PA58012 Jibon 1002 EB
PA58012 Jibon 1002 EB
PA58012 Jibon 1002 EB
EXECUTIVE SUMMARY
From the global economic context, the aggressive rate of development in technology, revolution
in internet create challenges with which organization do feel comfort. These challenges
ultimately fulfill the unmet desire of the business organization and at the same time it will create
opportunity for the business organization. Economic integration of EU creates a very optimistic
opportunity for the company which are willing to export goods and services globally thus can
contributes to the global economy. The mobility of factors of production like land labor capital
helps the curious company to build up a multinational company. In this report for the discussion
purpose, automotive industry of UK which is a member country of EU is chosen and from the
industry Rolls-Royce is selected as an organization to describe different economic aspect. EU is
fundamental to future and current development in automobile industry of UK. At present,
according to the recent industry analysis by KPMG 2014, 5% of the GPD is contributed by UK
automobile industry. Further aspect will be described in the following section of the report.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY........................................................................................................................2
TABLE OF CONTENTS.........................................................................................................................3
INTRODUCTION.................................................................................................................................4
1.
AUTOMOTIVE
INDUSTRY OF
UK
AND
ROLLS-ROYCE LIMITED.....................................................................................................................4
1.2 ANALYSIS
OF
AUTOMOBILE
INDUSTRY
UK
AND
ROLLS-ROYCE LIMITEDS
OBJECTIVES AND
1.9
WHETHER
JOHN
EUROPEAN UNION........................................................................16
CONCLUSION...................................................................................................................................21
REFERENCES...................................................................................................................................22
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INTRODUCTION
Environment can be one of two kinds namely micro where individual demand and supply of the
firm is considered and Marco environment consist of broader aspect of economy where
individual demand and supply aggregated to country demand and supply. Interestingly, the
elements of the micro-economic environment is largely controlled by the organization. In this
report for the discussion purpose, automotive industry of UK which is a member country of EU
is chosen and from the industry Rolls-Royce is selected as an organization to describe different
economic aspect. EU is fundamental to future and current development in automobile industry of
UK. At present, according to the recent industry analysis by KPMG 2014, 5% of the GPD is
contributed by UK automobile industry. Further aspect will be described in the following section
of the report.
1.
AUTOMOTIVE
Economic environment is a broad concept in which all business organization operates. Every
aspect of business decision is influenced by the economic environment of the domestic country
as well as foreign country. Environment can be one of two kinds namely micro where individual
demand and supply of the firm is considered and Marco environment consist of broader aspect of
economy where individual demand and supply aggregated to country demand and supply.
Interestingly, the elements of the micro-economic environment is largely controlled by the
organization (Hill, 2007). Automobile industry in UK is one of the most important sectors for
UK that contributes largely in the GDP of UK. At present around 30000 automobile companies
are present in this industry where the accumulated revenue for this sector is 52.5 billion.
Automobile industry of UK generates almost 26.6 billion of exports and the total production as
of 2013 is about 1.45 million. Currently UK is well known for premium and sports car like
Jaguar, MG, Land Rover, Lagonda, McLaren, Lotus etc (BBC news, 2014). Rolls-Royce limited
is the prestigious car manufacturer of UK. Although, from the inception in 15 March 1906, the
company engaged into manufacturing of car, in the recent year the company started to produce
jet engine for airplane. The company was named after the two founders- Charles Rolls and Henry
Royce. Generally, because of the size, capability and organizational structure the impact of micro
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environment is different for different company. For example, suppliers of raw materials gives
much more importance to the large manufacturer than the small one.
In the automotive industry, micro environment shape the strategy of the company under this
industry. As a result, company like Rolls-Royce limited needs to be aware about those micro
environment issue for the sustainabilitys sake of the company (Rolls-Royce, 2013). In the
following section importance of microeconomic in the context of UK automotive industry and
Rolls-Royce limited. The importance of micro environment can be described based on some
micro factors like competitors, customers, suppliers, public and marketing intermediaries etc.
Helps to determine the demand supply gap excessive production beyond the demand will
be a problem for a company for which the companys cost of production will increase and
inefficiency will increase (Steiner, 2012). This cost will be huge when the company is gigantic
like Rolls-Royce limited. But the individual demand and supply understanding which is a
product of micro environment will helps to reduce this cost.
Helps to understand the competitors Micro-environment helps to define the context of the
possible competitor of the company like Rolls-Royce limited. In automotive industry of UK
numbers of competitors of Rolls-Royce limited- Bentley, Jaguar Land Rover and JCB are
struggling and compete to gain their own market share. Macro-environment analysis will help to
understand the competitors so that the business can shape its strategy (Steiner, 2012).
