Impact of Economic Recession on British Manufacturing

Introduction

Economy is the study of choice making by customers, business managers and government officials to attain their goals, given their scarce resources, in this era of globalization economy used to analyze real world development and productivity through interaction of buyers and sellers and cross border movement of goods, services, technology and capital. This movement caused by globalization and technology advancement in R&D increased the number of MNE manufacturing which I am going to analyze in this assignment through PEST and strategic growth (Ansoff Matrix) in a case of British Manufacturing. Economic recession is slowdown of general economic activity over a period of time, this situation brings many effects in microeconomic and macroeconomic, as microeconomic deals with demand and supply and macroeconomic indicate variation in production as measured by gross domestic product (GDP) [1] , employment, investment spending, capacity utilisation, household incomes, business profit and inflation. [2]

People become jobless due to shut down of many firms Strong firms start getting down fall in profit data Creditors fail to pay Value of crucial merchandise increase rapidly No savings as people start to use their money for liquidity due to redundancy. Country gross domestic product data will start diminishing.

British, is the 6th largest country in the world in both Gross domestic product (GDP) [3] and Purchasing power parity (PPP) [4] , but due to many economic recession British face huge unemployment, GDP fell to 5.9% , most Banks reached stage of bankruptcy and affect many other sectors including investment firm. Multinational enterprise is a firm which has a worldwide approach to markets and production or a firm which operates in more than one county. (Daniels et al, 2009, pg 64)

It creates jobs and brings development through taxes. It improves BOP since they bring money to invest. It also acts as one of globalization motive through international integration of capital, technology, goods and people.

It creates unskilled labour and kills innovation through introduction of new technology Sometime they can have high influence to country economy and government operations as they operate in very large scales.

British economic growth depends in all sectors but secondary sector (Manufacturing) plays a vital role in British trade liberalization since colonial era, in this era of globalization British firms depends much on increasing investment (going global) be multinational enterprise and applying of new technology so as to be more innovative and cost efficiency. Example BLMC, Virgin, AstraZeneca, Vodafone and Tesco etc

Political factor

This is the major factor which affects MNEs operations in their foreign investment where by company has to focus on rules and regulations of the host countries. Also in British labour union has more power in all sectors but manufacturer are highly affected as their main stakeholders, to avoid these pressure group British MNEs continual to invest in labour intensive country like Africa, India and china. Taxation went down due to low productivity in recession period but European Union (EU) made a great contribution in British MNEs quick recover as is estimated to be the largest market accounting 23% of global sale, especially after further extension of EU zone. A new administrative rule was made to favour the members such as free trade flow and remove some of tariffs. As economy affect all sectors in the country, British economic recession of 2007-2008 played an immense role in changing political ruler (party in power) from Labour to Conservatives part, this also creates change in investment, migration rules and business barrier (Hill, 2002)

Economic factor

Economic factor concern with demand, cost, prices and profits, one of the most influential elements on the economy is high unemployment levels, inflation and change in GDP. Economic recession which hit British so many times since 19th century made MNEs to suffer bankrupts and other firms were total close down, this is because firms are still highly dependent on local market as primary their primary source of growth and expansion example Tesco. Creditors failed to pay their loans which made banks to be in a danger of bankrupts like HSBC. In Recently recession of 2007-2008 British interest rate slash to 0.5%, GDP fell to 4.7% [6] and value of GBP fall all over the world which was major indicator of fall in country economy.

Social factors

The living standards of people dependent on wages and salaries are more affected by recessions than those who rely on fixed income or welfare benefit. The loss of a job in British create negative impact on the stability of families as people did not have money to support their families well being. Life standard of people change and moved toward one stop shopping, which drive chain of supermarket like Mark & Spence, Tesco etc who are also manufacture to add value on their products and service through business mix. The type of goods and service demand by consumers is a function of their social conditioning and their consequent altitudes and beliefs. Consumers are becoming more aware of health issues, and their attitude towards foods are constantly changing, one example a Tesco which adapt product mix so as to accommodate an increase demand for organic product, the company was also the first to allow customer to pay in cheques and cash at the checkout. British improve Tax collection so as to finance government expenditure such as provision of credit to business or budget for social welfare, because by improving standard of living this will encourage citizen to work hard for economic development.

Technology factors

Rapidly growth in technology in this era of globalization helps British MNEs to run in low cost and increase flexibility. Invention of digital machines in western countries helped British MNEs to be more innovative like self check out machine in supermarkets example Tesco which speed up shopping process. Also due to high capital which firm spent in R&D British MNEs benefit much in technology advancement as it creates new operation opportunities such as new marketing mix channel, new purchases environment e-business and low the cost of R&D tools, where by firm can do primary feasibility study through e-data before do a survey in a target market.

