Explain what is meant by the term ‘national minimum wage’.
Why might employers fear that an increase in the minimum wage might lead to job losses?
In what ways can employees try to increase their chances of receiving this increase in minimum wage?
The minimum wage is part of the EU Social Contract, what other rights for workers are contained in this document?

EU News

Are the Swiss moving towards joining the EU?

The decision by the Swiss people to allow labour from the 10 new EU members to enter the country could be taken as yet another move towards integration of the mainland Europe and maybe even eventual entry of the EU by the Swiss. The labour accord is part of a series of agreements approved by voters in 2000 between Switzerland and the then-15 nation EU. It was meant to be extended automatically to new EU members, but opponents to the deal collected enough signatures to force a referendum on the issue. Under the plans, citizens of eight Eastern European countries as well as Cyprus and Malta, will be able to travel and work freely in Switzerland. However, the Swiss will apply quotas on the numbers coming until 2011. Swiss citizens will also be allowed to work and settle in the new EU countries. Switzerland is not part of the EU, but the EU bloc is its main trading partner and the government has been seeking closer integration with Brussels. Swiss voters have now backed a plan to join a European passport-free zone.

Some questions

1. What essential principles of EU membership does the above vote represent?

2. Outline the advantages of the single market for a member state.

3. Why do some member states still not want to enter the ‘single currency’?

4. Which other countries are considering applying for membership to the EU and when?

An overview of Hungary:

With this new member of the EU featuring in a recent scandal at government level it might be a good time to take a closer look at Hungary.

An overview

Annual data	2002(a)	Historical averages (%)	1998-2002
Population (m)	10.1	Population growth	-0.3
GDP (US$ bn; market exchange rate)	65.8	Real GDP growth	4.3
GDP (US$ bn; PPP)	136.0	Real domestic demand growth	5.0
GDP per head (US$; market exchange rate)	6,530	Inflation	9.7
GDP per head (US$; purchasing power parity)	13,486	Current-account balance/GDP	-4.7
Exchange rate (av) Ft:US$	257.9	FDI inflows/GDP	3.7

Background

Hungary was proclaimed a “workers’ and peasants’ state” in 1949. A rebellion in 1956 against communist rule was crushed by the Soviet Union. In the 1960s Hungary embarked on a series of economic reforms towards a market-based system, but there was little political liberalisation and reforms flagged. Janos Kadar’s government fell in May 1988 and free elections were finally held in March and April 1990. Reform-minded centre-right and centre-left coalitions have alternated in power since then, transforming Hungary into a fully functioning market economy.

Political structure

Hungary is a multiparty democracy. The unicameral parliament has 386 members: 176 from single-member constituencies, 140 from regional lists and 70 from a national list. The president, who is elected by parliament, has little power.

Policy issues

Hungary’s centre-left government continues to pursue the structural reforms required by EU membership, set for May 2004. It is also committed to the promotion of growth. However, it is constrained by a large fiscal deficit, which must be reined in if Hungary is to join the EU’s economic and monetary union (EMU) before the end of the decade. Since June, the National Bank of Hungary (NBH, the central bank) has raised interest rates by 6 percentage points in defence of the forint and long-term inflation targets related to EMU.

Taxation

The corporate tax rate on reinvested profit is set to fall to 16% in 2004 after nine years of being levied at 18%. Automatic tax incentives for foreign-owned and joint-venture companies have been eliminated. A two-tier value-added tax (VAT) system has been in place since January 1st 1993. The current basic VAT rate is 25%, with a preferential rate of 12% for food, energy and some other items (this rate is set to rise to 15%). The rate for the employers’ social security contribution was reduced from 33% to 31% in 2001, and to 29% in January 2002.

Foreign trade

After the fall of communism, there was a reorientation of trade to the West, with around three-quarters of Hungary’s exports now directed to the EU. Hungary ran large current-account deficits in the mid-1990s, but external balances improved along with export competitiveness. In 1998-2001 the current-account deficit showed steady improvement, but this changed in 2002-03, as wage increases outpaced productivity growth, and demand in the EU stagnated.