Helps to understand the supplier Raw materials and other input price of automobile industry
is very sensitive for the company as the price is largely dependent on these variables. Because of
the size, capability and organizational structure the impact of micro environment is different for
different company (Lipsey, 2012). For example, suppliers of raw materials gives much more
importance to the large manufacturer than the small one. But in either case micro environment
understanding will help the company grow in future.
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1.2 ANALYSIS
LIMITEDS
Figure 1 UK Automobile Export, Import and production details (Source- KMPG, 2014)
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Productivity was dramatically increased in this industry because GVA (Gross Value Added) per
job had increased from 40,000 to 75,000 in 2013. As per Eurostat data in 2014, UK
automobile industry is the most productive sector in UK in terms of GVA (Gross Value Added.
The GDP contribution according to the industry report UK 2013 was substantial and the
countrys balance of payment is going to increase because of the export of Automobile. To attain
the economies of scale the country gives extra support to the giant companies like Rolls-Royce
limited, Bentley, Jaguar Land Rover and JCB (Cooper, 2012). Although the company is capital
intensive, the support of UK government will ensure that gigantic companies should be given
enough opportunity to expand so that the government revenue through tax can be expedited. At
present around thirty thousand automobile companies are present in this industry where the
accumulated revenue for this sector is 52.5 billion. Automobile industry of UK generates almost
26.6 billion of exports and the total production as of 2013 is about 1.45 million. Currently UK
is well known for premium and sports car like Jaguar, MG, Land Rover, Lagonda, McLaren,
Lotus etc.
Objective of Rolls-Royce from economic perspective Rolls-Royce limited is the prestigious
car manufacturer of UK. Although, from the inception in 15 March 1906, the company engaged
into manufacturing of car, in the recent year the company started to produce jet engine for
airplane. The objective of the company is to deliver the fashionable, superior quality car to
ensure the best quality in the automotive industry. The effort is tolled to be successful because of
their brand impression though the slogan Best car in the word (BBC News, 2013). The
economic objective is to support the unemployment problem of UK through offering verities
job opportunity. The company is also dedicated to pay all kinds of tax and tariff related to
automobile import and export.
1.3 ANALYZING
ROYCE
UK
AND ON
ROLLS-
UK automobile industry is said to be a mass market where the firms under this industry is
growing rapidly. Martin (2012) found that car market has the highest growth rate in the emergent
market. From the perspective of productivity, employment opportunity, GVA (Gross Value
Added) and GDP contribution, automotive industry is said to be most fundamental to UK
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economy. Market structure identifies the way of competition in terms of price, productivity as
well as cost of production. In this section market structure of UK automobile will be discussed
based on different perspective.
Market Structure of UK automobile industry and its impactmarket structure can be one of
four types namely perfectly competitive market, monopolistic market, oligopoly market and
monopoly market (Ycharts, 2014). Market will be perfectly competitive if there are lots of
market percipient present in the market. In perfectly competitive market, market participant
cannot make the price rather they are the price taker whereas market itself determines the price
of the products. The unique characteristic of perfectly competitive market is- market participant
compete with identical product and service. There is no opportunity to make differentiation.
In the monopolistic market, market participants are huge and product can be slightly
differentiated. In the monopoly market, single farm dominates the market. The market structure
of UK automobile does not match with the characteristics of perfect competition or monopolistic
or monopoly. Rather, UK automobile industry is characterized by oligopolistic market where
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few farm dominates the whole UK automotive industry. Nissan, BMW and Land Rover
covers maximum share (UK industry report, 2014).
Impact on price and development of new carMarket is largely controlled by three major
firm namely Nissan, BMW and Land Rover. The characteristics of oligopoly is clear when the
participants company set the price of a new car. Those three major firm will decide the price and
every firm moves competitively depending on the move of others. Back in 1950s, the collusion
in UK automotive industry is an indication of oligopoly market.
Impact of Price Leader in UK automobile industryas the market is oligopoly few firm will
dominate the industry. In case of UK automobile industry, Nissan is the price leader and other
companies are price taker (Ceaser, 2012). If Nissan increase the price of a particular model,
Rolls-Royce as well as Land Rover covers will follow.
How price are determinedrather than following the perfect competition approach, Nissan and
other market leader will not wait for the market to determine the price. Alternatively, top firms
will go for a collusion and sets the price by maintaining certain profit margin. Price war will
seriously impact this market as well as company.
