This report will establish the opportunities and threats presented to Sony by the EU market.

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VOCATIONAL A LEVEL IN BUSINESS

UNIT 22 ASSIGNMENT

THE EUROPEAN UNION & UK BUSINESS

AIM: 

         You need to investigate a UK business, which trades across the EU. The report will cover the following aspects:

  • Opportunities & threats presented to the business by the EU.
  • Positive & negative impact of monetary, competition & social policy.
  • Impact of cultural difference.

Sony Plc, a large company that operates in many markets and trades within the European Union and outside, is the company I’ll be reporting on.

2.1)

Introduction:

                       This report will establish the opportunities and threats presented to Sony by the EU market. Also how the positive and negative impacts of monetary, competition and social policies affect Sony and the impact of cultural difference in this multinational company. Part of this report will be done with effective presentation of material by using a variety of formats that will show a good use of evidence that I have collected.

2.2)

 Underpinning economic theories:

  1. Economies of Scale; results in the firm gaining from a reduction in the average cost per unit manufactured, so total costs will increase as production increases but average costs of production can fall, leading to the firm becoming more competitive.

A chart to show production costs and production scale.

                   Cost per unit

                                           

                                             Economies of scale

                                             are outweighing

                                               diseconomies

                                                                                                   Diseconomies of

                                                                                                   scales        

                                                                                                       outweighing

                                                                                                          economies

                                                                                               

            Lowest cost production

     

There are five main economies of scales:

Bulk-buying economies: Large orders are more profitable to the supplier, so the larger the order the larger the opportunity cost of losing market power because firms who place large orders have significant market power.

Technical economies: As firms grow they have more ability to invest in technology because using more machinery and less labour saves cost due to the fact the machines reduce the quantity waste of raw materials this then cuts variable costs for the firm.

Managerial economies: Most large firms employ managers with specialise skills in particular areas so this is effective because it cause less mistakes, which increases competition because you have gained a cost advantage.

Financial economies: large firms find it easier to obtain lenders and they charge them a low rate of interest because large firms have established products in the market and there risk are widely spread.

Risk-bearing economies: Large firms tend to spread out their risks because they can afford to do this. This is to get into different markets so if one fails they can move to the next.

  1. Comparative Advantage; some countries have comparative advantage, this when they specialise in a certain product or commodities or both. E.g. Taiwan produces electronic goods more efficiently than they produce wheat. Therefore they concentrate more on producing electronic commodities, hence Taiwan has an opportunity cost element so then they can increase driven profits or trade with other countries.
  2. The Free Market: is an economic system which resolves the basic economic problem mainly through the market mechanism and consist of five essential features;

Private Property: this where individuals have the right to own, control, and dispose of land, buildings, machinery, and natural and man-made resources

                  Freedom of choice and enterprise: Freedom of enterprise means those

                  individuals are free to buy and hire economic resources, to organise these

                  resources for production, and to sell their products in markets of their own

                  choice.                

                  Freedom of choice means, as we have seen, that owners of land and capital

                  may use these resources as they see fit.

                  Self-interest: on the principle that individuals should be free to do as they

                  wish, it is not surprising to find that the motive for economic activity is

                  self-interest. Each unit in the economy attempts to do what is best for

                  itself.

                  Competition: economic rivalry or competition is another essential feature

                  of a free enterprise economy because it is seen as price competition.      

                  Consumers have a major influence on competition. This means that supply

                  and demand influence market price, which also have power on businesses.

                  Markets and Prices: interactions of demand and supply determine the                                                                            

                  price of services and products. That is why in free markets you will find the

        price

                   mechanism, this is because thee price system is an elaborate system of

                   communication in which innumerable free choices are aggregated and balanced

                   against each other.

                   in a free market you’ll find that individuals have the right to own, control and

                   dispose of land, buildings, machinery, and other natural and man-made resources.

                   Entrepreneurship is allowed to occur also government intervention is limited in

                   the EU whereas in Cuba and many other countries the involvement of the

                   government is additional. Firms can expand or change products due to consumer  

                  demands and wants and lower prices can be offered to increase competition. This

                  also means more consumer choice, which leads to economic growth and jobs.

