17-doing business with european union

8/3/2019 17-Doing Business With European Union

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DOING BUSINESS WITH EUROPEANUNION

Learning Values:

After reading this chapter the reader can evaluate the business potentialand explore avenues for their business operation:

1. Salient features of European Union.

2. Europe advantages in technology, infrastructure and trade.

3. Main European Countries in the trade front.

4. India-European trade and investment.5. Future strategies for Indian business in Europe.

Overview of EU:

After the Second World War, Europe was completelyshocked and transfer to second place in the internationalarena due to the rising power of the United States and theSoviet Union. In view of the growing rivalry between thetwo superpowers, several western European leaders cameto the conclusion that lasting peace could be guaranteedonly if their nations were to come together in both political

and economic terms. Cooperation between states wasseen as the best means to prevent armed conflicts.

Pan European Movement has fructified and finally European Union

has become a mega bloc. Ever-growing Europe, since the colonial

and imperial days never lagged behind in trade, investment and

diplomatic ties with all the nations in the world. Currently, in every

nation there are companies originated from Europe and playing as a

catalyst to the host economies.


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In 1950, French Minister for Foreign Affairs putforward the idea of a European Coal and Steel Community(ECSC). At that time, coal and steel production were the

main war industries. Pooling these industries wouldprevent any new war between European neighbors. TheECSC was founded in 1951 by six countries: Belgium,France, Germany, Italy, Luxembourg and the Netherlands.

In 1957, "the Six" signed the Treaties of Rome,establishing the European Atomic Energy Community(EAEC or EURATOM) and the European EconomicCommunity (EEC). In this way, the Member States take

apart the trade barriers that separated them and formed acommon market. In 1967, the institutions of the threeEuropean Communities merged. From then on, there wasonly one Commission, one Council of Ministers and theAssembly (European Parliament). The institutionaltriangle, as it is known today, was established. Attractedby its success, the European Communities were joined byDenmark, Ireland and the United Kingdom in 1973,followed by Greece in 1981, Spain and Portugal in 1986,

Austria, Finland and Sweden in 1995.

In May 2004, the European Union celebrated ahistoric event with its expansion into Central and EasternEurope. Ten new countries joined the EU: Cyprus, theCzech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,Poland, Slovakia and Slovenia. Bulgaria and Romania planto join in 2007, while Croatia and Turkey are alsocandidates.

Date History of Country's Membership

25 March

1957

Belgium, France, West Germany, Italy, Luxembourg,

Netherlands, founding members

1 January

1973Denmark, Ireland, United Kingdom

1 January

1981Greece

1 January Portugal, Spain


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1986

3 October

1990

(The territory of the former German Democratic Republic as

part of unified Germany also becomes part of the European

Community)

1 January

1995Austria, Finland, Sweden

1 May

2004

Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania,

Malta, Poland, Slovakia, Slovenia

1 January

2007Bulgaria and Romania

EUROPEAN UNION

The Union currently has a common single marketconsisting of a customs union, a single currency managedby the European Central Bank (so far adopted by 12 of the

25 member states), a Common Agricultural Policy, acommon trade policy, and a Common Fisheries Policy. A


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Common Foreign and Security Policy were also establishedas the second of the three pillars of the European Union.

The change agreement abolished passport control, andcustoms checks were also abolished at many of the EU's

internal borders, creating a single space of mobility for EUcitizens to live, travel, work and invest.

Stages towards European Union

European Union

First Stage Second Stage Third Stage

EuropeanCommunities (EC)

Common Foreign andSecurity Policy

(CFSP)

Police and JudicialCo-operation inCriminal Matters

(PJCC) Customs Union

and Singlemarket

CommonAgriculturalPolicy

CommonFisheries Policy

EU competitionlaw

Economic andmonetary union

EU-Citizenship Education and

Culture Trans-

EuropeanNetworks

Consumerprotection

Healthcare Research (e.g.