Environmental scanning helped British MNEs to face economic trend (world economic crunch and recession) by continual investment as well as shaping the future of their investment by identifying the elements of growth and expansion of their manufacturing industries.

In this era of globalization, every firm wants to grow and increase market share, operation tend to emphasize on developing corporate strategy which orient and push market objectives, but pushing market objective especially in foreign countries become a big dilemma due to economic recession and world political imbalance. In executing these strategies British MNEs has to identify a method which can make them analyze whether to continue with an existing mode or find a new one, this choice is considered with a combination of forecast in development of market and products in Ansoff matrix. Ansoff matrix is a four strategy alternatives which can be applied to any business so as to grow or expand market with its competitive advantage without changing the corporate strategy [7] , this mode was first introduced by Professor Igo Ansoff after quitting Lockheed Electronic as vice president and joining Carnegie University where he wrote a book called corporate strategy.

Strategy which British MNEs can execute in a period of recession

Market penetration

This strategy can be more beneficially in period of recession where by firm had no enough fund to continual invest in a business. But firm can increase market share through competitive pricing strategies, advertising, sales promotion and perhaps more resource dedicate to personal selling example Kellogg Company attempted to sell more cornflake to existing consumers by advertising the idea of eating Kellogg cornflake at any time of the day Also due to financial crisis which cause many people to lose their job pricing strategy can increase customers by convincing existing customer to use more and attract non users of the product.

Product development

This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets As British MNEs went through financial crisis in a period of recession this strategy can be more useful as firm can do minor change in existing product or develop a new one which will appeal the same market. The reasons that justify the use of this strategy includes:- To utilize the excess production capacity To counter competitive entry And maintain the company reputation as a product innovator and exploit new technology which will protect overall market share [8] . This strategy also moves the company into in to the market again and toward customer that are currently not being catered for. Example: In Automotive industry Ford Focus tended to replace Ford Escort.

Market development

This is when firm develop it market by move beyond its immediate customer by exporting goods to overseas market or selling to a new market segment. This strategy also can be usefully to British MNEs in a period of recession as firms can only adjust its operation and cooperate strategy by improve product dimension or packing, increase distribution channels or move to a new geographic example Tesco lunch Baby's wear in Sweden.

Will the benefit of new technology off set investment in R&D for IB in an era of Globalization?

It is true that benefit new technology can off set investment in R&D due to the following resource. Globalization refer as integration of world economies through the reduction of barriers to the movement of trade, capital, technology and people.( John D.D, et al, pg 2009) This movement has high influence in social culture force which led to change in preference and altitude of customers towards quality and price of product due to this situation and huge capital which firm invest in R&D example: UK-GlaxoSmithKline spent GBP 3,708m in pharmaceuticals & biotechnology R&D, firms decide to add new technology to counterbalance research and rapidly change in business. Also new technology had tremendous impact on International Business through development of new information technology whereby new market opportunities are now emerging through e-business which supports innovation and become the source of strategic advantage example current sales performance of Jaguar through e-business.(Currimbhoy, 2004) In traditional firms production and sales was highly supported by R&D but due to technical advances of internet and digital machinery firm improve production in competitive market and meet environment regulatory requirement in a short time through links system such as KM, CRM and ERPs New technology also improves distribution channels examples web shop, banner or linking and searching engine which speed up distribution and receive customer feedback quick. The development of new business information technology help firm to integrate their operation through usage computer software such as CAD,3Ds and 2Ds, these software's provides firms with input- tools for the purpose of stream lining design process, drafting, documentation and manufacturing process which traditional was done after research. After this designing software's also new technology assist firm in review their product performance before spending money in production through prototype and get feedback from customers through company website. Regardless of all the benefit mentioned above new technology can also bring tough competition between firms due to economic integration and sharing of operation systems.

Recommendation

As world economy becomes more dynamic due to globalization this accelerate the technology advancement worldwide also many firm's gets difficulty to hold on their competitive edge. British MNE has to increase efforts to develop means of collecting data globally in order to provide clear and more comprehensive, timely picture of R&D for their investment abroad. New technology can be a crucial element in globalization but its implementation can be a slow process due to the following reasons:- As Technology frequently change, management is subjected to a dilemma whether to invest in new technology or not due to high capital which they will invest on it. It increases cost of operation in organizations for staff's re-training so they can have correlation with new system. It increases competition among firms due to the low production cost and effectively distribution channels.

 

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