BUSINESS AND THE EUROPEAN UNION

The EU is the regional European bloc formed following the final ratification by the then 12 members
of the European Community of the Maastricht Treaty in November 1993. This treaty provides for
closer unification of the economic, social and political systems of the member states.
A vision of a new Europe began to emerge at the conclusion of World War Two in 1945. The
objective was to unite the economies of Europe and thereby overcome long-established national
rivalries. A key figure in the creation of the new Europe was Jean Monnet, a civil servant in charge
of French economic planning. Monnet is often called the father of European unity.
The origins of the European Union (EU) lie in the creation of the European Coal and Steel
Community (ECSC) in 1952. The original members who signed the Treaty of Paris were Belgium,
Holland, Luxembourg, Italy and France. West Germany later became a member. The UK participated
in the negotiations but refused to join.
In 1957 the six members agreed to form a common market in which no trade barriers would be
allowed between member states. The Treaty of Rome established the European Economic
Community (EEC). The six members of the EEC enjoyed exceptionally high economic growth. This
encouraged Britain to join this free trade area in 1973, along with Ireland and Denmark.
In December 1991 Europe took a major step forward when the Maastricht Treaty of European Union
was signed by all the member states. It took effect on 1 November 1993. This treaty created the
European Union with the aim of even greater unity between member states. Many viewed the treaty
as a move towards close political ties within a federal Europe a United States of Europe. The
treaty foresaw the introduction of monetary union and a single European currency by 1999. At the
time there were many who doubted that this would ever happen. Its arrival, on time, on 1 January
1999 was a remarkable political achievement. The Maastricht Treaty also envisaged common
policies on industrial and social affairs as well as defence, education and health. It was designed to
push the pace of European unity forwards more quickly.
A number of other nations in and on the fringe of Europe have expressed interest in joining the EU.
For example, Turkey has made regular overtures to the Union, but has had its applications rejected
because of its poor record on human rights.
THE EVOLUTION OF THE EUROPEAN UNION The EU has moved from establishing a free trade
area to a point at which monetary and economic union is being enacted, and political union
according to some commentators is just around the corner.
1 Free Trade: This occurs when a group of countries abolish barriers to trade most
commonly tariffs and quotas. The European states began this process in the late 1950s, meaning
that businesses could export and import more easily.
2 Trade customs union: This often occurs simultaneously with the abolition of trade barriers. A
customs union merely requires the imposition of a common external tariff against goods and services
from outside the area. The EU operates such a tariff, offering benefits to businesses within the area
and encouraging non-European businesses to establish factories within Europe. Honda at Swindon
and Nissan at Sunderland are high profile examples of this policy.

3 Creating a common market: This stage in the process of creating a Union brings together a free
trade area and a common external tariff with the free movement of all factors of production across
national boundaries. An agreement between member states of the then European Community in
1986 committed the countries to the creation of a single market by the end of 1992.
4 Economic union: By late 1992 the EU had removed most of the remaining barriers to the free
movement of goods, services and factors of production. However, a genuinely single market cannot
be established whilst the exchange rates of the currencies of the member states fluctuate. This is a
major difference between domestic trade and trade within the EU. This economic union requires a
single currency and coordinated fiscal and monetary policies.
5 Political union: Many supporters of greater European integration perceive the final stage as the
establishment of a federal Europe similar in structure to the United States of America. Important
powers would then lie solely with the European Parliament with national governments having
limited powers.
FUTURE MEMBERSHIP
Many countries outside the European Union are very keen to become members. It is likely that a
new wave of countries will join in 2002 or 2003. Most are former communist countries which want to
align themselves clearly with the West. These include Poland, Hungary,
Estonia and the Czech Republic. Cyprus and Slovenia may also join, helping to add 17% to the
population of the EU, but only 3% to the combined income (GDP).
Low wage rates in countries such as Poland will make these new EU members fierce competitors for
jobs. They do, however, provide a rich market opportunity for many EU businesses. We shall return
to this topic later in this article.
A second wave of new members is predicted to take place after 2010. This is likely to include
Bulgaria, Romania, Slovakia, Latvia, Lithuania, Turkey, Malta, Russia and Ukraine.
The EU is managed by its institutions. Currently, these are as follows.
THE EUROPEAN COMMISSION
This is based mainly in Brussels and, to a lesser extent, in Luxembourg. It proposes EU policy and
legislation which is then passed on to the Council of Ministers. The Commission also executes the
decisions taken by the Council of Ministers.
The Commission has 20 members two each from France, Germany, Italy, Spain and the UK
and one from each of the remaining states. All the Commissioners are obliged to act independently
of national interest and to act only in the interests of the EU.
THE COUNCIL OF MINISTERS
This is the Unions decision making body. It agrees or adopts legislation on the basis of
proposals from the Commission. It is, in effect, the Cabinet of the EU. Each member state acts as
President of the Council for six months. Meetings are held each April, June and October and one
minister from each state attends meetings.