SixthFrameworkProgram)

Environmentallaw

Social policy Asylum policy Schengen

treaty

Immigration

Foreign policy:

Human rights Democracy Foreign aid

Security policy:

EuropeanSecurity andDefense Policy

EU battlegroups

EuropeanRapid ReactionForce

Peacekeeping

Drug traffickingand weaponssmuggling

Terrorism Trafficking in

human beings Organized

crime

Bribery andfraud


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policy

Member States and their status.

Member StatePopulation

in millions

Population

% of EU

Area

km2Area

% of EU

Pop. density

People/km2Capital

European Union 454.9 100% 3976952 100% 115

Austria 8.2 1.8% 83858 2.1% 98 Vienna

Belgium 10.3 2.3% 30510 0.8% 340 Brussels

Cyprus 0.8 0.2% 9250 0.2% 84 Nicosia

Czech Republic 10.2 2.2% 78866 2.0% 130 Prague

Denmark 5.4 1.2% 43094 1.1% 126 Copenhagen

Estonia 1.4 0.3% 45226 1.1% 29 Tallinn

Finland 5.2 1.1% 337030 8.5% 15 Helsinki

France 60.2 13.2% 547030 13.8% 111 Paris

Germany 82.4 18.1% 357021 9.0% 231 Berlin

Greece 10.7 2.4% 131940 3.3% 81 Athens

Hungary 10.0 2.2% 93030 2.3% 108 Budapest

Ireland 3.9 0.9% 70280 1.8% 57 Dublin

Italy 58.0 12.8% 301320 7.6% 193 Rome

Latvia 2.3 0.5% 64589 1.6% 35 Riga

Lithuania 3.5 0.8% 65200 1.6% 55 Vilnius

Luxembourg 0.5 0.1% 2586 0.1% 181 Luxembourg

Malta 0.4 0.1% 316 0.0% 1 261 Valletta

Netherlands 16.3 3.6% 41526 1.0% 395 AmsterdamPoland 38.6 8.5% 312685 7.9% 124 Warsaw

Portugal 10.1 2.2% 92931 2.3% 114 Lisbon

Spain 40.2 8.8% 504782 12.7% 80 Madrid

Slovakia 5.4 1.9% 48845 1.2% 111 Bratislava

Slovenia 1.9 0.4% 20253 0.5% 99 Ljubljana

Sweden 8.9 2.0% 449964 11.3% 20 Stockholm

United Kingdom 60.2 13.2% 244820 6.2% 243 London

OBJECTIVES OF THE EU
http://en.wikipedia.org/wiki/Image:Flag_of_the_United_Kingdom.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Sweden.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Slovenia_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Slovakia_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Spain.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Portugal.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Poland_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_the_Netherlands.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Malta_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Luxembourg.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Lithuania.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Latvia.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Italy.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Ireland.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Hungary.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Greece.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Germany.svghttp://en.wikipedia.org/wiki/Image:Flag_of_France.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Finland_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Estonia_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Denmark.svghttp://en.wikipedia.org/wiki/Image:Flag_of_the_Czech_Republic_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Cyprus_%28bordered%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Belgium_%28civil%29.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Austria.svghttp://en.wikipedia.org/wiki/Image:European_flag.svg


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The Union shall set itself the following objectives:

To promote social and economic progress

To establish an area of freedom, security and justice

To enhance the environment of Europe and the world

To secure and defend the Union

The single market and common commercial policy

The single market refers to the creation of a fullyintegrated market within the EU, which allows for freemovement of goods, services and factors of production.

Competition Policy

This was designed to prevent price fixing, collusionand abuse of monopoly or significant market power.

Free movement of the goods

A customs union covering all trading goods wasestablished and common customs tariff was adopted

with respect to countries outside the union.

Free movement of the persons

Any citizen of an EU member state can live and workin any other EU member state. There will be a phased inperiod for this right for those from accession countries.

