Market Analysis

       The UK has the third largest economy in Europe; GDP is $2.25 trillion, and with a substantial population of 63,047,162 people and GDP per capita at $35,900 the UK is an excellent country for investment, providing a gateway into the entire European Union. Because of the wealth and large population of London, the company should introduce the luxury limousine. With a population of 8.615 million people, London is one of the top 20 most populated and most expensive cities in world. Given the domicile tax status, London is also a magnet of wealthy internationals. Making London even more suitable for the luxury limousine is its status as a global financial center; finance is London’s largest industry. The city is home to five major business districts, and more than half of the UK’s top 100 listed companies and over 100 of Europe’s 500 largest companies are headquartered in London.

Reinventing the Bazaar

1. A passage I found interesting was the discussion about how price dispersion can persist even when information costs are low. Even though the internet has made product comparison easier, the information is still not free because of the difficulty involved in observing quality. Therefore, consumers are willing to pay more money for a recognizable brand name, the assurance of quick delivery as well as safe online payment. The passage also showed the problems with the inability to judge quality in low-income/developing countries. In India for instance, the inability to judge the butterfat content led Indians to stop buying milk as consumption dropped 25%.It was not until the government introduced inexpensive machines to measure butterfat content of the milk at each stage of production that quality could be guaranteed. Nevertheless, this example of the milk in India is very different from quality over the internet. At least the internet provides consumers with some basis/standards for quality making the purchase decision easier even if it is more expensive. However, being completely unable to decipher product quality is incredibly frustrating and disconcerting. It reinforces how lucky we are as American consumers, despite problems we may have to deal with our economy.

2. Transaction costs represent the costs incurred in an economic exchange,not including the money price. The article talks about search costs and their importance in the market place. In the case of search costs, information is not free; if consumers want to find competitively priced products and find the best deal, they have to pay the merchant a few. However, the author explains that “it does not pay to search.” 

The text states: “If you incur a search cost of 10 cents or more for each merchant you sample, and there are fifty sellers offering the urn, then even if you know there is someone out there who is willing to sell it at cost, so you save $5, it does not pay you to look for him. You would be looking for a needle in a haystack. If you visited one more seller, you would have a chance of one in fifty of that seller being the price-cutter, so the return on average from that extra price quote would be 10 cents, which is the same as your cost of getting on more quote” (43).

In other words, transaction costs can also represent the cost of your time researching/comparing prices as well as transportation costs in pursuit of market price knowledge.

3. Effects that arise from imperfect information include search costs (time, effort and money spend learning what is available where for how much) and evaluation costs (difficulties buyers have in assessing quality). Search costs ultimately weaken the force of competition; while product choice may exist, with imperfect information buyers are not able to easily compare prices and thus buyers can charge high monopoly-type prices. Another effect is the lack of mutually beneficial exchange. In both of these situations the consumer suffers; they are forced to pay high prices for products and/or have to deal with high search costs to even become informed, but will most likely then end up paying even more money for all of the product information then compared to just paying the high price in the first place. 

However, another interesting effect of imperfect information is the entrepreneurial flourishing of “middlemen” like distributors and realtors. When search costs are involved in can prove more economical for consumers or businesses to hire someone else to find out the information for them. With this information in hand buyers can make better, more informed decisions while the middleman benefits monetarily for his service. However, this can also cause problems for sellers as lower search costs may result in the disproportionate lowering of price.

A Fez of the Heart

A. One passage that I found extremely interesting was the stoning of tourists clueless to the religious modesty of the Turkish Muslims. This is a perfect example of why it is important to understand the culture of your travel destinations before you embark on your journey so you can have some grasp on what is acceptable and what is not. By researching Turkey and finding out that the majority of the population is Muslim, tourists should already have some grasp on the values of that religion to conclude that dressing modestly when walking though town is probably a given. With that said, however, the lack of cultural adaption does not permit stoning. The stoning of the tourists is a completely radical and unjust action that I can not imagine went over very well with the home governments of the tourists. The act of stoning by the Turks showcases the type of radical behavior that can occur when traditional customs and values are suddenly threatened by the flux of new coming tourist invaders. 

It’s also very interesting that the Turks attempted to post warning signs but the language barrier prohibited both sides from being able to effectively communicate. If the Turks had a better fluency on the language of the tourists and the tourists better understood the culture of Turkish residents, the whole issue of the stoning would most likely not have been an issue as tourists would have simply thrown on some clothes over their bathings suits when walking through town on the way home from the beach. 