Twice yearly, heads of government meet in what is known as the European Council. This sets broad
guidelines for future action by the Union.
THE EUROPEAN PARLIAMENT
The European Parliament meets in Strasbourg in Eastern France. It has 626 members (members of
the European Parliament, or MEPs) of whom 87 are from the UK. MEPs are elected by proportional
representation for a fixed period of five years.
The Parliaments opinion is needed on proposals before the Council can adopt them. It is a
supervisory body with the power to approve and dismiss the European Commission. The Parliament
votes on the Commissions programmes and monitors day-to-day management of European
policies. In spite of this, the Parliament currently has little authority or power.
TYPES OF EU LEGISLATION
The Council and the Commission can impose their will upon the Union by means of:
Regulations these have binding legal effect without confirmation by the member
countries parliaments. These regulations have primacy over national law if any conflict
arises.
Directives these require member states to introduce legislation in their national parliaments
to enact certain EU decisions. If the member does not introduce the directive the Commission may
refer the matter to the Court of Justice as a last resort.
Recommendations and opinions these have no binding force but express the view of the
issuing institution.
Over recent years there have been a number of issues within the European Union which have had,
and will continue to have, significant implications for businesses. The changing nature of the
European Union offers opportunities and constraints for all types of businesses.
One such key issue is that of the single market. The original vision of the European Union was of a
market in which goods, services, people and money could move freely. This was to be achieved by
opening up borders and implementing common economic policies. By the late 1970s it was apparent
that this aim had not been achieved and a programme was devised to create a genuinely single
market. Over 300 measures comprised the reforms necessary to create the single market. Key
elements of this have been:
the creation of common technical standards for EU products, meaning one product can be designed
to sell throughout the EU
the harmonisation of taxation, for example aligning VAT and excise duties, ending tax advantages
resulting from location in a particular EU member state
the free movement of people citizens are allowed to travel, reside, study and work wherever
they wish in the European Union
a reduction in the number of customs posts and the paperwork necessary for trade within the EU

the free movement of capital making it possible to invest money anywhere in the Union
ending duty-free sales within the EU from 1999.
The introduction of the single market is a conscious attempt to remove remaining barriers to trade
within the European Union. It is by no means complete, but the impact of the changes should not be
underestimated. European firms are now selling to a market which comprises over 360 million
people larger than the markets of Japan and the USA added together. This constitutes a
major opportunity for all European firms. At the same time, it will bring ever fiercer competition.

