1. Terms of reference
This report will focus on the following: –
* The major implications for businesses in Western Europe following the fall of the eastern European communist governments in 1989 and 1990.
* The key implications for the future strategy of Bluebird Toys of the changes currently taking place in Europe.
* A demographic, economic and cultural profile of a potential new East European entrant to the EU with an evaluation of the suitability of the selected country as a possible production location for Bluebird.
* Provide an evaluation of the possible advantages and disadvantages to Bluebird toys of EU enlargement.
2.1 Prior to 1998-99 Eastern Europe was a satellite of the former Soviet Union. It was a dependant of on the former Soviet Union. The government was non democratic. There was a lot of influence by media how the state was controlled. Soviet military power was used to over come and rebel against the communist governments as in Hungary 1956 and Czechoslovakia 1968.
All assets were owned and controlled by state. People would have to work where the state ministries said also it would determine what would be produced. Any decisions that had to be made concerning resource allocation production, distribution pricing would state committees working towards five year make all national plans. Each sector of the economy had to meet targets set by government and each enterprise was expected to meet specified production targets. This would be measured mainly by the quantity produced rather than the quality.
There were four main spreads of economies across the central and Eastern Europe:
* 1917 Bolshevik revolutions
* 1920 command economic system had evolved following philosophy of Karl Marx.
* 1948-53 the economic system imitated across Eastern Europe after World War 2.
* The eastern states of Europe became part of the soviet trading block Comecon. (Council for mutual economic assistance.
These economies successful active for decades, this being a good advantage from quick development of industry until a slow down in economic growth, in 1970 & 80s so this meant taxes would have risen slightly at this stage, and a decrease in expenditure. Also these led to and increase in production costs and there was less existence in land, raw materials, and energy.
The collapse of the soviet system was due to: –
* The inefficient functioning of the state owned enterprises
Managerial incompetence and carelessness of workers. These enterprises received a large amount of financial aid from government. Prices were set and financed at unnaturally low rates.
* Lack of investment
* There was a lot of support on old manufacturing techniques. Compared to western standards the investment made to the new developing manufacturing sectors was small. Also low money spent on transport resulted in distribution problems creating rationing of food.
* Public uprising
* The soviet regime was based on two principles superiority and equality but public awareness was growing in central and Eastern Europe. There were low quality consumer goods distributed; there were images of western lifestyles on making its way around Eastern Europe. Lack of investment made into housing resulted in poor living conditions.
In 1989/90 Public arising grew against the Soviet Union. At this stage communist government could no longer rely on the help of Moscow to help them stay in power and no other alternative but to resign, and they were replaced by democratically elected government. The Soviet Union ended on the 31/12/91.
3. Transition economies
3.1 Transition is change from one state to another. In this case it is the transfer from a command economy to a market economy. The process of transition entails a range of actions taken by the countries major institutions: –
This is when the government takes off some of the controls and restrictions in markets to encourage free competition. For example the local bus market. Bus companies could select their own routes, timetables etc. Companies could advertise and compete for customers, e.g. by reducing prices.
This is when prices can be set at a more competitive rate, it is less restrictive.
Companies will have to build themselves up again.
Banking and sector reforms
There will be improvements in banking.
Developing legal framework for business opportunity
This is where new legislation is introduced for businesses.
Setting up a market economy also entails: policies to ensure economic macro stability, re orientation of international trade, developing external economic relations with western markets and institutions, basically its all about building a good economy and having good international trade between the western markets.
3.2 The Copenhagen criteria, June 1993 the Copenhagen European council established the right of the countries of the central and Eastern Europe to join the European union when they have gone through three criteria.
* Political: they would have to have stable institutions, to be democratic, to comply by certain legislation. Also human rights and have respect for any minorities.
* Economic: A functioning market economy. If it weren’t functioning then there would be no point in joining EU. It wouldn’t be able to import or export goods etc.
* In corporation of the community acquis: to stick to the political, economical and monetary aims of the European Union.
There are many advantages to Eastern Europe in joining the EU; one of these is regional development. The European regional development fund provides money to relieve unemployment and encourage development projects in these less prosperous parts of the EU.The retraining of workers in these areas may also be supported by the European Social Fund. Additional finance, at attractive interest rates, may be offered to firms setting up in these areas. Bluebird toys plc could benefit from this a lot they could get the same amount of output of its workforce and pay substantially less for it, because there is more demand for work.