It’s further fascinating that Turkey evolved from a place that stones bikini clad tourist to a vacation destination where breasts, bikinis and scantily clothed bodies became “no problem.” This suggests just how desperate the governments of developing countries are: governments and those in the business sector are willing to sacrifice on cultural values to boost their nation’s economy through tourism and all that accompanies it. I think that this article showcases the kinds of sacrifices countries have to make to be able to compete in the global economy.

B. The interaction of culture and economics can not only be seen in the example of Turkey adapting its customs in exchange for tourism revenues, but it is also showcased in that fact that tourists were drawn the ruins and shrines in Turkey that residents did not consider significant. The text states: “. . . the ruins had been there as long as anyone could remember and hardly merited exploring in the baking heat of high summer.” However, to the tourists that flocked to Turkey, it is clear that they have significant cultural and historical appeal. This example is at the heart of why it is that people travel (or at least one of many reasons): to see/experience a culture or event/location that one could not do in one’s place of residence. For instance, many tourists flocked to Turkey for the beaches and for the physical landmarks. However, many tourists also flock to MI and places like Maine in the fall to experience the changing colors of the leaves, a seasonal occurrence that we may not appreciate because (for those of us who have lived in MI our entire lives) it a natural and expected occurrence.

Another example of culture interacting with economics is how the Pomegranate families adapted to take advantage of the tourism flux. The text states: “So some Pomegranate families were prompted to clear spare rooms and offer them to the latest arrivals as pansiyon accommodation. The more enterprising among them even dared, having heard the practice was acceptable, to charge a few lira at the end of the visitors’ stay.” It’s interesting that initially, those in Pomegranate did not even consider charging the visitors for the board. It just showcases how differently hospitality endues throughout  varying cultures. It is further significant that the residents adopted new cultural practices to find economic gain in tourism. 

C. In Scotland, Edinburgh is the leading city for tourism. It features Edinburgh Castle, the Palace of Holyroodhouse, Linlithgow Palace, Rossyln Chapel as well as a number of other surrounding castles. In addition, the towns of the city are a beautiful mix of both modern and traditional appeal. The Highlands and the Isle of Skye also attract many travelers to Scotland as it is picturesque scenery that separates the Western Highlands from the Eastern Highlands. Further west is the popular Eilean Donan Castle and the Isle of Skye. Furthermore, one can travel to Mallaig from Fort William on the train and experience the same scenery that was featured in the Harry Potter movies during the Hogwarts Express scenes of the characters journey to Hogwarts by rail. Tourists are drawn to these locations because of the natural beauty of the landscape and the historical significance and utter beauty of the castles. I know I for one am incredibly excited to visit Linlithgow Palace because Mary Queen of Scots was born there; I am fascinated by her life as well as her connection to Tudor England. Harry Potter has also become a marked staple of our generation interestingly enough, and thus it makes sense that avid Harry Potter fans would want to “ride on the same tracks as the Hogwarts Express” and experience the same beauty that they witnessed in the movies. 

http://www.thereareplaces.com/newguidebook/pdest/ukscpts.htm

Forecasts on UK economy point to further downturn

Report predicts sharp increase in insolvencies in north-east of England and Wales, and rise in write-offs on corporate loans

Banks and insurers face a rocky 2012 as insolvencies rocket to levels not seen since the 1990s, according to a report by the Ernst & Young Item Club.

The economic slowdown will also hamper corporate lending by the banks, the report said, which came after recession became official last week with figures showing the economy contracted 0.2% in the first quarter of the year. Lending to businesses is unlikely to recover to its 2008 peak before 2016, the report predicts.

In a separate study, the accountancy firm Deloitte's consumer tracker found 51% of people were downbeat about their household's disposable income, up two percentage points from 49% in the previous quarter.

After six weeks of bad news for the chancellor, George Osborne, starting with his ill-received budget, reports that the current borrowing squeeze will continue for several years will be disappointing. Britain joined many other EU nations in recession, including Belgium, the Netherlands and Spain, following a sharp fall in construction and poor figures from the financial and business services industries.

The Item Club said financial services faced a "worsening outlook as the real effect of sluggish growth continues to impact creditor and consumer behaviour". It said write-offs on corporate loans will increase to 1.9% of loans in the corporate sector, from 1.6% in 2011. "Insolvencies are likely to rise more sharply in the north-east of England and Wales, where economic output is set to contract by 0.1% and 0.3% respectively," it said.

Neil Blake, senior economic adviser to the club, said: "Although 1.9% doesn't sound big, this will be the highest annual rate of write-offs since the mid-90s, and the more loans banks have to write off the less money they will have to lend. Consumer-led sectors such as retail are likely to be hit disproportionately hard as discretionary household spending is cut back amidst difficult labour-market conditions, especially in regions hit hard by government spending cuts."