Services


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Any member state national has the right to provideservices in other member state.

Capital

There are no restriction on the movement of thecapital, and on payments, within the EU and betweenmember state and third countries.

Taxation

Member state agreed that Value Added Tax (VAT) willbe applied at a rate of not less than 15%.

EU and INDIA

Last year 2006 marks 43 years of formal EU Indian relations.However, relations between Europe and India can be tracedback to at least 2000 years to the trade between the ancientIndian, Greek and Roman Empires, Or even earlier with thearrival of Alexander the Great to the Indus valley. Since thebeginning of the 16th century the Portuguese, the Dutch, theFrench, the Danes and then the British all were present invarious regions in India.

Unity in Diversity

Both EU and India has an ancient civilizations and modernpolitical formations, both geographical entities of continentalproportions with similar land area and vast range oflandscapes and climates.

Modern ties

Formal EU India relations began in 1963 when India wasamongst the first developing country to setup diplomaticrelation with what was then a 6 member European EconomicCommunity (EEC). As the EEC grew up from the 6 to 25, itsrelationship with India evolved and matured. The economicintegration of Europe proceeded from custom Union (1968) toEuropean monitory system (1973) to the single market (1993)


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and the economic and monetary union culminating in thelaunch of the Euro on 1st January 1999 (Euro notes and coinsfrom 1st January 2002).

During the same period India has made notable social andeconomic progress catalyzed by technology advancement andon set of the economic reforms in the last decade. This haspaved the way for evaluation of the bilateral relations betweenthe EU and India. Today, the EU and India are indeed importantpartners in the emerging multipolar world. The two biggestdemocratic entities in the world share common values respect for human rights and individual freedom, upholding therole of law, and concern for the social and economic well beingof their citizen.

EU-India trade facts and figures

The EU is India's largest trading partner accounting for afifth of Indias trade. EU imports from India came to US $23,120.38 million in 2006 covering mainly textiles andclothing, agricultural products and chemicals. EU exportsto India amounted to US $ 25,704.03 million, of which themajority was machinery, chemical products and gemsand jewellery. Since 2001, bilateral trade between the

two has grown by 11 % on average.

A good example of this trend is trade in services betweenIndia and the EU, which has increased significantly inrecent years in both directions. In 2004, India's exportsof services to the EU were valued at 3.8bn, whilst theEU's exports of services to India came to 3.2bn. This isan economic area with rich potential for future EUIndiabilateral business, which would create strong prospects interms of trade, job creation and economic growth.

The EU is both the leading foreign investor in India andalso a major destination for Indian investors. In 2005-2006, the EU was the main destination of Indian FDI withone in four dollars invested by an Indian company goingto the EU. The EU invested 1.1bn in India in 2004, whichrepresented 1.4% of total EU outflows. EU investment hasmainly taken place in the power/energy,telecommunications and transport sectors


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There is enormous growth potential in a number of otherfields, such as financial services, especially banking andinsurance; mechanical engineering, and biotechnologywith India being the worlds largest market for vaccinesof all types.

Indian companies are rapidly expanding abroad, with $10billion worth of investments abroad since 2000. Indianfirms now operating in the EU include Indias IT giants Infosys, Tata Consultancy Services, HCL Technologies,Wipro and Birla Soft but also a range of firms fromvarious sectors, like Bharat Forge, Thermax, Tata Tetley,Compact Disk India Ltd, Mastek and Bank of India. Indianforeign investment to the EU has increased fivefold in the

last ten years.

Indian textiles and clothing, a traditional staple industry,has significantly benefited from the removal of textilequotas. Indian textile and clothing exports to the EUreached 5.2 billion in 2005, as compared to 4.4 billionin 2004, reporting an impressive growth of around 20%.

Indian trade is defined by huge untapped potential. Indiaaccounts for only 1.5% of world services trade and 1% of

global merchandise trade yet Indians make up 1 in sixof the people on the planet. Unlike the growingeconomies of China and South East Asia the Indianeconomys growth rate of around 8% is driven chiefly notby exports but by domestic demand.

