an uphill battle; they almost always come into a market with the advantages of energy, fresh talent, and a burning desire to win. We must be up to the task of meeting their marketing strategy and keep them out of the market. This can be done through barriers of entry, which makes it extremely difficult for any firm to enter the market without sufficient amounts of capital.
Substitute products. The danger with substitute products, like CD players and the new Digital videodiscs (DVDs) is that they often seem to come out of nowhere. We must be aware of new substitutes such as pagers, which could become more popular with consumers.
Exchange rate volatility- today, even a local business can be affected by global economic forces, including exchange rates. When the British pound was rising against all major currencies, for example, British companies were almost drowned in a flood of cheaper foreign imports. The recent weakness in the pound has been a boon for exports in certain industries, but for others, the costs of materials and components have risen.
Shortages of raw materials- from an oil crisis to the shortage of memory chips, supply problems can threaten a business. Companies often enter into long-term contracts to minimise these disruptions, but extended agreements pose their own set of risks. If this happens we may have to cut our supply for a short time so we can find other forms of production.
Loss of patent protection- Creativity and intellectual property are usually protected by copyrights and patents. But patents expire, and companies must prepare for the competition that inevitably follows. Although mmO2 have a patent on the Internet phone, they must be aware that the idea maybe used by other firms in the future
Labour agreements. Unions have a significant impact on the cost of doing business, and companies in various industries have learned how to factor in their particular relationships with organised labour. Although union activity has been on the decrease, companies that have no union histories may have to come to terms with organised workers in the future.
Laziness and complacency- It's easy to get lazy when the money starts rolling in, and the list of companies that have fallen into the complacency trap is quite considerable. We must be aware of any threats imposed on us and make sure that we respond to the threats.