Individual Notes 1

The European Economic Community (EEC)

The European Economic Community (EEC) was a regional organization that aimed to bring

about economic integration among its member states (Chilisan, 2012). It was created by
the Treaty of Rome of 1957. Upon the formation of the European Union (EU) in 1993, the EEC
was incorporated and renamed the European Community (EC). In 2009, the EC's institutions
were absorbed into the EU's wider framework and the community ceased to exist. The
Community's initial aim was to bring about economic integration, including a common
market and customs union, among its six founding
members: Belgium, France, Italy, Luxembourg, the Netherlands and West Germany. It gained a
common set of institutions along with the European Coal and Steel Community (ECSC) and
the European Atomic Energy Community (EURATOM) as one of the European
Communities under the 1965 Merger Treaty (Treaty of Brussels). In 1993 a complete single
market was achieved, known as the internal market, which allowed for the free movement of
goods, capital, services, and people within the EEC. In 1994 the internal market was formalized
by the EEA agreement. This agreement also extended the internal market to include most of the
member states of the European Free Trade Association, forming the European Economic Area,
which encompasses 15 countries. Upon the entry into force of the Maastricht Treaty in 1993, the
EEC was renamed the European Community to reflect that it covered a wider range than
economic policy. This was also when the three European Communities, including the EC, were
collectively made to constitute the first of the three pillars of the European Union, which the
treaty also founded. The EC existed in this form until it was abolished by the 2009 Treaty of
Lisbon, which incorporated the EC's institutions into the EU's wider framework and provided
that the EU would "replace and succeed the European Community". The EEC was also known as
the Common Market in the English-speaking countries and sometimes referred to as
the European Community even before it was officially renamed as such in 1993 (Theiler, 2005).
What are the pros and cons of the EEC?
Pros
 Access to European Markets
 Stood a better chance of attracting
foreign business
 Entiled to European Development
Grants
 British workers had the right to work in
an other EEC countries
 EEC could work together on social
matters for example money for poor
struggling countries
 EEC could also work together on
scientific research
 Economically at the time Britain could
not survive by itself
Cons
 No longer able to buy cheap food from
the Commonwealth
 Britain was classed as an advanced
industrial economy so had to make
higher contributions to receive
European grants
 British consumers ended up paying
inflated food prices
 The Common Fisheries policy
restricted the right to fish in Britain's
customary grounds and essentially
destroyed the UK fishing industry.
 Britain had to impose VAT on most
commodities which began at 8% in
1973 and later reached 17.5%.
 The EEC was a protectionist
organisation that was looking dated in
the growth of global markets.
 Britain was forced to sacrifice its
relationship with the Commonwealth
 By the early 1980s Britain was paying
20 per cent of the revenue raised by the
EEC but was only only receiving eight
per cent of the expenditure. This was an
illuminating contrast with Ireland
 which joined the EEC in the same year
(Willkie and Wood, 2018). Ireland was
classed as an agricultural economy,
Ireland was a net receiver of European
funds; this largely explains why Ireland
experienced an economic boom in the
last quarter of the century.

Britain was invited to join the EEC after the retirement of De Gaulle and became a full member
on New Years Day 1973 (Hameed, 2015). However, by the date of entry, Britain was mot able to
negotiate her entry from a position of strength, but had to accept and terms available, for
example Commonwealth goods were now no longer to enter into Britain on more favourable
terms than those of Europe. This lead to Britain loosing trading partners. It was now no longer
preferable for Australia to trade with Britain so she turned instead to the USA. Some people
thought that Britain going the EEC was sixteen years too late and that Britain would suffer
adversely from missing out on the formative years of the EEC science 1957. However in 1975,
British membership was confirmed when the Wilson government held a referendum. The margin
of the victory was decisive by more than 2:1. This looked reassuring that Britain was real 'IN' ,
but the fact that the referendum was held at all could be seen as a worrying lack of
commitment. By a cruel twist Britain's entry to the EEC in 1973 coincided with the onset of an
international crisis, this showed that no matter how well Britain and Europe organise themselves
they are still susceptible to events in the outside world over which they have no control over. 

Individual Notes 2
Reasons why MNCs internationalize 
According to Malik (2017), there are various reasons as to why a company decides to go
international. The Dunning Eclectic theory or the OLI paradigm highlights the advantages of
these multinational corporations going overseas. Some of these have been outlined in detail as
follows:

New markets  

According to the U.S. Small Business Administration, 96 percent of the world’s consumers live
outside of America. For many companies, international expansion offers a chance to conquer
new territories and reach more of these consumers, thus increasing sales (Willkie and Wood,
2018).