India combines first world capacities with third worldpoverty. Services trade accounts for more than 50% ofIndias GDP but 60% of Indians still work in agriculture,most at a subsistence level. India Main Indicators

Indias commodity wise Imports from EU

SECTORSTotal from April to June

2006 (in Euro)Percentage increase overlast yr in the same period

Agro & Food 4,12,24,940 21%Chemicals/Pharma/Plastic 73,13,75,097 24%

Leather / Wood & Paper 18,46,44,796 5%Textiles/ Garments etc 7,85,64,577 -3%


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Stones/ Ceramics /Glass 3,28,29,48,269 4%

Automotive 1,05,88,63,514 20%Optical/photograph/Musical /Ammunition 26,83,98,723 33%

Other Products 3,98,57,955 20%

Total 5,76,89,41,543 11%

Indias commodity wise Exports to EU.

SECTORSTotal from April to June

2006 (in Euro)Percentage increase overlast yr in the same period

Agro & Food 45,49,92,823 7Chemicals/ Pharma/Plastic 93,08,97,208 5

Leather / Wood & Paper 23,66,52,057 6

Textiles/ Garments etc 1,67,57,98,382 7Stones/ Ceramics /Glass 1,24,74,83,691 13

Automotive 47,14,47,494 10

Optical/photograph/Musical /Ammunition 4,85,79,119 19

Other Products 14,30,64,707 8

Total 5,20,89,15,481 9

DESTINATION INDIA-EUs AGENDA

1. Since the beginning of the nineties, India has successfullyachieved several reforms aiming at liberalizing and modernizing its

economy. This has entailed dynamic performances in numeroussectors such as Food Processing, Information technology,Engineering or Telecommunication. This trend is infrastructure andan important growth of consumption. Its huge market, stimulatedby a relevant part of the population whose consumption is close toEuropean standards, represents an attractive target for Europeanbusinesses. Its democratic background and its sound domesticand external sector are positive factors that can cheer up investorseven if infrastructures and trademark protection are still in an early

stage.


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2. During the last ten years, the country has finally managed tointegrate world trade and investment flows. India is now finishingits reforms to meet the WTO demands, and could be consideredas a fair player of global exchanges. It ensures a continuous path

toward further trade liberalization and openness to foreign directinvestment. The consolidation of its trade and cooperation with theEU, now catching up with the US influence, will offer numerousopportunities for European companies. The effort of both theEuropean community and the Indian government to enhance thoseexchanges should benefit businesses that may find support or helpin the political process.

3. Low labour costs, English speaking proficiencies, a solid

educational system that forms highly qualified workers, a topInformation technology sector, a diversifying and developingdomestic market, a relevant share of the population with incomecomparable to that of Europe (above 35 million), a growingintegration into world and regional trade flows, are all majorarguments in favor of considering India as a prime location forbusiness operations and investments. Incentives and supportsfrom the government for export-oriented units, as well as areasonably simplified taxation on profits and dividends, can attractfurther investment.

4. The huge potential of the Indian Food processing sector, stillwidely under exploited, leaves many opportunities for Europeancompanies, especially in the development of Bio semi-processedfood.

5. The Engineering sector benefits from a wide and completecapacity of production. With a growing domestic market and lowproduction costs, it remains an attractive sector for European

investment.

6. The Telecommunication sector is enjoying a high growth ratesboth because of a low initial teledensity and of a deregulation ofthe sector. European participation is demanded mainly fortechnology and knowledge support, which offers plenty ofopportunities for business operation.

7. The Indian IT sector is one of the world top industries of its

domain. It is now looking for extension toward other countries andfor the establishment of research and knowledge cooperation.


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8. Partners and forms of investment. Administrative difficultiesshould also be assessed and considered before starting anyoperation for a good knowledge of Indian ways may considerably

simplify procedures. Variation of states policies and characteristicsmay add to the complexity of choosing the right location forinvestment.

