International trade has high importance in the economic growth of the country. Even it is not only in benefit of the country’s economy but there are number of benefits for the global organization and the overall world’s economy as well. Without international trade, it was never possible to reach the success level at which the world is right now.
An international trade is the major source of revenue for the country and so the high percentage of gross domestic product depends on it. Moreover, international trading has also helped in reducing the poverty all over the world.
The main concept of an International Trade can be identified with theory of David Ricardo, an economist: both parties that are individuals, companies or organizations can benefit in trading if goods produced are with different relative costs i.e. one party get goods or services from the other party who can produce it at lower cost thus profiting both.
The nations with well-established international trading infrastructure are stronger and have the power of controlling world economy.
Significance of International Trade for UK Business Organizations
UK is participating in the game of international trading since 1960 and that’s what made it a top player. Trading contributes nearly half to the GDP of UK. Moreover, UK has also become the source of increasing GDP of other developing countries. According to the World Bank’s International Finance Corporation 2011 report, UK stands at 13th position in trading across borders.
UK being highly industrialized economy deals in export and import of several products and services. Some of the major industries include:
Electric power equipment
Electronics and communication tools
Computers and so on In year 2011, UK made Â£34,852m exports of nuclear reactors, machinery, boilers and mechanical appliances. Â£46,560m imports of mineral fuels, mineral oils and their distillation tools and machinery.
The top partners who deal in with UK imports and exports are:
(EconomyWatch Content 2010)
It is due to international trading that the world is making fast paced growth since the mid of 20th century. Among the number of benefits the UK economy has enjoyed due to international trading are:
Enhanced domestic competitiveness
Increased sales and profits
Reduced dependence over existing markets
Global market share
Increased potential of business expansion and so on.
Considering any UK organization; if it deals in domestic market then it will gain steady profits through UK customers only and thus it will limit its potential to grow. But trading in other partner countries then it will earn higher profits, traffic and sales.
Similarly, the production costs can be reduced via international trade. Like if a UK Company, build its production plant in a host country where production cost is less as compare to in UK then profits can be increased. This will not only help an organization reducing the production costs but it will also decrease the consumer price.
Moreover, variety of foodstuffs is traded among the countries. Like in UK, mangoes and bananas are imported and potatoes are exported. This not only increases the profits but also provide wide variety of choice to the people.
Impact of global factors on United Kingdom Business Organizations
Since after the 2008-2009 financial crisis periods, UK economy has been unable to stabilize and bring its economy back to the past standard. However, it is still going in struggling phase and also the overall global economy is improving and so is the UK economy. Though, the growth is quite slow. According to IMF growth report for year 2011, UK economy was forecasted at only 1.75%. OECD also ranked UK as slowest growing economy in G7.
Though, UK economy has gone through financial crisis but still the developments that have come to the region in the past years due to international trade cannot be ignored. The MNEs, SMEs and other exporters made above average production and so the profits. Similarly, the advancements in technology highly groomed the UK economy. It is still due to technological developments that organizational skills and functioning have improved in UK.
Moreover, R&D sector is making significant progress for the country. Every other organization is highly focusing on innovation and new ideas. There are number of UK industries and organizations discovering new machinery and tools and introducing great ideas.
UK trend has been shifted from manufacturing to services after development in technology. According to the BERR analysis, it is also found that due to shift from manufacturing to outsourcing services has also created more employment opportunities.
The increase in shift from manufacturing to services has also reduced the average prices of manufactured goods. Since, manufacturing is now shifted to the low wage countries. This all became possible due to easy laws for international trades in UK.
Due to change in employment laws in 2009, domestic demands of UK citizens have also been changed. Since, income level has risen and the leisure time is increased. So, this has given boom to the travelling and communication. People spend more on recreation and trips so the demand of restaurants and personal services demand is increased.
The population of UK has also been increased much since past years. Therefore, the demand of certain goods and services in UK has gone up. Like housing, health and energy requirements are increased. It is due to rising incomes and the increased population that only moderate change has been noticed in education and entertainment services.
In the next few years, it is expected that the demand of environmental goods and services will increase all over the world due to global warming. According BERR and DEFRA analysis, it is expected that global market of environmental goods and services will grow up to 33% till 2015.
The recent changes in the labor and employment laws e.g. disability and age discrimination legislation, pension, 28 leaves in a year and paid sick leaves and minimum wage increases the production costs and so decision making and sustainability has become difficult for managers.
Since, UK is an open country for international trades and investments so this is one of the major reasons of increased population in the region. However, where the population increased goods and services consumption, it has also leaded to unemployment. Secondly, because of terrorism and security issues, immigration and trading laws have been now changed. Consequently, this gives rise to slow growth in economy.
Impact of European Union Policies on United Kingdom Organizations
EU is contributing its best to make the world a better place to live. It has developed policies for various fields so that to protect rights of every person. These fields include policies for consumers, economic and monetary affairs, employment and social affairs, climate action, budget, environment, energy, trade, taxation and so on. (European Union 2012)
As per the employment policies set by European Union, there is high job protection. However, there are still lower levels of job protection at UK organizations. But the UK GDP and employment rate doesn’t have much effect with deregulation of employment laws. In fact, the productivity and employment have increased after reduction of burdensome laws. (Booth, Persson, & Scarpetta 2011)
Energy is one of the most important assets in the current era and so EU highly focuses on its savings. According to the EU legislation old-style light bulbs are banned, mixed biofuels with petrol are obligated, carbon trading for energy intensive businesses and old carbon-fired power stations have been cancelled. New power plants with ability to store carbon-dioxide to reduce global warming and smart meters development are supported.
The above legislation is now driven at UK organizations. The farmers growing energy crops use petrol or heading for power stations. Moreover, light bulbs are now being replaced with energy savers at organizational levels. The aim is to reduce the importing costs on coal and gas. This has also benefited consumers lowering their energy bills. (Harvey 2012)
As according to the economists, it is forecasted that the UK economy will stall till the next year 2013. Though, UK has become successful in avoiding recession but the growth chances are less.
Bank of England monetary policy measures that UK companies have made their cash stockpiled so as to show increased profits in their balance sheet but now in order to make growth in future higher investments are required. (Bank of England 2012)
Bank of England. (2012) Agents’ Summary of Business Conditions. Bank of England.
Booth, S., Persson, M., & Scarpetta, V. (2011) Repatriating EU social policy: the best choice for jobs and growth? London: Open Europe.
EconomyWatch Content. (2010, March 15) England Trade, England Exports, England Imports. Retrieved April 20, 2012, from EconomyWatch: http://www.economywatch.com/world_economy/england/export-import.html
European Union. (2012) Policy areas of the European Union. Retrieved April 20, 2012, from europa: http://europa.eu/pol/index_en.htm
Harvey, F. (2012, January 25) EU energy policy drives changes in UK – with mixed results. Retrieved April 20, 2012, from europa: http://www.guardian.co.uk/environment/2012/jan/25/eu-energy-policy-changes-uk
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