Pros & Cons of Doing Business Within the European Union - Essay Sample

Introduction

I would prefer to do business within the European Union. This is because being a member of the EU offers one with the freedom to move goods, products, and services across and within the various trading blocks. Further, there is intense competition within this common market, which is particularly beneficial to the business. To facilitate ease in trading, legislations have been passed that seek to get rid of various hindrances to trade. In return, this has reduced the costs of doing business within the EU and improved efficiency. Besides, the effort has been put towards eliminating anti-competitive practices that were being initiated through monopolism and cartels. Members can move freely within different member states, with minimal restrictions in terms of paperwork. The technical standards of safety have been harmonized across the borders and have proved particularly satisfying to the businesses (Buckley and Casson, 1976).

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This type of freedom is akin to trading domestically within the United States, where there is the freedom to trade across different states with varying state rules. This particular freedom in trading and moving products is attractive enough. Besides, the EU is the largest and most profitable single market economy in the whole world.

Advantages

Owing to the massive expansion of commerce within the European Union, it is easier to predict or determine the logistics in trading goods. As such, one is able to plan and prepare in a more appropriate manner. For instance, emphasis can be made on reducing the levels of inventory while increasing the economies of scale. A number of major manufacturers in Europe are now able to affix their products in economies of scale (Buckley and Casson, 1976).

While doing or going about cross-border transactions, manufacturers who are members of the European Union are not subjected to the rigor of custom duty. Instead, one only incurs costs at the first point of entry. After that, all other trading movements and not subject to any such similar cost. As such, there is an incredible reduction in the costs of operations.

The delays are minimized as clearance at entry points is rather seamless. By virtue of being a member of the European Union, the clearance documents required at various entry points are minimal. The administrative protocol required for clearance purposes is minimized as well (Buckley and Casson, 1976).

The rules that initially apply to the goods at their points of origin do not generally apply when the goods are circulating freely within countries in the European Union. Once the goods’ duty fees have been catered for at the point of entry, these rules are regarded as mere statistical data for follow-up purposes.

While there may be specific concerns over how to trade operations within the European Union are conducted, the silver lining in all that is that they significantly lower the trading costs within the common market. Such concerns include; it is challenging to counter fraud and the incision of prohibited goods into the market since there is a lack of control and supervision at the inter-borders. Further, governments find it difficult to track the goods coming into the common market. The implication of this is that the market is bound to be infiltrated by unhealthy products. For instance, there have been cases of the sale of horse meat that was not subject to inspection, which led to the spread of infections and diseases.

Disadvantages

The advantages mentioned above have proved to be an Achilles’ Heel. Many countries have been attracted to the prospects of being a part of the European Union. This sudden influx in the growth of membership has made it more difficult and time-consuming in matters where agreements ought to be arrived at.

The implications of Brexit cannot be understated. First, it has resulted in significant unsettlement amongst members of the European Union. Further, there is a buildup of negative perception that the Brexit movement is bound to mostly favor business in the United Kingdom. As a result, there has been a disruption of the harmony that previously existed when trading within the free market.

Theoretically, businesses operating within the European Union should all benefit from the trade. Unfortunately, statistics affirm that a low percentage benefit adequately from the trade. Others are often left disadvantaged and having to suffer their loses. Part of the reason for such losses is the infiltration of smuggled goods from outside the European Union, which are traded at significantly lower prices.

In addition to that, the occurrences of fraudulent activities and undercutting have been on the rise. For instance, goods such as tobacco and alcohol are proving increasingly difficult to distinguish between the counterfeits and originals. As such, the counterfeits benefit from avoiding or reduction in taxation, thus undermining legal trading.

Being a member of the European Union does not necessarily guarantee a subscription to the Euro currency. However, the European Union has been obstinate regarding the diversification of its currency. Instead, it has insisted on trading under one currency, i.e., the Euro. This insistence has had diverse effects on member states, as others have struggled economically.

There are insufficient and inefficient policies or laws governing trading within the common market. For instance, the Common Agricultural Policy has been existent for many years but has only resulted in disorienting the spectrum of the agricultural market. There has been a significant reduction in the minimum quotient on food, which has consequently led to consumers having to contend with higher prices. The implication of this is that over-supply of food has been encouraged at the expense of wastage.