Major exports 2002	% of total	Major imports 2002	% of total
Machinery & equipment	58.7	Machinery & equipment	52.0
Other manufactures	30.9	Other manufactures	35.5
Food, beverages & tobacco	6.8	Fuels & electricity	7.5
Raw materials	2.0	Food, beverages & tobacco	3.0
Fuels & electricity	1.6	Raw materials	2.0

Leading markets 2002	% of total	Leading suppliers 2002	% of total
Germany	33.7	Germany	23.9
Austria	8.2	Austria	7.7
Italy	5.4	Italy	7.5
France	5.2	Russia	6.0

2002

GDP per head ($ at PPP)	8,230	8,890	9,470	9,930
GDP (% real change pa)	4.17	5.15	3.80	3.30
Government consumption (% of GDP)	10.15	9.84	11.00	11.05
Budget balance (% of GDP)	-3.20	-3.48	-5.15	-9.65
Consumer prices (% change pa; av)	9.99	9.82	9.16	5.29
Public debt (% of GDP)	61.21	55.53	54.04	60.45
Labour costs per hour (USD)	1.81	1.73	1.95	2.48
Recorded unemployment (%)	6.95	6.38	5.71	5.82
Current-account balance/GDP	-5.11	-6.25	-3.39	-4.27
Foreign-exchange reserves (m$)	10,954	11,190	10,727	10,349

Useful Web sites

http://www.budapestsun.com/

An English language newspaper published in Budapest

http://www.ssees.ac.uk/hungary.htm

University of London site relating to Hungary

http://news.bbc.co.uk/2/hi/europe/3595155.stm

A complete A-Z of ALL EU terms

An example of which follows with a clear explanation of Qualified Majority Voting

The Council of Ministers has two ways of taking decisions - unanimity, when everyone has to be in agreement - and qualified majority voting - a system of weighted votes.

QMV is the most common method of decision-making, used in all but the most sensitive issues.

Issues which are decided on by QMV are also voted on by the European Parliament. This means that the council and parliament act together in co-decision.

Under QMV, each member state is given a certain number of votes in the council, weighted according to its size and population. For example, Germany, the EU's largest state, has 10 votes, while Portugal has five and Finland three.

At present, there are 87 votes in the council, distributed between the 15 member states.

The qualified majority means that 62 votes are needed to pass a proposal, rather than the normal majority of 44.

At least half the population of the EU and half the member states must also be in favour of a motion for it to pass.

A brief guide to EU Institutions

http://news.bbc.co.uk/1/shared/spl/hi/europe/04/eu_institutions/html/introduction.stm

For example The Council of Ministers

Council of Ministers

The Council of Ministers is the EU institution which represents the EU member states. It is a many-headed creature and may bring together government ministers from each country, heads of government, ambassadors, or merely government officials.

A summit meeting of heads of government is known as a European Council, while a meeting of ambassadors (or permanent representatives as they are termed) goes under the name Coreper.

Many decisions are made by officials meeting in technical committees and are then merely rubber-stamped by ministers.

Unlike the Commission, the Council of Ministers is not a supranational body but an intergovernmental one.

It should not be confused with the European Council, which is the name given to the regular meetings - sometimes called summits - of the EU member states' heads of state or government.

Regional and Cohesion Policy – 2007-2013.

http://europa.eu.int/comm/regional_policy/sources/docoffic/2007/osc/index_en.htm

The document that shows in detail the proposals for the Regional Policy scheduled for 2007 – 2013.

International News

World Bank hopes on debt relief

The World Bank hopes that in coming months it can begin to get the rich countries of the world to reduce the debts owed by the poorest nations on the planet.

The first part of the Bank’s plan will the cancelling $40bn (£22bn) in debt owed to international lenders by poorer nations, mostly in Africa.

So, just how much do the poorest countries in Africa owe?

