The step to expand the services offered by a country to another is often met by a number of constraints including the barriers related to political differences; differences in value tagged to the currencies of the two countries; as well as the cultural barriers to name but a few of the problems that face the expansion of business units to foreign countries. The European Union- a union of political and economic interest- has established a system of regulating commerce that acts to its advantage.
A significant difference in operation, management and profits will be found when expansion of a multi lateral company is done within a member country of the European Union and another one done in a non member country. Introduction Countries in the world over exhibits much differences in their political, economic, cultural as well as religious tendencies. With rate of globalization increasing by the day, more and countries are collaborating in engagement of various activities like economics, sports, and even religious activities.
Yet, the differences in the management of the countries’ affairs posses a great challenge to the expansion of the activities they collaborate in. where some countries have formed unions in which they most of the barriers to the trade are curtailed, others decide to operate independently. The European Union is one such union that is composed of 27 member countries. It has developed friendly policies to its member countries in the economic sector so that this sector is boosted and protected.
In this proposal, I will undertake to compare and contrast the advantages and disadvantages of starting operations in two countries; Britain, a member of the European Union and Brazil, a non member of the union. Comparison of advantages and disadvantages of starting operation in Britain and Brazil Britain has an advantage of having a large population that can offer a very large consumer for its products. As a member of the European Union, Britain will have a very wide customer base since their customers are derived from the whole region covered by the European Union.
The membership of the European Union comprises of 27 countries whose population is estimated at approximated 500 million people. If the number of the people found within this region translates to those who act as consumers for the services to be provided by the new branch of Acme in Britain, then Britain will outnumber the consumers available for the services that will be offered in Brazil whose population is estimated at approximately 191,909,500 people.
It should also be noted that Brazil operates her economic transactions independently therefore cannot quite afford the large customer base that Britain has (Madura 2006p425). The European Union has adopted the free market strategy where they the movement of goods, the people, services and capital is unrestricted among the member countries. This then means that the branch based in Britain can circulate the goods to all the countries without any restriction while Brazil cannot freely sell products into the neighboring countries due to trans- national border restrictions.
This means that the scope of the Brazilian market is far much restricted than that of Britain (O’Brien 2006p 109 – 110). The removal of the restrictions of the movement of the people has been important in ensuring that the people can select an area of operation that can best suit them and settle whenever they like. In terms of the support of the new company, it would prove easier to draw investors to offer supportive services to the new branch.
The removal of the restrictions on the movement of goods is equally important because it ensures that the goods needed for the sustenance of the new branch in Britain can be easily obtained from whichever country with great ease since there exists no restrictions with the importation of goods from any of the member states. This is not so with Brazil, which is an independent country. Brazil and her neighbors have placed a number of restrictions regarding the entry of the goods from the neighboring countries.
Since the restrictions often come with requirements of extra charges during the importation, the charges are reflected in the products made by the new branch. This would mean that the products are sold at a much higher price that may unfortunately be unaffordable to the Brazilian citizenry (Madura 2006p423). The system of use of a common currency within the European Union has eased the problem of valuing a currency against another one, and the lack of foreign currency with which to buy the product as it happens with Brazil.
The common currency used by members of the European Union is the euro and it is useful in all the member states. The international trading and economic oriented relations with the other economic giants like India and China are open to the European Union where Britain is a member. This means that the branch in Britain can have trading relations with these economies via the European Union and hence get access to quality products which can compete better in the world market than that based in Brazil (O’Brien 2006p 111).
The European Union has been identified as the largest exporter globally and the second largest importer. Brazil’s rate of exportation and importation is not anywhere among the top 10 countries. This means that Britain will stand a better chance at getting more and competitive products globally and an equal scale customer base. The European Union has developed a common external tariff to be placed on the incoming goods from other countries.
This is s kind of protection they offer to the member countries to protect their own products from being overtaken by those of other countries. This has acted as an advantage to Britain since the income tax made on goods is similar to the other neighbors. Brazil’s case is different because she can decide to tax incoming goods at a rate that might not favor its citizens to their own detriment. Britain has the advantage of competing at the same level with the neighbors. This is as a result of the role that the European Union has played in regulating unhealthy competition.
With the aim of fostering equal growth to all its members, the European Union ensured that all the countries had a similar rate of tariffs for their incoming products, Britain included. This step ensured that a country’s possibility of loosing customers to other neighboring countries is eliminated for its members. This is one way in which the union has managed to eliminate competition for its members meaning therefore that Britain can comfortably engage in importation of goods without fearing that other countries might get into the way.
Brazil cannot determine the rate of taxes that its neighbors can decide to place on their imports therefore can end up loosing consumers to the neighboring countries with better rates. It is also a concern that the rates of inflation in Brazil have remained high ever since President Fernando Cardoso’s time beginning in the year 1994 with the value of the Brazilian currency plummeting to 40%, Britain has never experienced such a high rate of inflation. This inflation has acted negatively to the spending capacity of most Brazilians.
As the buying capacity of the Brazilians drop at a very high rate, that of Britain has remained relatively stable though smaller levels of inflation have hit the country especially due to the effects of the global recession (Porter 1998 p300). Conclusion Britain, due to its membership to the European Union appears to have adopted a number of policies that are conducive for growth of the economy. The European Union has really worked towards the removal of barriers that may hinder the development of the economies of its member countries.
The cultural barriers have also played a great role in either promoting the growth of the economies within the countries or demoting its growth as the reception of the goods is highly dependent on the response of the citizens to them. References O’Brien T J (2006) Global financial management J. Wiley pp109-111 Porter M E (1998) On competition Harvard Business Press P 300 Madura J (2006) International Financial Management Cengage Learning P423, 435