  1. Niche Market: when firms aim at a relatively small segment of the market. E.g. Jaguars and Rolls Royce make specialised cars to meet a specific need of a niche market.

            Value Added: is making a profit by producing the good from start to finish with      

            added value. E.g. wheat            made into flakes            distributed to supermarket

            Competitiveness: are when companies competing successfully with each other in  

            terms of:    -     Price

  • Quality
  • Features
  • Branding
  • Advertising.

2.3)

The main reasons why the EU was established was based upon chiefly economic principles between the European countries, also it was attempted to remove physical barriers to trade and to develop a European-wide competition. When it first based in 1946 it started of with nine countries, United Kingdom joined in 1973. There are now fifteen countries that are within the European Union and they have all pledge to aim for economic, political and social integration. They have there own common currency, which is called the Euro, but United Kingdom are not part of this as yet.  These countries are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom. For me to write about any of the EU market that are available to Sony and the extent of the competition faced I would have to give a profile of each of the EU members e.g. there GDP, population etc.

Gross Domestic Product (GDP) is the total value of goods produced and services provided in a country in one year. Measuring the Gross Domestic Product each year can show if the economy is growing or shrinking, healthy or sick.  It is a standard by which the economy as a whole can be judged.  It can be used to compare one economy with another or to compare an economy with itself over time.      

Standard of living is the level that a country live in. So if GDP is high than then the standard of living will be high because the government are able to invest money into to the country if they are producing a vast amount and so would businesses.

Spending power is how much (money) individuals make in a country. This will be stated through how much each individual on average per capita earns.

 Gross Domestic Product per capita is the amount of GDP that would be available for each person to use if a country's production of goods and services were divided equally among its people.  GDP per capita is one way to determine how well off the average person is in a country and an average standard of living. When it is in PPP it is has been compared to the cost of living.

Economic development shows what stage the country is at. For instance the UK is an industrialised and developed country which gives you a rough idea that the country is doing well financially whereas India which is still under developed and not producing much as a country.

The reason being of using these figures (which are underlined and in italic) it to tell us if the people have the income to purchase Sony’s products and if spending power is high, it then enables companies like Sony to take advantage and exploit markets in the EU countries because if you have the money then will purchase electronic goods.

Austria: has a population of 8,102.6million. Their gross domestic product per head is $25,442 this shows that Austria is producing over $25,000 worth of goods. Each individual is estimated to have the spending power of $21,701 in PPP. With this sort of information we can tell that Austria is economically developed and also industrialised. Due to its size, Austria has to import many goods and because of its economic and political stability and prosperity it can do so. In 1999, exports totalled £1,121,800,000, which is rather good for a market with a population of 8 million people. This reason being for Sony to settle in this country is because their products can be bought due to having an audience that have a significant amount of money per head. Not saying all can afford to purchase Sony’s good but majority can and will because once you have spending power you can meet the expense of electrical goods.

Belgium: the heart of the EU commission and the population since 2000 was10, 239.1 million. The services and goods produced all together in this country are worth more than $23,864 per head. Each capita is estimated to have the spending power of $22,190 in PPP, which is just about $489 more than Austria’s head. Belgium is very developed and industrialised because they export many manufactured goods. This would be a really good country for Sony to settle also because they don’t only have the population but the populace have income to acquire Sony’s product.

Denmark: is an open economy that has its own national resources of offshore oil and gas. It has a population of 5,330 million. The gross domestic product for this country per head is  $32,410, which means the individual spending power will also be high which is $22,695 per head in PPP. Sony will also look at this country and possibly place a site here but would have to consider that it not accessible as other EU countries but the people within it are just capable of buying Sony’s goods.

Finland: the 3rd smallest country in the EU with a population of 5,171.3 million but the market potential is far greater. Finland’s GDP per head is $23,378 and each head has the spending power of $18, 684. This was the first EU member that was ranked 3rd out of the world competitiveness in 1999. This could act as an advantage above the rest of the EU countries because they are a highly competitive country with the rest of the world and trading conditions are excellent. Also Finland’s economy is growing healthily and unemployment is decreasing so the government are able to pay more, which means individuals, are able to spend money on products that Sony’s produce.

