Essay, Pages 10 (2286 words)
International trade is the exchange of goods and services and capital between countries and territories without much obstruction. This relatively new concept has flourished over the years (in different forms) and continues to grow as a result of the many benefits it has offered to different countries across the globe. Significant portion of countries’ gross domestic product comes from this type of trade. With the help of modern production techniques, highly advanced transportation systems, outsourcing of manufacturing and services across different countries coupled with rapid industrialization, the international trade system is growing very fast.
The UK has benefitted immensely from international trade. Its significance to the UK’s current economic growth cannot be overemphasized. It has resulted in increased efficiency within the uk economy; and also allowed it to participate freely in the global economy with high inflows of foreign direct investment; and the greater utilisation of resources to provide the consumer with limitless array of choices in the marketplace, both locally and internationally.
This is all the more appreciated when we see the uk economy exploiting its comparative advantage in sectors where it has nurtured a stronger potential of expanding its market share e.g. pharmaceuticals and research & development.
Benefits to UK business organisation
- A country may import things which it cannot produce: International trade enables a country to consume things which either cannot be produced within its borders or production may cost very high. Therefore it becomes cost cheaper to import from other countries through foreign trade.
- Maximum utilization of resources: International trade helps a country to utilize its resources to the maximum limit.
If a country does not takes up imports and exports then its resources remain unexploited. Thus it helps to eliminate the wastage of resources.
- Benefit to consumer: Imports and exports of different countries provide opportunities to the consumer to buy and consume those goods which cannot be produced in their own country. They therefore get diversity in choices.
- Reduces trade fluctuations: By making the size of the market large with large supplies and extensive demand international trade reduces trade fluctuations. The prices of goods tend to remain more stable.
- Utilization of Surplus produce: International trade enables different countries to sell their surplus products to other countries and earn foreign exchange.
- Fosters International trade: International trade fosters peace, goodwill and mutual understanding among nations. Economic interdependence of countries often leads to close cultural relationship and thus avoid war between them.
- Other benefits include increased exports and Foreign direct investments, Enhanced domestic competitiveness, advantages of international trade technology, Increased sales and profits, sales potential of the existing products, global market share, reduction in dependence on existing market, and lastly, the Stabilisation of seasonal market fluctuations. Discuss opportunities for unilever
Challenges To UK Business Organisations
- Import of harmful goods: Foreign trade may lead to import of harmful goods like cigarettes, drugs etc. This may run the health of the residents of the country. E.g. the people of China suffered greatly through opium imports.
- It may exhaust resources: International trade leads to intensive cultivation of land. Thus it has the operations of law of diminishing returns in agricultural countries. It also makes a nation poor by giving too much burden over the resources.
- Over Specialization: Over Specialization may be disastrous for a country. A substitute may appear and ruin the economic lives of millions.
- Danger of Starvation: A country might depend for her food mainly on foreign countries. In times of war there is a serious danger of starvation for such countries.
- One country may gain at the expensive of Another: One of the serious drawbacks of foreign trade is that one country may gain at the expense of other due to certain accidental advantages. The Industrial revolution is Great Britain ruined Indian handicrafts during the nineteenth century.
- It may lead to war: Foreign trade may lead to war different countries compete with each other in finding out new markets and sources of raw material for their industries and frequently come into clash. This was one of the causes of first and Second World War.
Analyse the impact of global factors on uk business organisations Global factors impacting UK businesses are increasingly linked to the diversity in labour and investment inflows to the UK. Another key aspect of this is the value of exports and the increasing levels of inter-dependency of national economies within the European Union. Understanding this therefore would require a further look at some of the driving forces of globalisation in a contemporary sense.
There are the sudden and urgent issues around climate change and global warming; the cyclical crisis caused by the continued depressed state of the global economy; and the challenge of managing the emerging economies of the BRICS nations. How about poverty and unemployment, wars and conflicts around the world and the increase in wars and natural disasters? They all form part of a mounting sludge of global issues directly impacting the performance of the UK economy, and by extension, Unilever.
Due to the UK membership of the EU and various other international agencies (that anchors the global economy), UK businesses should expect to be impacted one way or the other. For example the EU Liberalisation Policy introduced in 1993 requires businesses in UK, as well as, in any other EU member country are faced with competition within the EU in equal terms with local businesses. In simple terms, while imported goods to the UK are usually subjected to customs tariffs by the government in order to protect local producers, no such tariffs can be imposed to goods that are being imported from within the EU.
Global Warming And Climate Change
Global Warming is universally considered to be the increase of Earth’s average surface temperature due to effect of greenhouse gases. This is not to ignore the current schism within the scientific consensus of the causes of global warming and climate change. However, one of the key areas where global warming and climate change has extensive influence is the very vital sectors of fossil fuels and energy generation. Naturally, businesses face the risk of changes in the prices of oil, gas, electricity and, where required, carbon. To manage these risks, UK businesses will either have to reduce their exposure or hedge the risk. This is more pronounced in the context of the amount of energy consumed relative to the marginal cost of production (i.e. Unilever). With current uncertainties around weather conditions, fluctuations in price of energy resource (wind, solar and even fossil fuels) has direct bearings on revenue streams of govt (through indirect taxation et al) and also the ‘planning’ value needed for a large multinational company like Unilever to manage its risks.