9. Initial procedures (licensing) have been simplified andstrengthened to generate more foreign investment, especially forexport-oriented operations that benefit from numerous incentivesfrom the government. Difficulties and hurdles may still arise indealing with local authorities or when trying to reach the domestic

market.

10. Managing the local human resources and dealing with Indianpartners require a deep understanding of local conditions andways of thinking. Still, the general satisfaction of Europeancompanies settled in Asia is significant evidence that, providedthose key elements have been taken into account, pay-backs andreturns on investment compare favorably with many other potentiallocation for investment.


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India: prospects and potential for further growth

A major factor in this new drive is Indian industrial importance in anumber of key sectors, many of them high tech. India is a world

leader in information and communications technology (ICT), inparticular in the field of outsourcing. Soft-ware is projected tobecome Indias largest industrial sector, contributing 28 % of GDPby 2020; by 2008, the sector is expected to grow to USD 80 billion.This is one area that offers considerable opportunities for EUIndiabusiness partnerships. There is enormous potential for growth in anumber of other fields, such as:

Financial services, especially banking and insurance;

Power and energy supply, where economic and populationgrowth create growth in demand;

Telecommunications, both fixed and cellular lines and Internetusage;

Mechanical engineering, where there is significant expansion andimprovement of the infrastructure base and major projects in thepipeline;

Biotechnology, India being the worlds largest market for vaccinesof all types;

Textiles and clothing, a traditional staple industry that, as long ascertain conditions armed (such as modernization, improvedcompetitiveness and deregulation), should benefit significantlyfrom the end of textile quotas. Because the EU is Indias maintrading partner, Indian economic growth is inevitably reflected in

growth in trade with the EU. This is particularly evident becausethe EU is the most open market in the world and so the mostaccessible to Indian products. A good example of this trend istrade in services between India and the EU, which has increasedsignificantly in recent years in both directions. This is aneconomic area with rich potential for growth and, in particular, forfuture EUIndia bilateral business, which would create tremendousprospects in terms of trade, job creation and economic progress.India service exports to the EU were EUR 2.5 billion in 2001: the

EU exported EUR 2.4 billion in return The EU is the worlds mostopen market for India Other sectors also hold major potential.


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European Commission India: prospects and potential forfurther growth similarly; the EU is both the leading foreign investorin India and also a major destination for Indian investors. About 40

% of Indian overseas investment flows into Europe, compared to20 % to the United States. Indian firms now operating in the EUinclude Indias IT giants Infosys, Tata Consultancy Services,HCL Technologies, Wipro and Birla Soft but also a range offirms from various sectors, like Bharat Forge, Thermax, TataTetley, Compact Disk India Ltd, Mastek and Bank of India.

SO, these trend shows more and more are entering EU market to

get benefits of single largest market in the world. Also INDIA is theonly country which takes the maximum benefits of GSP of EU. Wecannot deny that EU countries are entering INDIAN market. Theyare also getting benefits from INDIAN market.

EUROPEAN UNION AN IMPORTANT EXPORTDESTINATION

According to FICCI, There is a strong view amongst the industrymembers on the importance of EU as an export destination. Astrong 71% of the participating companies have said that theirorganization perceives EU as an important export market fortheir products.

PRESENT STATUS OF DOING BUSINESS WITH CENTRALAND EASTERN EUROPE

As per the industry response here presents a different picture from

what is obtained in the previous question. While a little over 55% ofthe respondents replied in the affirmative, 45% said that they arenot currently exporting to EU.


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PLANS FOR EXPORTING TO EUOf the companies that are not presently exporting to EU, 85%intend to export to this region in the near future. Companies,

which are currently exporting to EU, have also mentioned thatthey would like to engage this region more in their exportbusiness and cater to the domestic requirements in theEuropean economy.