France: very accessible to many of the rest of the EU members with a population of 59,225.7 million. Taking 3rd place in producing the grossest domestic product per head out of the rest of the EU members with $27,440 in 1997 and each person has the spending power of $21,585 in PPP. They are a highly developed country with a strong market in selling similar goods with the UK. The market is here for Sony to place several products because there are potential consumers who have the earnings to obtain electrical goods. Which already is shown because Sony has two plants there since 1984 and 1987, which manufacture videotape, digital wireless phones (GSM), mobile electronics etc.  

Germany: is a strong market with its 82,163.5 million population maintaining a healthy disposable income of $21,212 in PPP. They have a GDP per head of $21,919 also it is the world’s largest exporter and second largest importer. As many of the people in Germany earn a great deal of revenue they desire to buy quality, value-for-money products which Sony can supply them. Also there is plenty of scope in the German market and you have a populace who are willing to and can buy electrical goods which Sony make.

Greece: is among the world’s 20 most developed nations with a population of 10,545.7 million. They produce second to lowest out of the EU members in gross domestic product of $11,530 per capita and earn the lowest GDP per head in PPP of $12,476 in the EU. Also they are rather a distance away from other EU countries but despite that they trade rather well with UK with a trade balance of £664 million in 1999. Sony would be better of with another EU country than Greece because competition is not as high but there is potential market here and certain consumers could purchase Sony’s products but not all because majority don’t have the earnings.

Ireland: has joined the euro currency with the 2nd to smallest population of 3,776.6 million. It has a GDP per head of $20,605 and each head has the spending power on average of  $18,684 in PPP due to this we can tell that Ireland is developed. This does look rather favourable to Sony to open a site here because with such a small population, each head is earning on the average over $20,000. Which means there income can sustain the prices that Sony offer there products but once again the situation of Ireland is rather to far off from the rest of EU members but has the fastest growing market.

Italy: has a population of 59,225.7 million and their gross domestic product per head is $20,015, whereas the spending power per capita in PPP is $20,139. Italy is a prosperous, discerning and highly competitive market. There are best known with selling cars and electronic goods which shows they are very industrialised and developed. Competition will be high for Sony here because Italy produces many electronic goods but this does not mean that consumers will not buy Sony’s goods because they can afford it.

Luxembourg: has the smallest population of 435.7 thousand in the whole of the EU countries and GDP per head is worth $37,132. In PPP, the gross domestic product per head is $32,221. In 1999, this country was ranked 4th for the second time running for the worlds most competitiveness. It really is a small country so possibly if Sony is thinking of placing a site in this country it maybe restricted but as I have established, Sony’s products will make favourable sales in Luxembourg because the consumers here have more spending power than the rest of the EU countries.

Netherlands:  represents not just a good market in its own right, but also a useful springboard into other markets in Western Europe. With a population of 15,864 million and GDP per head is $22,887. They have a high cost of living worth $20,503 which shows that Sony could have a potential market here because if cost of living is high per person then standard of living will be high also because they can afford to spend money on luxury goods. But competition is high also because Netherlands was ranked 5th in being the world’s most competitive countries in 1999 and still is a growing market.

Portugal: has a population of 9,997.6 million people. Their GDP per head is $9,610, which is the lowest out of all the EU countries, and each individual is estimated to have the spending power of $13,535 in PPP. With this sort of information I can tell that Portugal economy is developed but not so industrialised as other EU members.  As its neighbour is Spain, it is able to expert and import many goods because it is not as accessible to the rest of the EU. But Portugal are gaining many overseas investors, so they are not really that far behind. Sony could possibly settle here if their GDP per head in PPP was much higher and they cannot employee cheap labour like they do outside the EU. Also they are a bit of a distance from the other European countries but comparative growth exceeds ten other EU countries with 4.3%.    