At July's G8 summit in Gleneagles agreed in principle to cancel the debts of 18 of the world's poorest and most heavily indebted nations. But since then little has been heard of who will receive the much promised debt relief and with developed economies now facing oil price increases some fear that the money and the political will may no longer be there for the promises made in the summer.

Some questions

Distinguish between (a) bi-later aid and (b) multi-lateral aid.
In what ways can major lenders reduce the debt burden incurred on a country?
Why is debt such a problem to the economies of Africa?
‘Business is the way forward for developing economies’ was first put forward by Bauer over 30 years ago. Why do some economists believe that aid does not really benefit poor economies?

An examination question

Business Studies AS – Marketing

Sony to cut price of PlayStation 3

Sony is to cut the Japanese cost of its forthcoming PlayStation 3 console by 20%, the consumer. The price cut is aimed at boosting the launch of the machine and making it more competitive with the Xbox 360. The price for the North American and European launch will stay the same.

The surprise move will see the 20 gigabyte version of the PS3 sell for 49,980 yen ($430) when it goes on sale in November in Japan. No changes to the price of the higher end model - 60GB version - or European and US prices were announced.

In the US, the system with a 20GB hard drive will cost $499, while a model with a 60GB drive will cost $599. European pricing is 499 and 599 euros respectively. The new Japanese price puts the console in the same range as the basic Xbox 360 machine combined with an add-on HD-DVD player, which cost 49,600 yen together.

Sony hopes the price cut will deflect criticism after a series of delays to the PlayStation 3 console, concerns about price and apathy from some gamers about the capabilities of the machine.

When the new console is released in November it will compete with Microsoft's Xbox 360 and the Nintendo Wii. Nintendo's new console will cost 25,000 yen or lower in Japan and $250 (£133) or less in the US, while Microsoft's Xbox 360, which went on sale last November, starts at $299 in the US and £209 in the UK.

Previously, Sony had said that only the top end 60GB model would come with the connector. Senior Executives said that they were keen to show consumers that their ‘marketing mix’ was an attractive one and that price alone did not determine customer choice.

He said that it had now become apparent that there was a need for the high definition capability.

Questions

Explain what is meant by the term ‘marketing mix’. ( 5 marks)
Why might Sony have decided to cut the price of the PlayStation 3 in Japan by 20%? ( 10 marks)
In what other ways might Sony try to compete against its main rival on other factors than price? ( 15 marks)

Total 30 marks

Don’t forget the SKILLS needed to do well at AS Business Studies.

CONTENT – know the topic and be able to show your understanding

APPLICATION – be able to show your KNOWLEDGE in the context of the question

ANALYSIS – be able to ask questions about what has happened, such as what, why, who or where and work towards making a decision. You are looking for CAUSES and EFFECTS.

EVALUATION – be able to make a judgement or an opinion and support this both from the Case Study material and your business knowledge.

Some guide answers

Marketing mix: The marketing mix is the balance of marketing techniques (1) required for selling the product. It's components are often known as the four P's. The first is PRICE - the price of the product.(1) The second is PRODUCT - the nature of the product itself.(1) The third is PROMOTION - the promotional methods used to sell the product(1) and the fourth is PLACE - the distribution of the product(1)
Sony might have decided to cut their price in Japan to (a) be more competitive against their major rivals – Xbox 300 and Nintendo Wii both of which are currently cheaper than the Sony PlayStation 3. They had wanted to aim at the top end of the market, with free connector but may be their research was wrong and the market is more price centred than they had thought. They will also want to deflect criticism from potential customers who have been let down by delayed launch dates. (Boards normally award 3 marks for each well described, in context and developed responses to this type of question. S0 3x3 + 1 mark for the quality of answer, use of material).
Sony might have gone for an inclusive package that gave customers all they needed for a self contained console. They might have added more games or offered more GB power ( 5). They seem to have recognised the need for high definition facilities and they may have focused more on the other P’s and not made price the ‘battle ground’ for this product.(3) The product could have been made to be the most technically advanced in the market, whilst its distribution could have wider and more readily available through both conventional retail outlets and online buying.(5) They might have decided to promote more visibly and may be product link to personalities or a current film release. (2). In this answer you need to be able to show the examiner that you can use your business knowledge to develop a sensible course of action for Sony – always keeping it in context and supporting with business logic why your idea might have been put into action by Sony.

