International trade has become extremely popular and important in the recent years because of many advantages it offers to the countries all over the world. It provides the exchange of goods and services among different regions and countries, that’s why it plays a crucial role in the country’s GDP (gross domestic product). Actually, there are many issues important about international trade and world markets. Without it businesses wouldn’t be so profitable and sustainable.
This discussion analyzes the significance of international trade to UK business organizations, reveals the main factors that may have an influence on those business organizations and evaluates the EU policies impacting on them relying on the existing researches and their results.
The Significance of International Trade
First of all, let’s define the main reasons why international trade plays such a crucial role for the UK business organizations performance.
- Expanded markets.
International trade is extremely important for business organizations and the economy on the whole as it helps to increase sales amount, customers’ quantity and traffic, to expand the trade area of local producers. For instance, if a business based in the UK sells its goods or services purely to the domestic consumers and never markets its products internationally, its sales potential is fully limited and it isn’t able to grow and increase its sales compared to the company that trades with other countries.
- Low production costs.
International trade provides an access to the markets with low production costs. For example, any UK IT manufacturer that is situated in the UK may produce their products in China where labor force is not so expensive. In such a way any business may cut production costs, saving the quality of its goods. Thus, the manufacturers may decrease their sale prices gaining more competitive advantages.
- Materials and supplies.
Each producer uses different materials in his everyday business processes great quantity of which are supplied from abroad, especially fruit. Close cooperation between companies from the different countries is possible due to the international trade.
Therefore, the major important advantages of international trade to the UK business organizations are the following:
- Domestic competitiveness enhancement.
- Sales and profit increase.
- Production costs decrease.
- Sales potential enhancement.
- Expansion potential maximization.
- Seasonal markets stability.
The UK domestic market is small that’s why due to international trade development the country can improve its economy on the whole and economic indexes in particular.
The Impact of Global Factors
Any business organization is affected by its competitors and external environment. Politics, economy, society and technology are the major global factors that influence UK business organizations. These factors and understanding of their importance and peculiarities are extremely important while business strategy development. Let’s discuss each of them and define what role these factors play. Actually, the listed global factors are the major components of the PEST analysis that describes the influence of these factors on any business organization in any country.
Politics. Political factors have the tremendous impact on business operations. Any changes introduced by governments are of great importance for any business organization. For instance, UK businesses functioning in the EU have to follow policies and principles adopted by the EU in order to create competitive businesses and additional jobs. Additionally, the government has created the so called “new deal” for those who have difficulties in finding jobs. It funds different employment programs in order to give the opportunity for those who are seeking for a job. Other example is the law forbidding smoking in public places. This law affects cigarette companies, pubs and restaurants (Guy, 2007).
Economy. Changes in world economy involve changes in the UK business processes. For example, raise in living standards level has caused increase in total consumers’ demand for the certain products and as a result prices have become higher. Thus, rising incomes have meant that in the recent years people can spend more on various products bringing additional profit to the producers and other institutions. Business strategies should be generated in accordance with these economic fluctuations.
Society. Social structure is not stable and constantly changes. It depends on people’s behavior, lifestyle and tastes. When business strategy developing, organizations should take into account consumer’s age and gender, their preferences and passions. Considering these important factors any organization may succeed in its business management and control the future market situation.
Technology. Technological factors are extremely important for businesses and their strategies as they provide them with new devices and methods that may help in their work. The main reason of importance of technological factors is that they help to reduce costs and produce new innovative goods with modern qualities. To be competitive business organizations should implement the latest technological achievements and developments in their management and work. For instance, modern telecommunication systems support international trade providing connection among the business partners and customers from other countries. Thus, since 2000 British business has been affected by the globalization, in the result of which large economies like China entered the market, global brands like Apple iPod were created, instant communications were created (Guy, 2007).
As the result, any UK business organization is influenced by global factors among which technology obtains the main place. However, running international businesses managers should take into account political restrictions and rules, consumers’ tastes and economic situation (inflation and wages rate, unemployment level, people’s total income level).
The Impact of the EU Policies
The EU influences the UK economy and business processes in a number of ways. It applies some methods among which are (Miller, 2010):
- Laws and regulations, directives – for instance, employment legislation, contract of employment, etc).
- Spending and taxation.
- Advice and support for business organizations.
The main policies through which the European Union influences the UK economy and businesses are:
- Free trade – companies running international trade and exporting services and goods within the EU borders have no tariffs. Thus, UK businesses have an excellent opportunity to market their products across the 27 countries of the EU. However, in the UK there is still the border agency in comparison with other states.
- Common commercial policy – that helps to protect companies while importing goods from outside the EU borders.
- EU competition law – that prevents big companies from setting monopolies and provides the small firms with the opportunity to trade across the Euro zone.
Actually, it is believed that the UK’s business performance indicators have improved in the recent years due to the EU’s policies and the main benefits are the following (Miller, 2010):
- Export potential increase.
- Large European market gives more opportunities for the businesses increasing demand for services and goods. For instance, the UK export to Poland has doubled since 2004 when Poland became the EU member.
Foreign investments and profit increase. International trade within the EU borders helps the British business organizations to receive the additional interest profits boosting the UK GDP. However, the results of the Ernst and Young UK Attractiveness Survey on this question are rather ambiguous: more than 70 percent of firms interviewed in the U.S. believe minimized integration with the European Union would attract even more investors to the UK businesses. However, interviewers in Europe fully disagree with this fact (Ernst & Young, 2013).
- Diverse European labor market gives the UK business companies more opportunities for import of skilled labor force for lower money. This helps to keep wage inflation and guarantees business stability.
Thus, the UK economy is dependent on international trade which plays a crucial role for the country’s economic sustainability. Expanded markets, low production costs and constant supply of materials from abroad are the main reasons of foreign trade importance. The UK should constantly develop its international cooperation with other countries in order to get an additional profit and to become even more attractive for the foreign investors. However, there are some global factors that influence business organization performances. They are included into the PEST analysis and they help to improve business strategies in accordance with these factors.
The UK main international trade partner is the European Union. More than 58 percent of the export goes to the EU countries. The EU, in its turn, has the tremendous impact on the UK business organizations. Moreover, the United Kingdom is the most attractive area for investors where more than 30 percent of the EU investment is concentrated. It is often argued that the UK benefits from foreign investments due to its EU membership and that the firms have full access to the markets of other EU members due to the Single Market. However, it is extremely difficult to evaluate the real influence of the EU on the UK businesses and its consequences.
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EU Membership and FDI, (n.d.). Available at: https://www.gov.uk/government/uploads/ system/uploads/attachment_data/file/220966/foi_eumembership_fdi.pdf (last accessed January 03, 2014).
Guy, P., and Catherine Richards. BTEC National Business: Book 1: Student Bk. Heinemann, 2007, 480.
Miller, V. (2010), “How much legislation comes from Europe?”, HC Library Research Paper 10/62. Available at: http://www.parliament.uk/briefing-papers/RP10-62/how-much-legislation-comes-from-europe (last accessed January 02, 2014).
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