The product selected for the purpose of this report is Australian Wine ‘Grange Shiraz’ owned by the Treasury Wine Estates. It is one of the most costly wines and is prepared with the help of two varieties of grapes which includes the Cabernet Sauvignon and Syrah grape. The product is considered as one of the “first growth” of Australia and is most collectable wine. Unlike the cult wines which are from the small plots within vineyards or from single vineyards, Grange is prepared with the help of grapes that are harvested over a wide area. In other words, changes are brought in the precise composition of wine year after year, but it is the excellence of the winemakers which is valued by the purchasers rather than particular vines or qualities of particular areas where the grapes are grown.
This report covers the complete analysis of United Kingdom including economic, political, legal, trade and investment environment, foreign exchange issues, finance, culture and forecasts that have an impact on the sale of products in this market. The methodology used for this report includes a blend of primary and secondary data. However, there are some limitations of this report that all the data is not updated.
The present economic policy of UK has been framed by global financial crunch which has significantly affected almost every major economy of the world. The recent economic policy of UK has made it mandatory to reduce the production and manufacturing volumes. The present economic crisis has necessitated the formulation of a proper economic policy in UK by Bank of England, Monetary Policy Committee and the national government so that the economic recovery can be facilitated by the United Kingdom (Barnett, Mumtaz & Theodoridis, 2014).
In the year 2017, the GDP of UK is US$ 2.62 trillion and GDP growth is 1.787%. It further predicts that there is an annual change of 1.8% as per the World Bank report for the year 2016. Furthermore, as far as the per capita income of UK is concerned, there has been an increasing trend since 2009. The average inflation rate of UK was 2.58 per cent from the year 1989 to the year 2018. However, it reached its lowest in the year 2015 when it was recorded at – 0.10 per cent. The upward pressure in the inflation rate is the result of recreation and culture, transport, gas, electricity and other fuels, non- alcoholic beverages and food (The World Bank, 2018). The GDP growth predicts that business should be established in United Kingdom as it will support its operations and will offer profitability.
In the year 2018, the unemployment rate in United Kingdom of people above the age of 16 years is estimated to be 4.1%. The unemployment rate was highest in the year 1984 when it reached 12% and was lowest in 1973 when it fell to 3.40%. Similarly, the consumer price index (CPI) of UK is at105.77 index points in July 2018. However, it reached its all- time highest in May 2018 at 105.80 index points.
Moreover, United Kingdom is regarded as one of the most extensive and developed infrastructure systems in the entire world. Various aspects of infrastructure include railways, roads and communication systems which are in urgent need of repair. Privatization programs have also been initiated by the government in the infrastructure of the kingdom. Utilities including electricity, telecommunications, water and gas supply and passenger rail service have been covered under privatization. The construction and maintenance of new roads is now the responsibility of local and regional government (Young, Hood & Hamill, 2017).
The United Kingdom is a constitutional monarchy which is headed by the Kind or Queen at any given time. Reigning monarch is not allowed to make any kind of open political decisions. The government and Parliament is responsible for making all the political decisions. Such type of constitutional state of affairs is the consequence of long history of reducing and constraining power of the monarch. The trend for political stability provides that it has an average of 0.5 points with a maximum of 1.04 points in 2000 and a minimum of 0.12 points in the year 2009 (Allen & Savigny, 2016).
The government of UK is led by the Prime Minister who is responsible for selecting the rest of the ministers. The senior ministers along with the prime minister belong to the Cabinet which is the supreme decision- making committee. Corruption is not endemic in United Kingdom but still there are a number of problems which are required to be addressed. Transparency report highlighted that some corruption vulnerabilities exist in some key sectors and institutions of Britain. Recent scandals include controversy over the funding of political party and phone hacking corruption in cricket that are considered to be urgent and are required to be addressed. The largest listed companies of Britain also suffer from the biggest source of political risk which is Brexit (Valeriani & Vaccari, 2018).
The United Kingdom consists of four countries namely Wales, England, Northern Ireland and Scotland. Some of the laws are applicable on entire UK while some laws are applicable only in some countries. Principle sources of UK law are common law, legislation, European Convention on Human Rights and European Union law. UK parliament is the principle legislature which exercises its power to pass laws that are applicable in all the four countries. House of Lords and House of Common are the elements of UK parliament (Finkin & Mundlak, 2015).
