Abdirahim Ali 100028305 Unit 40: Investigating National Business Assignment 1 Task 1 (P1) Shell Royal Dutch Shell

plc, commonly known simply as Shell, is a multinational oil company of Dutch and British origins. It is the second largest private sector energy corporation in the world and operates in over 140 countries The company's main business is the exploration for and the production, processing, transportation and marketing of hydrocarbons (oil and gas). Shell also has a significant petrochemicals business (Shell Chemicals), and an embryonic renewable energy sector developing wind, hydrogen and solar power opportunities. Multinational corporations A multi-national corporation is a business which has its main headquarters in one country but has operations in a range of different countries. Examples range from oil companies such as Shell, BP and Exxon Mobil to technology companies such as Microsoft, Dell and HP.
http://www.bized.co.uk/learn/economics/notes/multi.htm

Globalisation In the modern world businesses are increasingly affected by the actions of international competitors as a result of the globalisation process. Due to constant technological advances, the distance between businesses is shrinking making it easier for organisations to gain access to increasingly remote foreign markets. The advent of the internet and the extremely fast connection speeds available are allowing organisations to communicate more effectively regardless of where they are on the globe. The internet has also allowed marketing and advertising on a global scale allowing them to spread their message on a massive scale. Economies of scale As a result of globalisation, big multinationals are able to penetrate foreign markets in the same way they would with their domestic markets. The difference however is that multinationals will be able to benefit greatly from global economies of scale. Companies like Shell have increased their global presence by operating in more and more overseas markets. Shell has achieved this by setting up overseas plant, and hiring overseas specialists directly, or developing joint ventures with overseas partners. As well as this, Shell has built up their brand so that it is globally recognised. Shell have realised that by not developing an international business strategy they will find it harder to compete against global corporations such as BP and Exxon mobile

Abdirahim Ali 100028305 Competition The actual structure of markets has a big impact on the cost of products and services, levels of employment and the level of output. A monopoly is where a single producer dominates the industry which allows them to set prices and limit the availability of products and the quality. In a duopoly there are two businesses but rather than pitting there products against each other, the companies focus on marketing the products/services efficiently and on the service they offer. An oligopoly on the other hand is where a small amount of businesses dominate the market Shell fall into the category. Due to the influence they can exert and the control they have, organisations within an oligopoly can make extremely high profits. Due to the growth of multinational corporations, the international marketplace is mainly made up of many large oligopolies. Developing Countries A multinational company has branches in many countries. Ford and Sony are examples. Multinational companies do bring some benefits to developing countries. They provide jobs and increase the wealth of the local people. The country gains some wealth by way of taxes. However, there are some problems as well. The jobs are often low-skilled and poorly paid. Much of the profit will go out of the country, and the company may pull out to relocate in a country where it can make a greater profit. Multinational companies are primarily interested in making profits for their shareholders. Paying wages is an expense that the company will try to reduce to as low a level as possible.

Abdirahim Ali 100028305 Task 2 (P2) Economic activities that encourage/restrict international trade The concept of free trade Free trade is essentially a system where goods and services can move freely between countries without being held up by various government-imposed restrictions. These kinds of interferences usually result in an increase in the cost of the products and services. Barriers to trade Embargoes An embargo is a politically and commercial tool which prevents commerce and trade with a country. It is essentially the suspension of all imports and exports from a country or region for various political or health related reasons. In politics, it is usually used alongside political isolation and it is intended to put pressure on the government due to the ill effects it can have on the targeted countrys economy. Quotas Quotas are limitation on a certain quantity of items which must not be exceeded, such as an import quota. Quotas are a form of protectionism as it sets limits on the amount of goods that can be brought into a country during a set period of time. Quotas are often used to protect the interests of the domestic economy by reducing the level of competition from foreign businesses. Many people believe that quotas can cause corruption as in bribes in return for quota allowances, smuggling and higher prices for consumers especially in less developed countries. Quotas are generally viewed as less economically viable than tariffs which are themselves seen as less efficient than free trade. Tariffs Tariffs are essentially taxes which are levied on goods which are moved between countries. Usually, tariffs are put on imported items however they can also be imposed on exported goods. Tariffs are often utilised as a part of a protectionist policy where the government are trying to protect the domestic market by increasing the costs of bringing goods into the country.