Describe the advantages and disadvantages inherent in the option you did not choose.

Opting to trade outside the European Union comes along with its advantages as well as disadvantages.

Advantages

Unlike in the option of trading within the EU, there is no insistence on the use of one currency for all, regardless of its implication on the economy. As such, different countries trading outside the European Union are able to take advantage of the strength of their own currency while conducting trade or business operations. There is a general guarantee on the economic growth.

Further, there is no fixed market or policies or laws within which one has to operate. Trading within the European Union limits the options within which trading can be done. For instance, one really has no option but to partake in the trading even if the policies do not favor them. However, trading outside the European Union grants one with the freedom of choice as to who or where to trade. As such, businesses tend to trade in regions that are favorable and guarantee success or profitable returns.

Countries can limit their membership, and consequently, prevent an influx of membership as previously experienced in the European Union. In return, it is easier to pass policies or reach agreements, as the parties involved are generally sustainable and adequate. Delays in policymaking are thus avoided, hence facilitating consistent trading and business operations.

Disadvantages

Countries or business operations that are a part of the European Union are open to some of the world’s largest economies. Theses economies play a significant role in the trajectory or the direction a business would take. It is prudent to be a part of such operations for a business to experience success on the global landscape. Operating outside the European Union takes off this opportunity, and limits the growth scope of any business (Curtin, 1984).Further, operating outside a free market economy leaves a business prone to multiple rules, regulations, and policies from various inter-borders. There is no harmony in the operational policy framework. The implication of this is the increase in paperwork, increased delays, and increased costs of operation.

Explain why an MNC may invest funds in a financial market outside its own country.

Multinational Corporations make investments overseas for a number of reasons. First, they do this to seek markets abroad. For MNCs to be successful, they have to establish market-bases outside of their hosting country. Doing so provides them with an export platform within which they can handle the demands of tariffs, while at the same time operating at closer proximity to their target consumers. Various logistics and cost implications are thus reduced immensely. For instance, most U.S. MNCs set up their customer care operations overseas intending to reduce costs, and offer services that are in sync with the cultures of those regions (Curtin, 1984).

Aside from that, MNCs invest overseas to improve the efficiency of their operations. Making such investments reduces production costs, as various goods are produced or manufactured in regions that are most effective, a tactic is known as vertical investment. For instance, the headquarters of Volkswagen is based in Germany. However, in various parts of the world, the company has invested in operations that ensure the production and assembling of its cars, in a bid to minimize costs. Aptly put, a business may find it cost-effective to have its productions in a foreign country, with a view of selling them either domestically or in other markets within the foreign spectrum.

Further, businesses could make investments abroad, specifically with other companies, as a strategy. Such investments could be made on technology, or to establish various partnerships that would give them an advantage in the prospective countries (Curtin, 1984).

Finally, multinational companies could look to reorganize themselves to keep up with the changes occurring within the economy. For instance, when a new free trade agreement is created within a number of countries, the competition may suddenly increase owing to the lower tariff rates. These fluctuations could change the profit implications, thus justifying the overseas investment.

Explain why some financial institutions prefer to provide credit in financial markets outside their own country.

Financial institutions that have a foreign portfolio investment often result in numerous advantages. For instance, it gives the investors the chance to engage in a diversity of international assets that result in higher returns. Further, it offers a more significant credit base to the investors, who, in turn, can obtain credit from the regions where they have invested heavily. Quite often, domestic credits are expensive or may not be as available owing to a number of reasons. Offshore investments that guarantee efficient and readily available credit much determine the success or failure of any business (Singer, 1950).

Besides, currency rates at the international level are always changing. These changes could favor or come as a disadvantage depending on the strength of the transacting currency. For instance, there are times when the domestic currency could be stable, and there are times when it could be equally weak. During such times, businesses with offshore investments could benefit from the strength of the currency in those regions. Either way, they are always bound to benefit.

In addition to that, businesses offer foreign credit to grant them access to more significant markets or more consumers. For instance, the domestic markets within the United States have grown quite congested and competitive. There has been an increase in businesses that offer similar services. Investing abroad opens up the business to new opportunities, fewer competition,...