Foreign direct investment is encouraged by UK and there is no discrimination made between foreign individuals and nationals at the time of operation and formation of companies. This acts as the plus point for establishing business in UK. After the establishment of the foreign companies in UK, they are given same treatment as that given to UK firms. British government plays the role of a strong defender of the rights of the company registered in Britain irrespective of the nationality of ownership (Kreindler, Gilbert & Zimbron, 2016).
The legal and ownership structure of a business determines a number of legal responsibilities such as the paperwork which is required to be completed by the owners of the business, taxes to be paid, distribution of profits and the personal responsibilities of the owners in case losses are incurred by the business. There are different ownership structures and legal forms in country to country. The majority of the businesses in United Kingdom are sole traders, business partnerships or limited companies.
As far as the ownership of land is concerned in UK, the sole owners are free to use and dispose of their interest in the favorable manner. However, this is not the case when the case is of co- ownership. The requirements of the Law of Property Acts that a land can have maximum of four co-owners and are required to have the same title. This is done with the purpose of improving the transferability of land in the market. Instead of acquiring the full ownership of the land, the land can also be used and enjoyed with the help of leases and licenses (Kim & Aguilera, 2016).
The relations of workers, trade unions and employers are regulated by United Kingdom labor law. Various rights are available to the employees and they are regulated under various laws such as Employment Rights Act 1996, Working Time Regulations Act 1998, Pensions Act 2008. The labor laws of UK provides fair labor standards and offers different rights to the employees (Helmreich & Merritt, 2017)
The current account trend provides that the deficit increased in the year 2016 as compared to that in the year 2015. The current account gap has fallen for the third consecutive quarter to GBP 17.7 billion in the first quarter of the year 2018. All time low of the current account was recorded in the fourth quarter of 2015 i.e. -32163 GBP million (Jones & Wren, 2016). Furthermore, the top exports of UK are packaged medicaments, cars, gas turbines, gold and crude petroleum. On the other hand, the top imports include vehicle parts, packaged medicaments, gold and refined petroleum. The main export destinations are United States, France, Germany, Netherlands and Switzerland and the main import origins are China, Germany, Netherlands, United States and France.
Figure 1 UK Current Account
(Source: Trading Economics, 2018)
As far as the trade agreements of UK are concerned, there is a strong network of trade relations with non- European Union (EU) countries. Such trade relations have been established by UK due to its interest in the open markets which adhere to the rule of World Trade Organization (WTO). Open markets seek to support European Union in the negotiation of legally binding commitments through bilateral trade agreements or through World Trade Organization. Availability of practical support assists in finding information relating to the market, business opportunities, financial support, trade missions and events along with advice on custom duties, tax and international trade paperwork (Love, Roper & Zhou, 2016).
The foreign direct investment of UK has always followed an increasing trend from the year 1997 to 2008 when it rose up to assets of value £1,438.6 billion and liabilities of £ 944.3 billion from assets of £ 311.5 billion and liabilities of £ 229.9 billion. However, it suffered a downfall in the year 2009 to assets worth £ 1,261.9 billion and liabilities of £ 881.2 billion. After that, there was major downfall suffered by UK in this context.
There is no particular law in UK which is responsible for restricting or governing the foreign investment. Foreign controlled companies are given the same importance by the law of UK as given to the UK owned companies. Such companies are also allowed to get engaged in majority of the forms of economic activity conducted in UK. Foreign and the British investors are also required to be in full compliance of the merger and monopoly rules and particular approval of the government for takeover by foreign investor of economically significant or large enterprise of United Kingdom.
Figure 2 UK Foreign Direct Investment Assets and Liabilities 1197 to 2016
(Source: Office for National Statistics, 2018)
Difficulties may be faced by the new market entrants in the establishment of presence due to restriction of advertising which, in turn, creates significant competition implications (Martino, Miller, Coomber, Hancock & Kypri, 2017). Companies are offered incentives by the enterprise zones so that the businesses are established in those areas. Such incentives include simpler planning rules, reduced taxes and financial benefits.
Floating exchange rate system has been adopted by Britain since 1992. There is no active intervention by the Bank of England in the currency markets for the achievement of the desired exchange rate level (Omrane & Hafner, 2015). The adoption of this type of exchange rate system has assisted UK in the elimination of deficits with the help of currency movements. There is rare floating of the currency. Stabilization has been noticed in Sterling due to the rise in inflation to 2.5%.