Blake said the rise in write-offs and lacklustre outlook for business investment and economic growth was the main reason he believed lending to corporates has worsened considerably since the last quarter.

The forecast is now for a contraction of 6.8% this year rather than the previous estimate of 5.7%. Corporate sector loans are not predicted to return to their pre-crisis peak of £575bn until 2016.

Blake said: "The contraction expected in 2012 is more acute than the 6.1% contraction last year, and means that the funding squeeze that corporates and SMES have been experiencing is only set to get worse.

The downbeat assessment of the economy was echoed by Ian Stewart, chief economist at Deloitte, who said the only positive note from its study were the signs that the slump in consumer sentiment may be bottoming out.

He said: "For consumers to spend more, disposable incomes need to improve. Wages are unlikely to see much growth this year, so the big hope is that sharply lower inflation will support consumer spendingpower. He added: "If inflation drops in the second half of this year, the UK consumer should see some modest growth. Yet the UK consumer remains vulnerable to events, particularly an intensification of the euro crisis or further rises in oil and energy prices."

A rise in oil prices is often cited as a potential barrier to growth. Britain is particularly vulnerable to higher prices for oil and gas following a drop in the value of the pound and a dramatic fall over the last decade in North Sea output.

Concerns that the situation was already set to worsen came after a speech from a senior Bank of England official who said inflation was likely to stay higher than predicted. Deputy governor Paul Tucker warned that recent falls in inflation may come to a halt and stay above the bank's target level of 2%. Wages are currently increasing at 1.1%, leaving a 2.4% shortfall in light of the 3.5% rate of inflation.

http://www.guardian.co.uk/business/2012/apr/30/uk-economy-forecasts-further-downturn






RESPONSE


As it stated that the economic slowdown will hamper corporate lending, that means that business investment will go down: rather than fund future projects or buildings, the businesses will have to use their money to pay for immediate occurrences. However, the article also states that by 2016 lending to businesses is likely to recover, so in the long-run, investment should increase.


The article further states that 51% of people were downbeat about their household’s disposable income, thus suggesting that consumption would also decrease as there is less money to spend on non-necessity consumer goods. Additionally, the article notes that corporate loans will increase as companies use write-offs. However, this increase in corporate loans will result in less lending money. Therefore, consumer-led sectors will suffer even more from the lack of disposable income as consumers and these sectors will be unable to borrow large sums of money. 


In the short run then, the equation for national income will look like:


GDP (decrease) = C (decrease) + I (decrease) +G + E -I.


However, the article states that the UK will try to increase consumer spending by lowering inflation. So if the UK can do this, in the long run Consumption should increase. Yet, there are also the potential barriers of high oil and gas prices as well as the intensification of the euro. 

Part II

(a)

The history of the location of the textile industry illustrates the “globality” in global economics. From the reading, it is clear that the textile industry can prosper in numerous environments, countries and even continents. From England to New England and North Carolina to China and Japan, the textile industry has been home to incredible cultural diversity. However, what all of these different environments have in common is the high number of workers who are willing to work long hours for low wages. More than anything, the book has shown that the success of any industry is more dependent on the productivity and willingness of the workers than it is the actual location. 

There are many similarities of the type of workers that brought success to each of the textile industries in England, the US, Japan and China. All three industries took advantage of women’s labor to reap industrial success. In the Southern mills, the book noted that “more than 60 percent of the females working in Southern cotton mills in the early 1900’s were 13 years old of younger” (99). Moreover, they tried more “docile and tractable” women that could easily be taken advantage of. In Japan, the first cotton mill workers “were young women escaping a life of subsistence agriculture in the countryside, driven into the mills by both rural poverty and natural disasters” (102). Ultimately, it appears as if the textile industry has reaped success at the bloodied and nimble fingers of the low-paid workers (a strong majority of them women). However, Rivoli presents an interesting perspective about the textile industry actually providing the women in China with a kind of liberation, which I will address in the next point. 

(b)

It is clear that Industrialization brings both positive and negative consequences, and I think that the Rivoli’s exploration of female liberation in the Chinese textile industry is a perfect representation of this industrial dichotomy. For instance, the negative side of industrialization can be seen in the Chinese hukou system.