For example, U.S. firms like Nike and IBM maintain operations in the Netherlands because it
offers direct access to 170 million European consumers within approximately 300 miles. In fact,
Holland’s connection to European markets is one reason why UPS recently opened a new $150
million facility in Eindhoven, one of the company’s largest investments in Europe.

Diversification 

Manzar (2012) stated that many businesses expand internationally to diversify their assets, an
action that can protect a company’s bottom line against unforeseen events. For instance,
companies with international operations can offset negative growth in one market by operating
successfully in another. Companies also can utilize international markets to introduce unique
products and services, which can help maintain a positive revenue stream.  

Coca-Cola is an example of a company that diversifies through global operations. This quarter,
the company reported increased sales in China, India and South Korea, which benefited Coca-
Cola worldwide. Coca-Cola also recently bought Mexican sparkling water brand Topo Chico in
an effort to grow a more globally attractive and diverse portfolio.

Access to talent

Another top benefit of going global is the opportunity to access to new talent pools. In many
cases, international labor can offer companies unique advantages in terms of increased
productivity, advanced language skills, diverse educational backgrounds and more (Hastings,
2018).

For example, when Netflix expanded to Amsterdam earlier this year, the company praised the
city for enabling Netflix to hire multilingual and internationally minded employees who can
expertly “understand consumers and cultures in all of the territories across Europe.”

In addition, international talent may also improve innovation output within a company. For
instance, that’s one reason why foreign markets that welcome global entrepreneurs and skilled
workers often have denser and more successful start-up climates (Hofmann, 2013).

Competitive advantage  

According to Morrison (2018), companies also choose international expansion to gain a

competitive edge over their opponents. For example, businesses that expand in markets where
their competitors do not operate often have a first-mover advantage, which allows for them to
build strong brand awareness with consumers before their competitors (Theiler, 2014).
International expansion can also help companies acquire access to new technologies and industry
ecosystems, which may significantly improve their operations.

International business can also increase a company’s perceived image, as global operations can
help build name brand recognition to support future business scenarios, such as contract
negotiations, new marketing campaigns or even additional expansion.

Foreign investment opportunities

Finally, companies considering international expansion shouldn’t forget about the additional
investment opportunities that foreign markets can offer. For instance, many firms are able to
develop new resources and forge important connections by operating in global markets (Chilisan,
2012).

Companies with multinational operations can also benefit from lucrative investment
opportunities that may not exist in their home country. For example, many governments around
the world offer incentives for companies looking to invest in their region. Thus, U.S. firms
should always do their research before making an international expansion decision.
Typical challenges MNCs encounter

A multinational company  (MNC) is an enterprise that manages production or delivers services

in more than one country (Hofmann, 2013). There are some challenges faced by MNC’s that
transact business in international markets which can hinder its competitiveness hence its
controversies and these are as follows;

Market Imperfections

It may seem strange that a corporation has decided to do business in a different country, where it
doesn’t know the laws, local customs or business practices of such a country is likely to face
some challenges that can reduce the manager’s ability to forecast business conditions. The
additional costs caused by the entrance in foreign markets are of less interest for the local
enterprise. Firms can also in their own market be isolated from competition by transportation
costs and other tariff and non-tariff barriers which can force them to competition and will reduce
their profits. The firms can maximize their joint income by merger or acquisition which will
lower the competition in the shared market. This could also be the case if there are few
substitutes or limited licenses in a foreign market (Hameed, 2015).

Tax Competition

Countries and sometimes subnational regions compete against one another for the establishment
of MNC facilities, subsequent tax revenue, employment, and economic activity. To compete,
countries and regional political districts must offer incentives to MNCs such as tax breaks,
pledges of governmental assistance or improved infrastructure. When these incentives fail they
are liable to face challenges which limit their chance of becoming more attractive to foreign
investment. However, some scholars have argued that multinationals are engaged in a ‘race to
the top.’ While multinationals certainly regard a low tax burden or low labor costs as an element
of comparative advantage, there is no evidence to suggest that MNCs deliberately avail
themselves of tax environmental regulation or poor labour standards.

Political Instability
According to Daft (2014), many multinational enterprises face the challenge of political
instability when doing business in international markets. This kind of problem mostly occurs
when there is an absence of a reliable government authority. When this happens, it adds to
business costs, increase risks of doing business and sometimes reduces manager’s ability to
forecast business trends. Political instability is also associated with corruption and weak legal
frameworks that discourage foreign investments.