There are a number of foreign- owned and British banks and financial institutions based in London. Also, there are a number of banks that are U.S. owned that operates in London through their subsidiaries and branches. There are correspondent relationships of the smaller U.S. banks with the major British banks which assist in providing financial services to the investors and exporters. This will facilitate funding of the business in UK.
In UK, grants and tax allowances can be easily accessed by businesses. With the help of this financial help is provided to the businesses for conducting work related to research and development. This is the reason why overseas companies should establish their business in UK. Moreover, some foreign companies are also eligible for national and EU funding including finance and grants, government grants, business support, etc.
The interest rates have been increased by the Bank of England above the 0.5 % ‘emergency levels’ for the first time in 2018. The base rate is currently at 0.75%. The public borrowing has reduced to a great extent in UK due to increases in tax. UK company is also allowed to repatriate the profits back to the home territory in various ways such as interest, dividends, intercompany trading transactions, etc. A corporation tax is required to be paid by the large companies in UK in quarterly installments and by the small companies having tax liability less than £10,000 within 9 months from the end of accounting period (Organization for Economic Co- operation and Development, 2018).
Wine consumption constitutes a major part of UK tradition. Festivals such as Christmas, weddings, etc. are the events where people share wine with their loved ones. As per the findings of Wine and Spirit Trade Association (WSTA), approximately 60% of the adults in UK are wine drinkers and wine is considered as one of the most popular alcoholic beverage. The estimations further provide that there are greater than 30 million wine drinkers across the country who drink wine regularly. More preference is given to wine in comparison to other alcoholic beverages by younger imbibers. Business is done in UK by following its culture in respect of business communication, business meeting etiquette, business etiquette, cost of living, student placements and internships and work- life balance.
The consideration of Hofstede’s dimensions in case of UK provides that the score of UK in the area of power distance is low (35) which provide that the society aims to minimize the inequalities among people. Power distance can be defined as the degree to which the less powerful organizations accept and expect the unequal distribution of power within the country. The next dimension is individualism which explains the extent of interdependence maintained by a society among its members. The score of UK in this dimension is 89 which provide that it is highly individualist country. Britain is also a Masculine society (66) where it wants to be the best. The score of UK in uncertainty avoidance is low i.e. 35 which explains that UK is comfortable in ambiguous situations. Since an intermediate score is maintained by UK in Long term orientation, it is difficult to determine the dominant preference in British culture. As far as indulgence is concerned, UK scores 69 exhibits the willingness to realize their desires and impulses for having fun and enjoying life (Riddell & Watson, 2014).
Figure 3 Hofstede Dimensions of UK
(Source: Hofstede Insights, 2018)
The comparison of the Hofstede dimensions of UK with that of Australia provides that the scores are near to that of UK in context of power distance (36), individualism (90), masculinity (61) and indulgence (71). However, the score of Australia in context of uncertainty avoidance is high (51) as compared to that of UK. In long term orientation, the score is low i.e. 21 (Beugelsdijk, Kostova & Roth, 2017).
Figure 4 Hofstede Dimensions of Australia
(Source: Hofstede Insights, 2018)
English is the official language of UK and face- to- face communication is the most preferred style of communication by the people in UK. People are also very friendly and open. Majority of the people in UK follow Christianity as their religion. Other religions followed by the people include Hinduism, Islam, Sikhism, Buddhism and Judaism. New Year’s Day and Christmas Day are the main holidays of UK where high consumption of this product is expected.
Some forecasts have also been made by the experts regarding the economy of United Kingdom. The projections provide that the economic growth will remain modest at 1.4 per cent in the year 2018 and around 1.3 per cent in the year 2019. Such projections have been made on the basis of high uncertainties regarding the consequences of Brexit negotiations. Slack in the economy is also expected after so many years of strong growth. The projections regarding unemployment provide that it will remain below 5 per cent. Furthermore, gradual fall is the inflation is expected above the target of 2 per cent of the central bank by the ending of the year 2019. The monetary policy and large uncertainties are also projected to standardize at a gradual speed. From the point of view of the economy, it is suggested that the Brexit negotiations should aim at the preservation of the open trade with European Union and increased access for financial services to EU markets (Wadsworth, Dhingra, Ottaviano & Van Reenen, 2016).