Abdirahim Ali 100028305 Organisation of Petroleum Exporting Countries (OPEC) OPEC is a large cartel of oil-producing countries which consists of 12 major petroleum producers who control roughly about 40 percent of the worlds total oil exports. OPEC was formed in 1960 so that member countries could consult one another and mutually set crude oil prices and production quotas in order to safeguard the interests of the member nations. The decisions made by OPEC have a big impact on the market and they can manipulate the price of oil to certain degree by altering production quotas for member states. Current members include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates (UAE), and Venezuela. The world trade organisation The WTO was formed in 1995 as a successor to the General Agreement on Tariffs and Trade (GATT) and to enforce the regulations established by it. It acts by regulating international trade and ensuring that it flows as efficiently and freely as possible. The WTO membership includes representatives from 153 nations and its main objectives are the removal of barriers to international trade in goods, services and intellectual property; fair and quick resolution of disputes between trading partners and identifying when members do not comply with trade agreements. South Asian Free Trade Area The Agreement on the South Asian Free Trade Area intends to creates a framework for the creation of a free trade area covering 1.4 billion people in India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives. The seven foreign ministers of the region signed a framework agreement on SAFTA with zero customs duty on the trade of practically all products in the region by end 2016. SAFTA requires the developing countries in South Asia that is, India, Pakistan and Sri Lanka, to bring their duties down to 20 percent in the first phase of the two year period ending in 2007. In the final five year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts. The least developed nations in South Asia consisting of Nepal, Bhutan, Bangladesh and Maldives have an additional three years to reduce tariffs to zero. Pakistan has signed but not ratified the treaty, though there is hope in India that it will sometime in 2008.

Abdirahim Ali 100028305 Task 3 (M1) Methods used for increasing trade between countries Since its creation, the European Union has had a huge impact on businesses in the UK, especially in terms of exports, competition, market access and the single European currency. Over the last 15 or so years, the single market has increased the overall prosperity of the member countries by 2.15 of GDP. This has resulted in people having more disposable income which is positive for businesses. The single market has also helped to create 2.75 million extra jobs from 1992-2006. It has also easier to travel and shop in the EU as citizens can travel across most of the EU without carrying a passport and without being stopped for checks at borders. Shoppers have full consumer rights when shopping outside their country and there are no limits on what they can buy and take with them for personal use. There are more opportunities to live, work and study abroad: more than 15 million EU citizens have moved to other EU countries to work or to enjoy their retirement, benefiting from the transferability of social benefit, while 1.5 million young people have completed part of their studies in another Member State with the help of the Erasmus programme. The single market has made a positive contribution in terms of products and services available to the European market. The creation and implementation of common standards has led to an improvement in the overall safety and quality expected of products such as food, medicines and cars. As a result of national markets being opened up to European competition, it has increased competition which in turn helps to lower prices. Air travel, telephone calls and internet access have seen significant reductions between 2000 to 2006 with telephone calls seeing an average fall of 40%. Less red tape and bureaucracy much easier to do business within the EU While people may be forgiven for thinking that a single market would result in even more red tape, it should be considered that various complex and differing national laws have been replaced with a single European framework which has seen a significant reduction in bureaucracy. This has reduced red tape for citizens as well as reducing costs for businesses as well who pass these savings onto consumers. A good example of this is the significant reduction of starting a business in the EU. In the early years it would cost an average of EUR 813 in 2002 to EUR 554 in 2007. As well as the cost falling, the time it takes to register a company has also been reduced showing an improvement in the administration process. It has become much easier to do business within the EU and the fact that trade has risen by 30% since 1992 is testament to this. The relaxation of border control in the EU has significantly reduce delivery times and costs. Before the new regulations were implemented, the tax system alone needed 60 million customs clearance documents each year but now they are no longer required.

Abdirahim Ali 100028305 Access to a larger market The EU gives businesses a large potential market. Straight from the off, businesses will automatically have near to 500 million potential costumers within the EU. Businesses within the EU can benefit significantly from huge economies of scale, and even small to medium sized businesses can extend their operations past national boundaries without the huge costs and trouble usually associated with it. Methods used for restricting trade between countries While the EU has gone to great lengths to ensure that trade increases and flows freely with the union, there are methods that some states outside the EU can utilise to restrict trade between countries. Tariffs - Published list of fares, freight charges, prices, rates, etc. The main purpose of tariffs is to protect domestic infant or inefficient and aging industries from foreign competition. Another important reason that tariffs are sometimes imposed is when a foreign company sets a price for their products which is too significantly lower than the domestic businesses which makes it increasingly difficult to compete with. This is known as dumping and in many cases, the product is so below cost, the producer is losing money.
http://economics.about.com/cs/taxpolicy/a/tariffs.htm

Embargo As explained before -an embargo is the official suspension of import and/or exports of a certain product or in some cases all goods from a country indefinitely or for a set period of time. There are various reasons which could vary from political to health related. E.g. Americas commercial, economical and financial embargo Americas embargo against Cuba is the longest lasting trade embargo in modern history. The embargo was passed soon after the Cuban government, under the rule of Fidel Castro confiscated the private property of several American corporations and redistributing for the purpose of establishing social equality. The embargo limits American companies from dealing with Cuban related interests and has had a crippling effect on the Cuban economy. While America state that the bill was passed to to promote a peaceful transition to democracy in Cuba through the application of sanctions directed at the Castro government and support for the Cuban people. - http://www.treas.gov/offices/enforcement/ofac/legal/statutes/cda.pdf It is clear that the intentions behind it is clearly political as the lack of democracy has not prevented the US from trading with various dictatorships and Arab countries such as Saudi Arabia where human rights abuses are frequent and the monarchy have complete and total control over all affairs.