The four Ps – should they be increased to 7?

The 4 P’s

Product: The Product management and Product marketing aspects of marketing deal with the specifications of the actual good or service, and how it relates to the end-user's needs and wants.

Pricing: This refers to the process of setting a price for a product, including discounts.

Promotion: This includes advertising, sales promotion, publicity, and personal selling, and refers to the various methods of promoting the product, brand, or company.

Placement or distribution refers to how the product gets to the customer; for example, point of sale placement or retailing. This fourth P has also sometimes been called Place, referring to “where” a product or service is sold, e.g. in which geographic region or industry, to which segment (young adults, families, business people, women, men, etc.).

May be now it’s the 7 P’s?

People: Any person coming into contact with customers can have an impact on overall satisfaction. Whether as part of a supporting service to a product or involved in a total service, people are particularly important because, in the customer's eyes, they are generally inseparable from the total service. As a result of this, they must be appropriately trained, well motivated and the right type of person. Fellow customers are also sometime referred to under 'people', as they too can affect the customer's service experience, (e.g., at a sporting event).

Process: This is the process(es) involved in providing a service and the behaviour of people, which can be crucial to customer satisfaction.

Physical evidence: Unlike a product, a service cannot be experienced before it is delivered, which makes it intangible. This, therefore, means that potential customers could perceive greater risk when deciding whether or not to use a service. To reduce the feeling of risk, thus improving the chance for success, it is often vital to offer potential customers the chance to see what a service would be like. This is done by providing physical evidence, such as case studies, or testimonials.

Letter from an Economist

Are new battle lines being drawn?

There is little doubt that in the coming decade the most important economic relationship in the global economy will be that between the US and China. The current US treasury Secretary has made over 70 visits to China and he will soon visit again; this time to lobby for a reduction in the external value of yuan.

The lack of flexibility in the value of the Yuan is considered to be a major cause of the continuing trade deficit being experienced by the EU. Before he reached Beijing Mr Paulson, the US Treasury Secretary will stop over in Singapore and address the Finance Ministers of the G& . Mr Paulson is under intense pressure from his domestic manufacturing sector to persuade the Chinese government to devalue the yuan. Some of those putting pressure on Paulson think that the yuan is as much as 40% undervalued.

China recently posted a $220 billion record trade surplus with the US and trends suggest that 2006 will record an even larger sum.

As well as pushing for a currency re-alignment Paulson is also going to Beijing to argue that piracy is also causing problems to genuine manufacturers all over the world. The IMF has also spoken of currency re-alignment for China and questioned its ability to maintain growth with its current exchange rate. It also noted that full capacity may be as little as two years away and then inflationary pressures may start to appear.

Chinese officials say it is wrong to blame them for this currency and trade imbalance. They point to globalisation and macroeconomic policies of other large trading countries as the real causes of the problems now facing the US.

In July 2005 China did relent and dropped the yuan by 2.1% and the currency has appreciated by 2% since then.

Paulson is on a tough mission and knows that China favours gradual reductions in the value of its exchange rate but he also has an increasing ‘protectionist’ lobby emerging in Washington. It’s mid-term election year and Senators are scared of job losses in their state.
The Chinese also will need to pragmatic for a fall in exports may lead to a rise in unemployment and with many people now seeking more democracy in this the world’s most populous nation the power brokers in Beijing do not want disgruntled workers airing their opinions of the state and its ability to manage the economy.

China’s competitive advantage is certainly much greater than the 2% lobbyists are asking them to drop the value of the yuan but it is unlikely that the Chinese government will accept anything more.

The ‘contest’ that is now emerging could be but a foretaste of the battles for economic dominance that will flavour the coming decade.

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