Recommendations & Conclusions
Therefore, it can be concluded that United Kingdom will prove to be the best target market for the product. The product selected for the purpose of this report was Australian Wine ‘Grange Shiraz’ owned by the Treasury Wine Estates. This report covered the complete analysis of United Kingdom including economic, political, legal, trade and investment environment, foreign exchange issues, finance, culture and forecasts that have an impact on the sale of products in this market. The economic overview of UK provides that its economy is stable for the establishment of business. However, political risk may be suffered by the business as a result of Brexit. Sole traders, business partnerships or limited companies are the different legal structures which can be adopted by the businesses as they differ in the legal responsibilities of the owner. The foreign direct investment of UK has also majorly followed an increasing trend. In UK, grants and tax allowances can be easily accessed by businesses. Business is done in UK by following its culture in respect of business communication, business meeting etiquette, business etiquette, cost of living, student placements and internships and work- life balance.
After the complete country analysis, it appears that UK is a favorable place for the establishment of business. Furthermore, it is recommended that the product should be launched in UK market as its culture and festivals will lead towards its success. Moreover, it is further recommended that the establishment of the business should be in the form of a company so that it can take the advantage of the various benefits available to this legal form.
References
Allen, N. and Savigny, H., 2016. Experiencing gender in UK political science: The results of a practitioner survey. The British Journal of Politics and International Relations, 18(4), pp.997-1015.
Barnett, A., Mumtaz, H. and Theodoridis, K., 2014. Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters. International Journal of Forecasting, 30(1), pp.129-143.
Beugelsdijk, S., Kostova, T. and Roth, K., 2017. An overview of Hofstede-inspired country-level culture research in international business since 2006. Journal of International Business Studies, 48(1), pp.30-47.
Finkin, M.W. and Mundlak, G. 2015. Comparative Labor Law. Edward Elgar Publishing.
Helmreich, R.L. and Merritt, A.C., 2017. Culture at work in aviation and medicine: National, organizational and professional influences. Routledge.
Hofstede Insights. 2018. WHAT ABOUT THE UK?, [Online]. Available at : https://www.hofstede-insights.com/country/the-uk/ [Accessed on: 19 August 2018].
Jones, J. and Wren, C., 2016. Foreign direct investment and the regional economy. Routledge.
Kim, J.U. and Aguilera, R.V., 2016. Foreign location choice: Review and extensions. International Journal of Management Reviews, 18(2), pp.133-159.
Kreindler, R., Gilbert, P. and Zimbron, R., 2016. Impact of Brexit on UK Competition Litigation and Arbitration. Journal of International Arbitration, 33(7), pp.521-540.
Love, J.H., Roper, S. and Zhou, Y., 2016. Experience, age and exporting performance in UK SMEs. International Business Review, 25(4), pp.806-819.
Martino, F.P., Miller, P.G., Coomber, K., Hancock, L. and Kypri, K., 2017. Analysis of alcohol industry submissions against marketing regulation. PLoS one, 12(1), p.e0170366.
Office for National Statistics. 2018. UK foreign direct investment, trends and analysis: January 2018, [Online]. Available at : https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/articles/ukforeigndirectinvestmenttrendsandanalysis/january2018 [Accessed on: 19 August 2018].
Omrane, W.B. and Hafner, C., 2015. Macroeconomic news surprises and volatility spillover in foreign exchange markets. Empirical Economics, 48(2), pp.577-607.
Organization for Economic Co- operation and Development. 2018. Selected indicators for United Kingdom, [Online]. Available at : https://data.oecd.org/united-kingdom.htm [Accessed on: 19 August 2018].
Riddell, S. and Watson, N., 2014. Disability, culture and identity. Routledge.
The World Bank. 2018. GDP (current US$), [Online]. Available at : https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=GB [Accessed on: 19 August 2018].
Trading Economics. 2018. United Kingdom Current Account, [Online]. Available at : https://tradingeconomics.com/united-kingdom/current-account [Accessed on: 19 August 2018].
Valeriani, A. and Vaccari, C., 2018. Political talk on mobile instant messaging services: a comparative analysis of Germany, Italy, and the UK. Information, Communication & Society, 21(11), pp.1715-1731.
Wadsworth, J., Dhingra, S., Ottaviano, G. and Van Reenen, J., 2016. Brexit and the Impact of Immigration on the UK. CEP Brexit Analysis, (5), pp.34-53.
Young, S., Hood, N. and Hamill, J., 2017. Foreign multinationals and the British economy: Impact and policy. Routledge.
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