The new, larger market will allow businesses to produce

and operate on a larger scale. This may offer the
advantages of economies of scale. Firms will also have the
opportunity to become more highly specialised as they
operate within the enlarged market. This increase in scale
may continue to be fuelled by mergers and joint ventures
between national companies to establish European
conglomerates. Belief in the benefits of scale in this
enlarged market can be seen in:
the purchase of the French insurance company Victoire for 1.5 billion by the UKs
Commercial Union
the recognition by Guinness of the need for a broader product range. In 1994 it paid 894
million for a 34% stake in one of Frances leading champagne and brandy producers
Moet-Fiennessy. This acquisition has assisted the company in meeting the challenge of different
cultures, languages and business practices to be found in other parts of the EU.
Small and medium-sized companies have experienced fierce competition as a result of the
enlargement and restructuring of their particular markets. Even those companies which trade
principally in their own national markets have commented on increasing competition within these
markets.
One of the principal changes resulting from the move to a single market in Europe was the creation
of common technical standards. Products which meet the new technical requirements devised by the
EU carry the CE mark which means they may be sold throughout the Union. Many
European firms have had to revise the safety aspects of their products to meet the relevant CE
standards.
The move to a single European market has also involved attempts to harmonise taxes and duties.
The intention is that, for example, the rate of VAT levied in member states should be broadly the
same. The same is true of the rate of excise duties on products such as alcohol and tobacco. Since
1993 the total tax on cigarettes has had to be at least 57% of the retail price in all EU states. This
will have significance for companies who sell throughout the EU in terms of their pricing policies
and marketing.
Finally, there have been a number of reforms intended to ease trading within the EU. The paperwork
necessary has been simplified and customs posts removed (except in Britain).

By the late 1970s it was apparent that trade within Europe would be helped by some form of linking
of exchange rates. Businesses could gain confidence from knowing that earnings from export sales
were unlikely to alter due to fluctuations in exchange rates. From this idea the concept of the EMU
was born with two principal elements:
the European currency unit (ecu) a common currency to be used for transactions
throughout the Union
the Exchange Rate Mechanism (ERM) which links domestic currencies to the ecu and to each other.
The heart of the EMU was the Exchange Rate Mechanism but is now the single currency the
Euro. Within the Exchange Rate Mechanism each currency had an exchange rate against the ecu.
The aim was to restrict currencies to fluctuations of no more than 2.25%. In 1992 the ERM failed
when the UK, Italian and Spanish governments were unable to support their currencies and
withdrew from the mechanism. The ERM was replaced by the single currency (the Euro) on 1
January 1999.
At this time the exchange rates of the participating currencies (excluding Britain) were locked
together. Transactions between banks are in the new currency-the Euro. On 1 January 2002, Euro
notes and coins will be issued to the retail sector, and the notes and coins of the participating
national currencies will be withdrawn by 30 June 2002.
The implications of joining the EMU for British businesses are both positive and negative. A single
currency and a common European monetary policy would make trading easier and cheaper. Costs of
raw materials from other EU states would not vary, allowing more accurate financial forecasting.
Earnings from exports would not be subject to variations in exchange rates. Businesses would no
longer need to pay com- mission when exchanging pounds sterling for, for example, lira or Belgian
francs. Estimates are that this alone would save firms about 0.5% of their total costs.
Businesses and final consumers would find comparisons between the prices of products from various
European producers simpler. A single currency and common interest and inflation rates would
encourage firms to operate in a wider market bringing benefits such as economies of scale. Firms
are more likely to seek out new markets if trading is eased through the introduction of a single
currency. Equally, new, and improved, sources of supply might become viable once exchange rate
fluctuations are no longer relevant.
Investment from the rest of the world is likely to increase as a result of a move to a single currency
since it will result in a large market in which trade is simple and relatively cheap. The UK is
fortunate to have been the major recipient of direct investment from the rest of the world. This has
lead, for example, to the establishment of the Nissan plant near Sunderland and Hondas
factory in Swindon. By locating in the UK, non-EU producers can operate within the EUs
common external tariff.
Businesses that handle large amounts of cash are likely to be the most seriously affected by the
transition to the Euro. The EU retailing body, Euro-Commerce, estimates that the transition could
cost European retailers 27 billion ecu (22 billion), or almost 2% of their annual turnover, over
three years. Handling costs would account for 3.9 billion and the dual display of prices a
further 3.1 billion. Retailers own estimates of the costs associated with the introduction
of a single currency vary considerably. Tesco estimates costs at 40 million.
Since more than 50% of the UKs overseas trade is conducted outside the EU there are many