Also, due to increased business risk exposure to carbon price, credit rating of such entities may be at risk. For instance, Drax Power, which operates a coal fired power plant in the UK, has been downgraded in 2009 to below investment grade, thus increasing the cost of borrowing and making it unsuitable for institutional funds to invest. By this trend, the cost of capital for projects in UK’s real sectors (which drives growth) may increase in line with expectation of a high risk ratio.
Economic Crisis’ Effect on Business
Any crisis within the [global] economy, whether short term or long term, will definitely have effects on both large and small businesses in any country. The UK cannot be immune to this reality. Since it can take a great deal of time for an economy to recover, businesses who were affected at the start of the downturn will likely endure the negative effects of the bad economy for a longer period of time (assuming the crisis is escalating). A slow recovery will likely be a problem for companies that have obtained “large blows” from a downturn and would have to make sacrifices and alterations to their operations to cope and survive. Revenues and profits will usually fall. Employees are laid off. Cuts are made to capital expenditures (like R&D) and Cashflow positions become even more uncertain. In an economic crisis, value of Stocks Fall and Dividends Decline; Investment pool (funds) tends to dry up faster and competition for limited funds (between the state and private sectors) becomes more intense.
Impairment in credit becomes common and probability of bankruptcy increases. Cutbacks on the Quality of Goods and Services becomes more tempting to businesses as their cost-cutting measures wpoiuld compromise the quality of goods and services produced. However, it is noted that economic crisis/recessions will come and go. Business owners would need to have the correct mindset and growth models to manage the process and project for the future. It is the time to engage new, innovative, and effective techniques to set the business afloat during the struggling economy. New customer base should be explored albeit with efficient allocation of resource.
Emerging economies of BRICS
With the increased cost of living and the economic power shifting to unstable foreign powers, coupled with the increase in price of raw materials, the UK might be approaching uncertain economic times. E.G the UK auto industry is reporting an estimated increase of 160bn euro in the cost of vehicle components by 2020. While the increase in demand for components will increase, it is only a matter of time before China (a BRICS nation), with its unregulated cheap labour begins to out produce the UK, which will lead to greater economic troubles (Berret, Bernhart 2010). Hereto, the future of business in the UK looks bleak with the budget balance expected to expand to a dangerous -13% of the GDP. [National office of statics]. This would increase the public debt of the UK to over 70% of the GDP. It would cause the borrowing rates of the UK to rise and make banks less likely to loan to new businesses (UK Economy 2010, Economic Forecast).
This shift from power to the BRICs is going to cause troubles with not only the UK economy but the global economy as well. Growing economies on the emerging world is a fact. While the rest of the world (BRICS) grows at an alarmingly rapid rate, the larger nations and the United Kingdom will face tough economic times. The UK’s transportation industry which is already suffering due to high fuel cost (in the last five years) and the threat from global terrorism will suffer even greater when they see huge deceases in travelling Europeans. This chain reaction of a crumbling economy and loss in growth will have deep ramifications for local businesses and also our social construct. All of this will happen while nations such as China increase in both economic and military strength.
With a powerful nuclear armed China and an increasing Russian economy, it is possible to see a threat of a renewed Cold War. The international economy is reaching a state of natural realignment. It is a change that for better or worse will be here in our lifetime and in the near future. Whether you are a UK business owner or a possible investor; you can not overlook the changing times, where western dominated institutions are no longer the most dominant economic power.
Poverty And Unemployment
Unemployment and poverty are the two major challenges that are facing the world econ-omy at present. Unemployment leads to financial crisis and reduces the overall purchasing capacity of a nation. This in turn results in poverty followed by increasing burden of debt. By the World Bank, poverty is implied as a financial condition where people are unable to maintain the minimum standard of living. Whatever be the type of poverty, the basic reason has always been lack of adequate income. This, to my mind, is caused by lack of employ-ment opportunities and the consequential income disparity.
Economic reforms, changes in the industrial policy and better utilization of available resources are expected to reduce the problem of unemployment and poverty that results from it. but make no misstate about it, economic growth reduces unemployment which ultimately reduces poverty. The current economic reform measures (by the current conservative government) need to have major impacts on the employment generating potential of the UK economy. This will be helped further when governmental bodies initiates long term measures for poverty alleviation, especially within the multi-cultural communities. Generation of employment opportunities and equality in income distribution remains the two key factors that are of utmost importance to deal with the dual problem of unemployment and poverty.
Wars and Conflict
War, so the conventional wisdom goes, is good for the economy. It certainly boosts demand and pushes any spare capacity back to work. In narrow GDP terms it might be true. But it carries huge losses in social ramifications. The numbers might look appetizing in economic terms but the human costs impossible to calculate. This distinction is worth remembering when considering the human cost of the Middle East conflict and its impact on the immigration policies and politics in the UK and other European countries (where far right parties seems to be gaining momentum).
Also, war and crisis has increased concerns for the physical supplies of oil, rather than the price. US oil dependency has risen sharply since 1990. Domestic production has been stable, while demand has risen by 15 per cent. In the short term this is not a problem as the US has been furiously stockpiling. Were there to be serious disruption to supplies – and hence a much higher oil price – a Middle East war could be very damaging to the still-fragile global recovery. The UK economy should be much more worried about the possibility of a continued and protracted conflict, an American failure, and/or renewed terrorist attacks in the US and maybe Europe. Such outcomes could be devastating for the UK economy and its businesses.