“Through the hukou system, China ensured a stable food supply for its cities while at the same time limiting the population of the urban areas. In reality, however, the masses in the countryside were ‘surplus labor,’ an academic term for people with nothing to do, people so ‘surplus’ that their presence had no effects of the output of the commune. And while focusing the masses to remain idle in the countryside, China devoted its resources to the urban population, developing the cities’ housing, education, healthcare, and infrastructure, while leaving the rural population to fend for itself” (106-107).

Although the hukou system has gradually been liberalized, “each rural citizen rolling toward the coast is on a leash,” (107) meaning that while they can visit the city it is not easy to stay, nor is it possible to bring one’s family; only one’s labor. This completely isolates the worker and makes them vulnerable to exploitation. Therefore, not only are these “floating workers” cheaper than urban workers, but “they ‘can bear more hardship’ and are ‘more manageable’” (108-109). Therefore, rural Chinese women who work in these industries endure low pay, long hours and incredibly poor working conditions with bad, incredible noise and curfew regulations (109-110). 

However, interestingly enough, it is this same system that draws numerous rural Chinese women to industrial work in the city in which they find their so called “liberation,” despite all of the hardship and regulation. The Chinese women who come to the city to work find that they are able to dress how they like, marry who they like or not choose to marry at all, and experience life outside the boring rural countryside. The following is a passage about one such Chinese woman, the young and single Chi Ying from Hubei, who has found more freedom in the textile industry despite all of the limitations:

“Though Chi Ying makes seven to eight times as much money at the factory as her father does at home, money is not at the top of her list of reasons for leaving the village for the factory. Chi Ying has delayed marriage and ultimately decided against the husband her parents had chosen for her. With her wages, she repaid the young man for the gifts he had given her parents. In the city she feels modern young and free . . . Chi Ying compares herself to her mother and grandmother, and the striking differences seem to her to be not income but horizons” (113). 

Therefore, although these women face low pay and horrible conditions, they experience much greater personal freedoms than they would in the rural countryside. The question is, do these liberties outweigh their injustices? Can their exploitation be reconciled with their new opportunities? 

(c)

I was very intrigued by Rivoli’s discussion about her involvement on the Licensing Oversight Committee at Georgetown. 

“I clearly remember thinking that the students, however noble and impassioned, just weren’t being reasonable. Names and addresses of all of the factories in this fleet-footed industry with its global supply chain? Unannounced visits by independent monitors? And why would the factories let them in, even assuming we did have names and addresses? And of course we would never get names and addresses, since every company producing the clothing had stated flatly that they would never release this information. I see now that my responses in these early meetings were very close to the response the business community has had to social, environmental, or labor activists since the days of Thomas Percival: How could all of this possibly work? And how could we know we were doing more good than harm?” (128). 

From the reading we found out, however, that the companies did in fact agree to these terms. Yet the text doesn’t go into further discussion about how the Workers Rights Consortium (WRC) actually carries out its job. I’m interested in if these companies like Nike do in fact follow through on all that they claim, and if they didn’t, how it is able to be covered up. I guess I’m interested in if the WRC has found any of these companies in violation or how the process is actually executed.

Richard Florida - Globality

Richard Florida sees the effects of globalization from a different viewpoint than Friedman, meaning the world is not flat but rather “spiky.” He argues that the high population density in the cities makes these areas more economically competitive on a global level as large concentrations of people are more likely to harbor creativity and other talents that lead to/promote innovation. He thus argues that not only is the world not flat, but it continues to become even more spiky as time progresses. The world only appears to be flat because social and economic distances seem shorter with use of the internet and modern transportation conveniences. He also argues that globalization is devastating for areas of low population density. He uses China as an example: while Shanghai, Beijing and Shenzhen are bustling with people and innovation the rural areas of China are home to desperate poverty.


This relates to the central place theory because more densely populated cities are prone to more variety and specialization in terms of medical, retail, food, entertainment and other services. Just as Florida asserts that more innovation is found in these “spiky areas” there is clearly much more innovative services in a regional metropolis than hamlet. Therefore, Florida argues that this dispersion of population and effect of globalization creates a cultural and economic divide.


Aberdeen, Scotland would be considered a regional city; the population is 183,030. Edinburgh would be considered a regional metropolis and Glasgow would be considered a national metropolis. Dundee is a small city and Paisley is a town. Aberdeen has services including an international airport and other common modern conveniences; however, as you increase on the hierarchy, Glasgow and Edinburgh contain more specialized services.