firms who will have to meet the costs of converting their systems to dual prices and then to the Euro.
These firms will not, however, benefit from the reduced costs of exchanging currencies.
This is an element of the Maastricht Treaty signed by the 12 members of the Union in 1992. The
intention of the Social chapter is to harmonise working conditions throughout the Union. This
ensures that all EU workers are guaranteed the following basic rights:
the right to join a trade union
the right to take industrial action
the right to be consulted and informed about company plans
the right to equal treatment for men and women
the right to a minimum wage and a maximum working week of 48 hours
the right to a minimum of four weeks paid holiday per year In addition, the chapter contains
provisions relating to redundancies and it also seeks to encourage employee participation and
consultation.
In 1993 the UK took the decision to opt out of the Social chapter, fearing that it would impose extra
costs on UK businesses. The Labour government elected in 1997 has taken the view that the UK
should sign the Social chapter.
The fall of the communist governments in Eastern Europe in 1989 and 1990 has had major
implications for businesses in the remainder of Europe. The absorption of the former East Germany
into the Union offered opportunities as a significant new market became accessible. The attempts of
many of the former communist states to adopt capitalism is reflected in their interest in becoming
members of the EU.
The East European countries have a combined population in excess of 100 million and a wide range
of resources attractive to Western firms. Above all else, the countries represent fresh new markets
for companies facing saturated markets in Western Europe. Companies operating in mature markets
such as those for chocolate or detergent can see huge potential for whoever can establish their
brand name first.
Already, Central and East European nations purchase over half their imports from the Union and
this percentage has risen steadily throughout the 1990s. In 1995 they took over 19% of EU exports.
These parts of Europe offer vast opportunities and EU businesses have sought to take advantage of
them in a number of ways. / tyiut nyitnus: The joint ventures are based on EU firms contributing
cash, machinery and management skills, whilst their eastern neighbours provide land, buildings and
labour. The benefits to the EU firms from such deals are apparent. They gain a cheap source of
production as wages and rents are lower than in the West. Controls on production (for example, in
relation to pollution) may also be less stringent, further reducing costs of production. At the same
time they gain access to a relatively untapped market. Many UK companies, including Taylor
Woodrow, British Gas, United Biscuits and Morgan Grenfell, have negotiated deals with companies
in Central and Eastern Europe.
Many agreements have been reached between EU businesses and firms from the East to allow some
co-production, short of a formal joint venture. Such agreements might encompass joint assembly of

products or the creation of an assembly plant in Central or Eastern Europe near to potential
markets. This reduces production costs for Western producers whilst offering Eastern firms
technical expertise. Volvos are assembled in Hungary as part of this type of agreement and Renault
allows its cars to be assembled in Hungary under licence.
Many producers in Central and Eastern Europe are eager to purchase Western technology and
expertise. Often this know-how is in the form of licences to produce particular products, usually
well-known brands. Coca-Cola has granted a licence to allow manufacture in Bulgaria. For the soft
drinks giant this is a cheap way to expand its market.
THE DIFFICULTIES AND DANGERS OF TRADING WITH THE EAST The East represents a huge
opportunity for EU businesses, but a number of potential pitfalls exist.
The markets in the East are not wealthy ones. The average income in Eastern Europe is
approximately one-third of that in the EU. This means Eastern consumers have relatively little
income to spend on the products of EU firms.
The political systems of many Central and Eastern European states are still immature. They are, as
yet, unused to democracy and can behave in unpredictable ways. The prolonged war in the former
Yugoslavia highlights the difficulties inherent in trading in an unstable region.
Bureaucracy still exists as a hangover from communist regimes. This can mean delays in receiving
permission for new buildings or to employ local people. Corruption still exists in some countries
resulting in obstacles to trade unless officials receive payment.
Trading throughout Europe involves businesses in a dilemma: there are benefits to be derived from
producing on a larger scale, yet the market is differentiated and fragmented. Firms have responded
to this in a variety of ways, developing new strategies to respond to the challenge of Europe.
The starting point for many firms is to analyse the environment in which they operate, perhaps
through SWOT analysis. This can help the company in determining its current position in the market
and assist the senior managers in establishing their new European objectives. The managers then
determine the changes that are necessary to achieve the agreed objectives.
The sort of questions posed for firms by the opening up of the European market are enormous. They
include:
Where do we produce?
From where do we purchase our raw materials? What new markets exist? Do we use a common
marketing strategy throughout Europe (pan-European marketing) or treat each region as a separate
market sector? Can we offer production licences to overseas producers? Should we engage in a joint
venture with other producers? Should we merge or take over other producers? Will our existing
organisational structure be appropriate for trading throughout Europe?
PILKINGTON GLASS AND THE EUROPEAN MARKET Pilkington Glass is based in Lancashire and
manufactures a range of glass products which it sells internationally. Overcapacity in the world
market and the opening up of Europe has forced the company to rethink its strategy. This new
strategy contains a number of features: The company aims to produce a narrower range of products
targeted at the enlarged European market. In this way the company expects to benefit from
economies of scale in production.

