The Changing International Scene

Political changes, shifts in government policies, and new agreements among nations are all having an impact on the global marketplace. In this article we will discuss the changing business scene in a number of areas around the world.

The Coming of the European Community:

The European Community (EC) was established in 1992. The EC’s goal is to eliminate trade barriers among member nations, creating a single market of 300 million people and fostering political unity in Europe.

The EC is an evolution of the Common Market which was created in 1957 by the Treaty of Rome. The original members – Belgium, France, Italy, Luxembourg, Netherlands, and West Germany have been joined by Denmark, Great Britain, and Ireland (1973) by Greece (1981), and by Spain and Portugal (1986). In theory, the Common Market was to coordinate economic policies and eliminate trade barriers among member nations. In reality, the Common Market had little authority and trade barriers proliferated. Meanwhile, strong American and Japanese multinational companies threatened to leave Europe behind in the increasingly global economy.

Europe responded with the Single Europe Act of 1987, which amended the Treaty of Rome and created the EC, conferring real power on the largely symbolic European Parliament. Many areas of cooperation have been established such as a commitment to eliminate trade barriers by 1992, end custom formalities by 1993, and create a central European bank by 1994, paving the way for a single European currency in the late 1990s.

The EC has a number of dramatic implications. First, it would increase efficiency. Under the Common Market, trade barriers sometimes forced firms to modify a product design or manufacturing facilities. Under the EC, these barriers will be eliminated; forms will be able to create a single plan for Europe and to consolidate manufacturing in strategically located plants. Second, European companies should become more formidable competitors in the global economy, since they will be developing within a more cooperative system. In addition, the EC will unify European markets and the increased profit potential should encourage innovation. Third, the EC will encourage businesses to focus on their relationship with the EC, rather than with domestic governments. This will heighten political unity in Europe.

Many dreaded the 1992 changes and feared that they would create a Fortress Europe in which the EC would erect trade barriers to American and Japanese companies. Others claim that a united Europe will exist on paper only. It will take a great deal in time and effort to overcome so many differences.

Economic Experiments in the Peoples’ Republic of China:

In 1980s the People’s Republic of China launched are series of unique economic experiments – unique, that is, for a nation that had relied on a planned economy for 40 years. Under Mau Zedong, the government has set the nation’s economic goals, and owned almost all the means of production and distribution. Managers were chosen for their devotion to Mao, not for skill or experience. In fact, sound management was condemned as bourgeois revisionism. To reorient their thinking educated people were often set to work along side peasants in the fields. Despite thus anti-management bias, China met its goal of feeding, housing clothing and educating a population of one billion people between 1950 and 1976.

After Mao’s death, China new generation of leaders announced an ambitious new goal – economic growth and a series of economic reforms to be phased into virtually all of China’s state owned enterprises. These reforms promoted entrepreneurship within state owned businesses permitted certain businesses to experiment with restructuring, and allowed entrepreneurs to start small, privately owned businesses.