Spain: has a comparative growth 3.9%, which means their market is growing rapidly with a population of 39,441.7 million. Their GDP per capita is $13,291, which is rather low on average compared to the other EU members but spending power in PPP is $15,499. So the government are depositing more money into the economy. Sony already has a plant in Barcelona that has been there since January 1973 which manufacture colour TV, TV components etc. This shows (especially that it is still open) that it has been successful and consumers have been contributing to its success also it is accessible to the African continent.

Sweden: home to world class multinationals with a populace of 8,861.4 million. Sweden’s GDP per head is $25,826 also compared to cost of living in PPP it is $19,588. Many companies have established headquarters in Sweden e.g. Ericsson which fuel Swedish domestic concerns that it is becoming a trend. But their market is not growing as fast as other EU countries with a comparative growth of 2.6%. Then again they are highly industrialised and developed country especially in the Bilateral trade which is flourishing. Sony will have much competition here because one of its rivals Ericsson is based in Sweden in producing phones so other products would have to be made. The consumers can buy Sony’s goods because they have an average spending power and there is high demand for many products Sony make.

 

United Kingdom: has a population of 59,623.4 million. The GDP per head is $22,156 and GDP compared to the cost of living is $19,917, which is just about the average of all the EU countries. UK exports and import to all the EU countries and invest much money into Portugal and Greece’s economy. UK is industrialised and highly developed also technologically advanced.  Many of the EU countries invest in UK’s economy also; this then looks attractive for other transnationals to invest into its markets because UK have a fast growing market of 3.6%, which increases the populace standard of living. Sony have based to plants in Wales, one has been there since June 1974 due to this achievement another one was built in August 1992. As there is much investment in the country, standard of living has increased so will cost of living. So individuals have more disposable income to spend on electrical goods and other luxury goods that Sony do provide.

With all the 15 countries in the EU placed together the population is 307,458.2 million. Whereas in Japan they have a populace of 133.86 million and USA 281,421,906 million. This would give Sony a greater advantage because the EU population is far greater than both the USA and Japan, so there is a much wider audience to target their products at. Also these consumers have different needs and tastes so new products Sony invent e.g. DVD may suit these potential consumers by fulfilling there needs and as there is individuals who do have the spending power to purchase Sony’s goods this can be done. Each country in the EU export goods to each other without paying duties which will be beneficial to Sony because it saves them paying tax each time they want to export goods to other part of the EU and when they set up plants over he EU countries, they would only have to build a few because they can export different products for free. Due to this, Sony can easily promote products because the EU is like one country with many markets and accessibility is far greater within these countries. As EU largely exports many goods from their market so do USA and Japan but the EU have different specialities e.g. UK are technologically advanced, Italy and Netherlands are specialised in car making, Germany mobile phones etc which has increased competition.  

Sony has been running for over 50 years and has developed a range of products, which have now become part of our everyday lives. It has been the only company that has developed a wide range of new products since 1950. As a result to this Sony is entering one of the most exciting eras in multimedia technology. Sony also provide service as an entertainment company through its Sony Music Entertainment and Sony Pictures Entertainment Group divisions which have consolidated in them having recognition world wide.  Sony sells series of electronic goods which started in them producing magnetic tape and tape recorder in 1950, the commercially successful radio in 1955, the world’s first all-transistor TV set in 1960, the worlds first colour video cassette recorder in 1971 and the walkman in 1979. Sony where also the first to invent the compact disc, the first 8mm camcorder and the Mini Disc and also the DVD video player. Now they have just produced a new Memory Stick Walkman that is a portable audio player. Sony is transforming itself into e-Sony with PCs and Laptops also WAP mobile phones, which you can access the Internet with. Also launched in 1999, PS2 game console but was not as successful as PlayStation 1. Sony has over 15 rivals in each market they operate in. The main ones, which we know of, are Sharp, Phillips, Nokia, Panasonic and Hitachi.

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2.4)

There are three important treaties in the EU that have helped or hindered businesses and individuals. These treaties (listed below) have lead to the development of the European Union, which has caused many opportunities for member countries but also threats.

The Treaty of Rome

The treaty of Rome created the EU because the belief was that the nations working together achieved more than nations working separately and against each other. Formed in 1957 and established the European Economic Community, which is now known as the EU was an agreement signed by the nations within ...

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