The company appreciates the importance of staying close to its markets. Because of its inability to
split production onto a number of sites for economic reasons, Pilkington has elected to establish
sales and marketing agencies throughout the EU. This has allowed it to monitor customer needs and
ensure they are met.
Aggressive moves by European competitors have meant that Pilkington has concentrated on
competing effectively in domestic markets. This has meant focusing on products in which it has a
competitive advantage.
The strategy adopted by any single company will vary according to the circumstances of that
company. The strategy will be influenced by:
the companys objectives
the current trading position of the company
the resources available to the company
the abilities and beliefs of the senior managers.
A key element in success is the ability of companies to achieve economies of scale whilst meeting the
individual demands of the specialist sub-markets which comprise the European market. It is
important that managers have access to all the information they require to make the correct
decisions. Information technology can play an important part in this respect. Finally, there is no
single recipe for success in the European market, but flexible and forward-thinking management is
necessary; if not on its own a guarantee of success.
I
The European Union is a fruitful area for examiners. Analytical answers are more likely to result if
you:
ensure that your answer is integrated that is, you consider production and personnel,
marketing and finance as well as the external environment
explore the consequences of European marketing decisions -for example, the need to retrain
employees in language skills
Brand SEO Graphics are a Northampton located firm that employ numerous online and offline
commercial promotion systems which include leaflet promotion Search engine optimizing, and Paid
advertising management.
Personalised leaflets and pamphlets are typically a low-cost way of directly advertising to new
clients and contacting your pre-existing customers.
It all starts here: Ultimately, an efficient flyer or leaflet is going to do numerous tasks: catch the
householder's attention, yield desire for your company and have the recipient for an action.
Physical appearance: With regard to style and design, its helpful to restrict detailed efforts
to the online business and follow a more conservative approach for printed material. Way too many
color styles and written messages might decrease your important business message. If you want

