Sample Business Paper on Institutional & Policy Challenges that Would Impede Market Entry into the European Union

Introduction

Any company interested in entering a new market needs a strategy. However, to determine the right strategy, the firm needs to consider internal and external factors. The external factors include market size, market growth, degree of competition, and government regulations (Lymbersky, 2010). Other external factors to consider include production and shipping costs, and the level of risk, particularly, political, economic, and operational risks. In this study, the company seeks to enter the EU market. The EU single market is a lucrative market for most businesses. The market is appealing due to the huge size of the market. About 26 countries make up the EU and companies operating within the bloc get to enjoy a free movement of commodities, capital, and people. However, due to the attractiveness of the market, competition tends to be intense. Furthermore, several institutional and policy challenges would impede market entry into the EU bloc.

The EU-Food & Beverage Market

The EU food and beverage industry is an important sector that makes up 1.7% of EU value added. The industry employs around 4.5 million people accounting for 2.3% of the region’s employment (Germany 2014:10). The market exhibits positive development on trade-related indicators such as relative trade advantage in the global market, as well as a significant world market share. The food and beverage market is highly segmented, and competition is intense. For instance, in Germany, the market is highly intensive and dominated by well-established, mature, companies (Germany 2014:10). Enterprises in the market incur high costs across the manufacturing base. Other challenges include the relatively high-value currency and the euro. The high currency ratings can significantly erode a firm’s profit margins. In the EU countries, including Germany, the food and beverage market is relatively mature. This maturity reduces the prospects of significant growth across all segments of the industry. Lastly, changes such as an increase in the aging population, the growing demand for health and wellness, and growing demand for safety and quality products are all factors that face new firms.

Institutional & Policy Challenges

The EU food and beverage market is subject to various regulatory frameworks. These structures include factors such as food safety, food nutrition, and health, food information, food innovation, imports, and exports, as well as environmental sustainability (ECSIP consortium, 2016). The main EC regulations that have a positive impact on the market include Free trade agreements, General food law legislation and food safety, regulation concerning voluntary geographic indicators and traceability, and the development food security regulations supporting a high quality of food and beverages (ECSIP consortium, 2016). One of the major challenges in the market is the inconsistent implementation of EU regulations among member states. This inconsistency significantly impacts the regulatory conditions on the competitiveness of the food and beverage industry, as well as the company’s future development. Also, there are complaints about the lengthy authorization procedure and strict requirements for approval, particularly on food innovation (ECSIP consortium, 2016).

The EU legislation in the market has resulted in several institutional challenges in the market. At the moment, the market is facing a severe economic crisis due to the 2008 financial crisis (Cohen, 2014). The regions faulty industrial policies have fuelled capital and labor movements. Moreover, differences in regional development and the limitation of the cohesion policy make it difficult for firms to perform well. There is a severe political crisis facing the region due to decreasing political legitimacy, complicated decision-making approaches, and the recent decision by the UK to leave the EU (Cohen, 2014). There are also issues on the societal level. The EU’s population is aging. The region’s failure to develop adequate post-natal policies has resulted in a reduced number of children. The demographic change will significantly affect the quality of life, migration policies, and employee pensions.

Policy challenges are facing the EU market. First, policy measures are supporting the competitiveness of the industry have intensified competition in the bloc. The industry is also facing slower growth compared to other world industry sectors. This reduced growth is probably due to slower growth in labor productivity and added value (ECSIP consortium, 2016). Institutional problems such as linked to transparency in the supply chain and the sub-optimal business-to-business relationships along with low market integration across the EU and a lack of attractiveness for skilled workers can impede the performance of the company. On innovation and R&D research, investment is dispersed and comparatively small (ECSIP consortium, 2016).

The Free Trade Area policy liberalized trade in the EU. However, there are technical and administrative barriers to trade. Regulatory barriers include long and complicated regulations, particularly on acquiring raw materials. Furthermore, there are technical barriers linked to the policy that can be challenging for the firm. The adoption of different technical regulations across the region has created different technical standards across the member states (ECSIP consortium, 2016). Lastly, the EU’s strategy to promote cultural commodities from countries discourages the introduction of foreign products in the market.

Advantages

EU is the largest economy in the world and the largest trading bloc with a GDP of €25,000 per head and 500 million inhabitants (Archick 2017:7). Regardless, several internal and external challenges can significantly impede the performance of the company. The internal problems include the institutional and policy challenges. For instance, there is a lack of competitiveness in the market. Also, labour productivity is relatively weak and the monetary policy is rather complex due to the volatile economy. On the other hand, EU can be beneficial due to the high purchasing power of the consumers. The member states making up the EU have different cultures and are at different stages of digitization. The business climate is different in each country. Moreover, the traditional industries in the bloc may present a higher barrier to entry (Archick 2017:14).

A popular way of entering the EU is through FDI in marketing, distribution, and in production facilities (Archick 2017:10). The FDI approach is preferred to the large market size and the policies supporting FDI. However, companies need to consider contemporary issues facing the region, such as the on-going economic difficulties facing the region, the rise in Euro-sceptic political parties, increased acrimony and decreased solidarity (Archick 2017:10). Migratory pressures to the area also have significant repercussions for the EU and the European governments. Lastly, the European security concerns facing the region, such as the growing resurgent of Russia, needs to be considered before entering the market.

 

References

Archick K.,(2017) The European Union: Current Challenges and Future Prospects, Retrieved from https://fas.org/sgp/crs/row/R44249.pdf

ECSIP consortium (2016) The competitive position of the European food and drink industry, Retrieved from http://www.gpp.pt/images/Agricultura/Organizacao_da_Producao_e_Cadeia_Alimentar/CompetpositEuropfooddrinkindustFR.pdf

Germany Food & Drink Report. (2014). Germany Food & Drink Report, (4), 1-133.

Lymbersky C.,(2010) Market Entry Strategies: Text, Cases and Readings in Market Entry Management, Christoph Lymbersky,

Szczepaniuk C.,(2014) Challenges of the European Union in the 21st Century, Retrieved from http://www.ewinextgen.com/europe/2014/7/29/challenges-of-the-european-union-in-the-21st-century