UK Transportation

The geography of the UK is composed of numerous islands, including the northern one-sixth of the island of Ireland, between the North Atlantic Ocean and the North Sea northwest of France. Therefore, the UK is home to numerous ports. The Felixstowe Port is the UK’s busiest container port in the Suffolk Coastal district on England’s eastern shores. Felixstowe Port is England’s closest port to Rotterdam and the Netherlands’ Europort. Felixstowe Port can accommodate the world’s latest deep-draft post-Panamax container vessels. Other post-Panamax ports in the UK include Southampton along the English Channel, Thamesport on the North Sea which is just 56 kilometers east of London, and Liverpool on the Irish Sea is undergoing planning/preparation for a post-Panamax port.

Other ports include the following:

Teesport, Middlesbrough, North Sea

Port of Tyne, Newcastle, North Sea

Barrow, Irish Sea

Port Talbot, Irish Sea

Milford Haven, Irish Sea

Invergordon, Moray Firth

Hunterston Terminal, Firth of Clyde

Hound point, Firth of Forth

These ports are primarily used for ferry/cruise transportation and commercial services. The United Kingdom Major Ports Group Limited (UKMPG) is a trade association that represents most of the larger commercial ports in the United Kingdom and has nine member who own and operate 41 ports and 2 terminals which account for over 70% of the tonnage handled in UK ports.

The railway system in Great Britain is the oldest in the world, as the world’s first locomotive-hauled public railway opened in 1825. Most of the railway track is managed by the Network Railway. The UK has 16,454 km of railways.

Passenger services in Great Britain are divided into regional franchises and run by private Train Operating Companies. There are 2,516 passenger railway stations on the Network Rail network. This does not include the London Underground and other systems not part of the national network. Most date from the Victorian era and many are located either in or on the edge of town and city centers.

There are four main freight operating companies in the UK, the largest of which is DB Schenker (formerly the English, Welsh and Scottish Railway (EWS)). The amount of freight moved in 2010‐11 was 19.23 billion net ton kilometers, a 1.0 % increase from 2009‐10. The total amount of freight moved increased by 14.0% in 2010‐11 Q4 compared to 2009‐10 Q4, with 5.34 billion net ton kilometers moved compared to 4.69 billion net ton kilometers moved in 2009‐10 Q4.

Last year for the first time, consumer rail freight traffic was greater than coal traffic; Despite the recent economic downturn, rail freight volumes grew by 2% between 2006-2011, and over the same period, consumer  rail freight grew by 29%, exceeding previous forecasts  its eighth consecutive year of growth.There is significant suppressed demand for rail freight with forecasts predicting that rail freight overall will have doubled by 2030 with consumer rail freight growing 7.6% per annum during this period. More than £1.5 billion private investment in locomotives, wagons, facilities and systems has taken place since 1995.

The UK has paved roadways totaling 394,428 km, 3,519 km of which are expressways. In the UK, drivers are charged are toll for most expressways and highways, in addition to selected bridges and tunnels. UK roads are split into two main categories, trunk roads and non-trunk roads. Trunk roads are nationally important routes, which are maintained by the national highway authority of each country. All other public roads are maintained by local authorities. Nearly all public roads have been surfaced since the early part of the 20th century, and the country has a good coverage of divided highways and freeways, built from the 1950s onwards. New-build roads are subject to very high design standards, but the quantity of them has been held back by funding, and more recently, a lack of political will. Older roads are generally well maintained and surfaced, but are rarely widened or re-aligned and often their courses have been unchanged for centuries.

The following are a list of international airports in the UK:

Aberdeen, Scotland. ABZ

Belfast City, Northern Ireland. BHD

Belfast International, Northern Ireland. BFS             

Birmingham, England. BHX 

Bristol, England. FZO

Cardiff, Wales. CWL 

Exeter, England. EXT

East Midlands, England.  EMA 

Edinburgh, Scotland. EDI 

Glasgow, Scotland. GLA  

Leeds Bradford, England. LBA

Liverpool, England. LPL

London City, England. LCY   

London Gatwick, England. LGW

London Heathrow, England. HRW

London Luton, England. LTN

London Stanstead, England. STN 

Manchester, England. MAN

Newcastle, England. NCL

Norwich, England. NWI 

Prestwick, Scotland. PIK 

Other airports are either private or used for military purposes. As of 2010, the are 505 airports in the UK, which ranks the UK as number 14 in country comparison to the world. Out of the 505 airports, 306 of them are paved.

Sources:

http://www.freightonrail.org.uk/FactsFigures.htm

http://www.cbrd.co.uk/roadsfaq/

https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

http://www.worldportsource.com/ports/GBR_Thamesport_484.php

http://www.worldportsource.com/ports/GBR_Felixstowe_Port_242.php

http://www.ports.org.uk/

http://www.ukairportguide.com/