something bold, provide a hard hitting or provocative logo but keep the remaining portion of the
flyer or leaflet easily readable, uncomplicated, and above all to the point.
Length and width: When it comes to how big or small to print your flyer, leaflet or poster, give
consideration to the distribution strategy. With respect to full colour leaflets that will be passed out
in person by marketing and pr workers, for example, A6 paper will often be reliable as it is small
enough for any person to put in their bag or look over fairly quickly. They tend to be thicker, and
printed on high shine cardstock. Leaflets which can be sent through the letterbox are generally A6
and customarily enjoy the maximum response when delivered in labeled envelopes. Virtually all full
colour leaflets are made using lightweight economical paper, applying a glossy finish that makes
graphics seem very nice and clean.
The text: Keep text in clear terminology and customer driven.
The distribution: When being familiar with the end users comprehensively, it will be easy to
delineate the best delivery procedure for your promotional content. There are plenty of options to
consider: you may choose to distribute them on their own, with other leaflets, inserted in a magazine
or newspaper, to passers-by on the street, on cars or door-to-door.
Administering outcomes: Advertising opportunities which are leaflet or brochure specific are a great
strategy to produce reaction and engagement. A small firm will not lose much money and definately
will experience some benefits when customers act on it. So long as you are seeking to maximise
reach, leaflets are a good marketing approach. If pamphlets and full colour leaflets are to be a major
element of the advertising method, then you must also look into marketing all the time.
examine the type of firm in question large multinationals are more likely to be affected by
the European dimension, but may have more difficulty in responding due to rigid organisational
structures.
Responding to the challenges posed by the European Union is high on the agenda of many firms at
board level. Changes in technical regulations come hand in hand with increased competition and
structural changes such as the single market and the single currency.
A key element in any management strategy to deal with the European dimension is one of balance. It
is important to balance efforts in maintaining the home market with the natural desire to make
inroads into the market in continental Europe. It is also vital to balance the benefits resulting from
scale economies with the need to meet what can be diverse demands from various parts of the
European market. A product or service which is successful in the Netherlands may not sell in Italy or
Greece.
It could be argued that the message from this is: managers should concentrate on developing
systems which allow the business to respond to the various facets of the European market. These
systems should also permit the maximum degree of integration in production and marketing and
encourage flexible management.
MARKS AND SPENCER AND THE SINGLE CURRENCY Four in ten transactions at Marks and
Spencer are in cash, so the store will be hard hit by the move to a single currency. The till
technology in Marks and Spencer stores is relatively old and, although existing tills could be adapted
to work in dual currency, this would be complicated. It would also slow down the speed with which
transactions are processed.

Marks and Spencer says that simply replacing its electronic tills will cost it 100 million
(although it says it was planning to replace them anyway). This figure includes new computers, tills,
software, implementation and staff training. The company believes that, to help customers, dual
pricing should occur well before the new currency becomes legal tender. Systems will be changed
well in advance in order to display dual prices.

EUROPEAN COMMISSION the

Commission has 20 members representing all
the member states of the EU. It proposes policy
and legislation and executes any decisions
taken by the Council of Ministers.
EUROPEAN MONETARY UNION (EMU)
this will result in all member states
using a common currency the Euro. It
will also entail the adoption of common
monetary policies (for example, a European
rate of interest) and a move towards fiscal
harmonisation.
FREE TRADE the ability to export
without restriction or unfair taxation.
THE SINGLE EUROPEAN MARKET the agreement between the EU member states that the
trading differences between countries were to be eliminated so that businesses could treat the
whole of the Community as their home market. This became effective on 1 January 1993.
January 4 1999 was the first day for trading in Euros. Many British companies treated it as an
irritation. Yet another currency that had to be dealt with. Nokia, the electronics company from
Finland, switched smoothly from trading in 12 European currencies to just one the Euro.
Suppliers had been warned long before that the company wished to convert immediately to Euro
trading. After all, it would put an end to currency exchange costs, currency exchange exposure and
administration time and cost.
One of the hardest things to put right had been computer accounting software.
Careful planning, however, made sure that the problems had been ironed out in 1998. A senior
financial manager at Nokia said he regarded the Euro as a commercial advantage. The cost of
adjusting to the single currency would be vastly outweighed by the prospective financial benefits.
LINEMASTER
LineMaster is a small firm (25 employees) located in Surrey producing line marking equipment used
by sports organisations to mark pitches and courts. In the late 1980s and early 1990s the company
experienced trading difficulties. Falling sales and profits led to a review of the situation.
Research showed that the company was projecting an unfocused image and was offering products
and after-sales service below the standard required by customers. In consequence, the company
severely pruned its product range. This allowed its limited resources to be concentrated on fewer

market segments.
The company invested heavily in its niche products and responded effectively to the challenges
posed by the single European market. From mid-1998 it was assuring all its European customers
that it would be willing to invoice in Euros from the start of 1999. Its strengthening European
presence allowed it to extend its niche strategy to the USA as well as the countries of the EU.
Managing director Graham Thorpe looks to the future with confidence. We are a forwardthinking European company operating in a highly specialist market. LineMaster has reaped
significant benefits from operating throughout the EU. We look forward to Britain joining the single
currency.