Because of the oligopoly characteristic of UK automobile industry, consumer surplus and
producer surplus both will impacted. Consumer surplus will decrease whereas producer surplus
will increase if the market participants collude.
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As per the report of national statistics office UK, in 2014 last quarter national income was
440,734 million but in 2015 first quarter gross national income was increased to 444,819
million. A .9% increase observed in the figure. The trends is graphically depicted in figure 3. The
figure also states that UK is growing gradually but a common trend is observable that at the
initiation of the year national income is high and in the middle of the year the trend is going
slow. Determinants of national income are describing below
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GDP one of the prime determinants of national income of UK is GDP (Gross Domestic
Product) which is calculated by Y = C + I + G + X M where C is for Consumption, I is for
Investment, G is for government expenditure and X-M indicates the trade balance (Brown,
2012). Over the year GDP of UK is growing faster. As per 2015, GDP of UK is 1.832 trillion.
Major components and growth trend of GDP and their value accordingly is given in the
following table.
Figure 4 GDP growth and Value for UK. (Source- Gov.UK, 2014)
Tax. Net overseas receipt has increased in the recent years (Ceaser, 2012). But CCA and indirect
business tax was decreased over the period of 2012 and 2013.
Drivers that influence the national income determinants of UK national income depends
on different factors that drive the gross income of UK. Those factors includes
The endowment of these factors will positively impact the UK economy and shortage will affect
negatively. But over the year UK enjoyed the favor of these factors.
Taxation policy and its impact Tax increase the cost base of a company. Tax is revenue of
government imposed on business organization (McCarthy, 2013). As the tax is cost for an
organization, it will systematically pass through the ultimate consumers. If the government
increase the tax base then company will offer the product at high price which ultimately affect
the customers and business competitiveness. So, tax policy will shape the future strategy of the
company. In the following figure, which states that the rate is going to decrease day by day, the
trend of tax rate is given.
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Interest rate policy and its impact interest rate is largely dependent on government monetary
policy. As a result government can solely control the interest rate. Rise in interest rate will
increase the financing cost of a company which will negatively impact the companys
profitability (Martin, 2013) . And reduction in interest rate will decrease the financing cost of a
company which will positively impact the companys profitability. In UK rate is decreasing day
by day. Trend is given in the following figure-
news is fundamental because these information will help the individual company to guard
against future uncertain event (Hill, 2013). These are the subjects of Marco-economic
environment. Every aspect of business decision is influenced by the economic environment of
the domestic country as well as foreign country. The macroeconomic environment can influence
Rolls-Royce mainly from two aspect- monetary and fiscal policy.
of that territory will boob dramatically because of the ease of transportation. The most important
decision in fiscal policy is the tax policy which is the main source of revenue for government.
Tax increase the cost base of a company. Tax is revenue of government imposed on business
organization (Besley, 2012). As the tax is cost for an organization, it will systematically pass
through the ultimate consumers. If the government increase the tax base then company will offer
the product at high price which ultimately affect the customers and business competitiveness. So,
tax policy will shape the future strategy of the company like Rolls-Royce.
1.7 FEATURES OF
EUROPEAN UNION.
European Union is a promising example of international integration where the member countries
not only follow a single terms of trade against nonmember but also remove any restriction
related to transferring the factors of production like land, labor and capital etc. Moreover,
another important characteristics of EU is- all the member country maintain a single monetary
policy and common currency- Euro. There are a total of 28 nations in EU at present
(FinancialTimes, 2014). Although it have been rumored that EU is far remote from the concern
of common citizen of Europeans. Yet EU are dealing with the disputes that are fundamental for
entire citizens of European countries. Promoting the liberty, peace, education, justice, security
and stands against the environmental and health issue are some examples of EU initiatives.
Feature of economic environment of EU is given belowEU: A free area in 1993, a great achievement happed for EU when the union can finally
crease an internal market where the member countries not only follow a single terms of trade
against nonmember but also remove any restriction related to transferring the factors of
production like land, labor and capital etc. Moreover capital flow was not restricted for the
member country (Gordon, 2013). Its like a village for the member countries. As EU allows free
transfer of factors of production, some discrimination happened for the country which has
endowment of factors because they can charge much more for nonmembers. Yet, it helps to
develop the entire nation as a whole.
Europe 2020 Europe 2020 is a mission for EU to achieve within 10 years of time frame.