COMPOSITIONS OF INDIAN EXPORTS TO EU

Automobiles (light commercial vehicles), auto engines andcomponents

Metals and metal based products Leather products Chemicals and pharmaceuticals Handicrafts Engineering goods like diesel engines Textile yarns, Woolen and cotton fabrics Agricultural products IT products and services Consumer durables Biotech products

STRATEGIES TO ENTER INTO THE EUThere are tremendous opportunities for the Indian Industry inthe EU markets. As per FICCI Indias trade volume with eachcountry can easily be doubled in less than three years. Thereare great opportunities as there would now be

o uniform trade regulations

o uniform duty structureo common technical specification


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In those countries that have joined the European Union. Ourrespondents saw a big possibility for entering into joint venturesin the EU countries as well as outsourcing of services fromthese countries to India. Many respondents felt that it is a good

time to set up representative offices in these countries andundertake tailor made marketing campaigns for each of thesecountries.

Indian companies can capitalize on the above opportunitiesby:

Setting up / establishing offices in these countries Joining hands with Joint Venture partners for production

and/or marketing Appointing agents for introducing and familiarizing Indian

products in these markets Developing regular contacts through participation in buyer

seller meets Enlisting in the local trade directories and advertising in the

local trade journals and media Creating greater awareness about Indian products by

participating in all their trade fairs.

Indian companies should also focus on

Quality Certification (QC) Service reliability (SR) Competitive Pricing (CP) Strategic alliances with local

/companies/collaborations/partnerships (SA) Knowledge of local languages (LL)

PROBLEMS FACED OR FORESEEN WHILE EXPORTING TOCENTRAL & EAST EUROPE

No. Barriers High Medium Low

1 Trade barriers (import duties & customs) 86% - 14%

2 Language & cultural barriers 14% 14% 72%

3 Labor laws (Compensation package) 29% 43% 28%

4 Security problems concerning payments 57% 29% 14%5 Work permits & visa problems 59% 28% 13%


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6 Competition from Local Companies 29% 56% 15%

7 Lack of business information 57% 29% 14%

RECOMMENDATIONS TO OVERCOME THE BARRIERS Indian banks should open their operations in this bloc There should be direct air links with these countries Visa problems have to be addressed without which business

cannot be carried out. Visa issuance should be made simple for business

applicants. Some special cell should be formed for issue of visa to those

going for business promotional activities. A centralized business office should be formed where the

business community can contact to initiate business. EXIM bank should extend at least 10 million US$ credit line

between these countries. Detailed information on trade / industries of these respective

countries should be made available. There should be a display center for Indian products in

Indian embassies. Respondents also saw a major role that can be played by the

respective Joint Business Councils for further expansion of trade and investment

linkages. All the EU countries and India must make JBC a business

tool and treat JBC Recommendations as important suggestions, which must be

implemented.

STEPS NEEDED FOR INCREASING EXPORTS TO EUThe steps, which the Industry should take, include the following - Organize buyer-seller meet Participate in overseas trade fairs Open local offices Make an effort to identify reliable local partners Must take initiatives to start dialogues with like minded Joint

Venture partners on the other side to look at possibilities ofbusiness


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Must develop a compendium of information relating to Indianindustrys capabilities and export potential and circulate thesame amongst businessmen in the EU countries to establishand further business connectivity

Create INDIA TRADE CENTRES in the EU countries on aself-supporting and cooperative basis.

SECTORS WHERE TECHNICAL / FINANCIAL COLLABORATIONIS POSSIBLE

Some respondents from their knowledge have indicated thesectors where technical and/or financial collaboration is

possible between India and Central & East European Countries.These sectors include

Automobile sector Steel Information Technology Food Processing Banking Heavy equipment and machinery Defense Equipments Metallurgy & Exploration activities in Hydrocarbon, Gas, Oil Aviation sector Power projects Architectural & Engineering Services Construction

17-doing business with european union

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