Market Withdrawal

Manzar (2012) stated that the size of multinationals can have a significant impact on government
policy, primarily through the threat of market withdrawal. For example, in an effort to reduce
health care costs, some countries have tried to force pharmaceutical companies to license their
patented drugs to local competitors for a very low fee, thereby artificially lowering the price.
When faced with that threat, multinational pharmaceutical firms have simply withdrawn from the
market, which often leads to limited availability of advanced drugs. Countries that have been the
most successful in this type of confrontation with multinational corporations are large countries
such as United States and Brazil, which have viable indigenous market competitors.

Lobbying

According to Malik (2017), multinational corporate lobbying is directed at a range of business

concerns, from tariff structures to environmental regulations. Companies that have invested
heavily in pollution control mechanisms may lobby for very tough environmental standards in an
effort to force non-compliant competitors into a weaker position. Corporations lobby tariffs to
restrict competition of foreign industries. For every tariff category that one multinational wants
to have reduced, there is another multinational that wants the tariff raised. Even within the U.S.
auto industry, the fraction of a company’s imported components will vary, so some firms favor
tighter import restrictions, while others favor looser ones. This is very serious and is very hard
and takes a lot of work for the owner.

Product Strategy

When introducing a product to a foreign country, a firm needs to conduct market research to
determine whether adaptations need to be made. Brand names, logos and product attributes
might all need to be modified to ensure market success. This is a challenge for firms that are
entering unfamiliar markets and cultures (Click, and Duening, 2015). Language translations of
names and advertising slogans might also prove to be a challenge as wording and sentence
structure might skew the intended meaning. For example, a snack foods manufacturer might
need to market a potato chip line under a different brand name than in its home country due to
a potentially unfavorable interpretation. The manufacturer might also need to produce a
different line of flavors to appeal to local taste preferences.

Operation Coordination

A multinational firm faces the challenge of deciding how to coordinate and streamline
operations between its home country and its foreign operations. Decisions have to be made
regarding when and how to establish a local physical presence and how to gain the support of
local organizations, such as labor unions and parts suppliers. A certain number of local experts
need to be brought on board to ensure that the firm is able to effectively network and
communicate in a foreign environment (Willkie and Wood, 2018). Operations may need to be
standardized as much as possible between countries, which could lead to increased overhead
and duplication.

Human Resources

According to Morrison (2018), the administration of benefits and salaries often proves to be a
challenge for a multinational firm. Different labor market conditions might result in the firm
offering a set of benefits that it otherwise wouldn't. To attract and retain the talent it needs, a
multinational firm could find it challenging to maintain a balance between its administrative
costs and recruiting the necessary human capital to effectively perform in a foreign country.

Foreign Government Regulations

Manzar (2012) stated that a multinational firm faces the challenge of dealing with different sets
of government regulations that may cause it to incur additional costs. According to an Ernst &
Young guide written in 2010, foreign governments are increasing value-added taxes in goods
and services, in addition to tightening compliance regulations. A change in compliance
regulations often means that a firm has to adapt its operational strategies and the way in which
it delivers its goods and services. This may require increased costs to hire local specialists who
are able to keep abreast of changes and deal directly with local government officials.

References

Theiler, T. (2014) Political Symbolism and European Integration. Manchester: Manchester

University Press.

Chilisan, B. (2012) Effects of challenges on the global business. Journal of Business review
1(4),12-40.

Hameed, A. (2015) Globalization. 3rd Edition. Oxford: Oxford University Press

Malik, M.(2017) The impact of globalization on modern business world. Journal of Business
Management. 3(5), pp-10-28.

Manzar, A. (2012) Dimensions of globalization. 4th Edition. Calif.: SAGE Publications

Morrison, M. (2018) Global Business Environment. London: Palgrave.

Willkie and Wood (2018) Global Business. 2nd Edi. London: International Thomson Business
Press

Click, R. and Duening, T., (2015) Business Process Outsourcing. Hoboken, N.J.: John Wiley &
Sons.

Daft, R., (2014) Management. Australia: South Western.

Hastings, H., (2018) Improve Your Marketing To Grow Your Business. Upper Saddle River, N.J.:
Wharton School Pub.
Hofmann, P., (2013) The Impact Of International Trade And FDI On Economic Growth And
Technological Change. Berlin: Springer-Verlag.