This growth mission was decided on the council of June 17, 2010. The main motive was to
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overawe the economic crisis that was going on then. The main emphasize was on skills, young
and energetic people as well as eliminating poverty and marginalization (John, 2012).
A common commercial policy as a part of custom union, EU members follow a single terms
of trade as well as restriction or regulation while trading with the non-member countries. For
example- tariff paid by the nonmember countries will be similar whether the trade happens in
UK or Bulgaria. It will help to mitigate the instability or discrimination in case of trade barriers
like tariff or duties (Matrin, 2012). Common rules and regulation will help to increase the
prosperity of the country.
Common Agricultural Policy EU maintain the Common Agricultural Policy (CAP) to
increase the productivity of the entire member countries. Moreover, it will motivate the farmer to
produce more than before. Direct Aid to Farmers is a scheme taken by EU to promote the
agriculture.
1.8 THE
Business organization which is operating globally faces numbers of restriction because of many
uncertain factors like economic instability or restriction. If the country operates under EU then
numbers of regulation and restriction will be imposed which can undermine the business
profitability (Rechard, 2012). Yet EU are dealing with the disputes that are fundamental for
entire citizens of European countries. Promoting the liberty, peace, education, justice, security
and stands against the environmental and health issue are some examples of EU initiatives. Some
economic implications for MNC from the perspective of EU is given below.
From the global economic context, the aggressive rate of development in technology, revolution
in internet create challenges with which organization do feel comfort. These challenges
ultimately fulfill the unmet desire of the business organization and at the same time it will create
opportunity for the business organization. Economic integration of EU creates a very optimistic
opportunity for the company which are willing to export goods and services globally thus can
Page 16
contributes to the global economy (Hill, 2013). The mobility of factors of production like land
labor capital helps the curious company to build up a multinational company. As the integration
allows the member countries to trade freely without any restriction it will very optimistic for
company who are engaged into the global business. Although reduction of border restriction
helps some companies, the cost benefit analysis shows a demotivated result because of many
reasons. Because of fiscal, trade and regulation related restriction, a MNC company of EU
member country will face a net negative effect which will demotivate the integration. For
example the cost benefit of EU membership to UK is given in the following picture-
Figure 8 Cost benefit of EU integration (Source- Gavin Thompson and Daniel Harari, 2014)
of the economic resources in the EU regions. The efficiency will increase but at the same time
there are some consequence (Thompson, 2013). Some industry will expand dramatically and the
inefficient firms will lose the credibility thus will be kick out from the market. As a result there
will be a huge unemployment in the shirking industry. Yet EU are dealing with the disputes that
are fundamental for entire citizens of European countries. Promoting the liberty, peace,
education, justice, security and stands against the environmental and health issue are some
examples of EU initiatives. Moreover, the recent EU economic crisis will have a chain effect to
the entire economy as well as business. Recent crisis cased excessive disruption and massive
volatility in the financial market globally (Hari, 2013). The macro effect of these issue will
eventually impact the business organization as well as individual. On the other hand exchange
rate will also affect the businesss profitability drastically.
1.9
Cross rate determination first of all we need to calculate the cross rate for USD to EURO. The
formula is
Currency 1 Currency 1 Currency 3
=
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USD USD
GBP
EURO 1 1.4
=
USD 2 1
EURO
=.7 Euro
USD
Now gain and loss calculation for the month October
Total Borrowingcost needs be paid= .5 million 1.0042= .50208million
Import=$ 1 million 2= .50 0 million
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Comparison
Month
GBP to USD
GBP to EURO
Gain
October
1.4
.19792 million
November
1.77
1.56
.379 million
December
2.13
1.29
.1043 million
From the table we can see that at the initial level when GBP to UDD and EURO are respectively
2 and 1.4, gain was .19 GBP million. But the when GBP to USD rate goes down and GBP to
ERUO rater goes up, highest gain was achieved which is .37 million. But the gain lowest when
both GBP to USD and GBP to EURO rates goes does simultaneously.
CONCLUSION
From the global economic context, the aggressive rate of development in technology, revolution
in internet create challenges with which organization do feel comfort. These challenges
ultimately fulfill the unmet desire of the business organization and at the same time it will create
opportunity for the business organization. Economic integration of EU creates a very optimistic
opportunity for the company which are willing to export goods and services globally thus can
contributes to the global economy. The mobility of factors of production like land labor capital
helps the curious company to build up a multinational company. Although reduction of border
restriction helps some companies, the cost benefit analysis shows a demotivated result because of
many reasons. Thus as a whole business should shape their strategy accordingly.
Page 21
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