Description
The global production value is about $85 billion. Fine chemicals are used as starting materials for specialty chemicals, particularly pharmaceuticals, bio pharmaceuticals.
2007-08-15 Halmstad University School of Business and Engineering (SET) European Business Programme 180 hp (Swedish University Credits)
The UK Chemical Manufacturing Industry and the Euro
Final Year Undergraduate Dissertation Business Administration 61-90 hp
Authors Bonat, Fredrik 811027 Lindh, Olof 850221
Tutor Joakim Tell
Abstract
In a questionnaire survey of the UK chemical manufacturing industry, this report investigates the views of these companies on economic and monetary integration of Europe. More specifically, the question of whether or not these companies would like to see a UK membership of the European Economic and Monetary Union (EMU) is asked, following a more thorough questioning aimed at examining the underlying reasoning behind their viewpoints.
The findings show a two-to-one majority on the side of a positive stance towards a UK participation in this final stage of integration of the European marketplace, and support theory in its belief that strong incentives for such a view include removal of exchange rate uncertainty, and elimination of transaction costs.
Additionally, and also in accordance with the collected theoretical framework, larger companies, and companies with high levels of exports, are found to have a greater desire for a UK EMU membership.
Findings in contrast with theory include that of a lack of correlation between high levels of imports and a desire for integration, as well as a lack of belief in increased inflow of foreign investment as a prospective benefit of membership in the questioned population.
Correlations found between the main question and the removal of exchange rate uncertainty and elimination of transaction costs were very strong, but positive statistical determination for the absence of chance in creating the associations could not be made, due to the small scale of the survey, creating response alternatives with less than five accumulated responses.
Table of Contents
1.0 Introduction .......................................................................................................................... 1 1.1 Context and Background .............................................................................................. 1 1.2 Discussion of the Problem............................................................................................ 3 1.3 Problem Definition ....................................................................................................... 6 1.4 Purpose ......................................................................................................................... 6 1.5 Hypotheses ................................................................................................................... 7 2.0 Methodology ........................................................................................................................ 8 2.1 Approach to Research .................................................................................................. 8 2.2 Sources of Literature .................................................................................................... 9 2.3 Approach to Study...................................................................................................... 10 2.4 Selection of Companies .............................................................................................. 10 2.5 Collection of Data ...................................................................................................... 12 2.6 Weaknesses in Methodology...................................................................................... 13 2.7 Credibility................................................................................................................... 14 2.8 Response Rate of Questionnaire ................................................................................ 14 2.9 Respondents ............................................................................................................... 15 2.10 Non-response ............................................................................................................ 15 3.0 Theoretical Framework ...................................................................................................... 16 3.1 The Single European Market...................................................................................... 16 3.2 The European Economic and Monetary Union (EMU) ............................................. 17 3.3 The Business Environment and the European Integration ......................................... 18 3.4 The United Kingdom and the EMU ........................................................................... 20 4.0 Empirical Data.................................................................................................................... 23 4.1 Opinion on the EMU: The Main Question ................................................................. 23 4.2 Size of Companies and Imports/Exports .................................................................... 24 4.2 Benefits of an EMU Membership .............................................................................. 31 4.3 Costs of an EMU Membership ................................................................................... 34 5.0 Analysis .............................................................................................................................. 36 5.1 Primary Hypothesis - Desire for EMU Membership ................................................. 36 5.2 Second Hypothesis – Issues of Size and Imports/Exports ......................................... 37 5.3 Third to Fifth Hypotheses - Benefits of an EMU Membership.................................. 38 5.4 Sixth Hypothesis – Costs of an EMU Membership ................................................... 40 6.0 Conclusions ........................................................................................................................ 42 6.1 Problem Defined ........................................................................................................ 42 6.2 Hypotheses ................................................................................................................. 42 6.3 Suggestions for Further Study .................................................................................... 44 References ................................................................................................................................ 45 Appendices ............................................................................................................................... 47
Figures
Figure 1 Data comparison – GDP, unemployment and inflation .............................................. 4 Figure 2 Inward FDI in $ USD (Source: Johnson and Turner, 2006 p. 181) .......................... 21 Figure 3 Desired membership of the EMU .............................................................................. 23 Figure 4 Statistics – Exports and Desired Membership of EMU ............................................. 25 Figure 5 Perceived Changes in Imports/Exports ..................................................................... 27 Figure 6 Imports from EMU Members and Desired Membership of EMU ............................. 28 Figure 7 Belief that an Enlargement of the EMU Would Mean New Suppliers ...................... 29 Figure 8 Turnover and Desired Membership of EMU ............................................................. 30 Figure 9 Elimination of Transaction Costs and Desired EMU Membership .......................... 31 Figure 10 Removal of Exchange Rate Uncertainty and Desired EMU Membership .............. 32 Figure 11 Exchange Rate Fluctuations as a Problem ............................................................. 32 Figure 12 Inflow of Foreign Investment and Desired EMU Membership ............................... 33 Figure 13 Perceived Costs of EMU Membership .................................................................... 34 Figure 14 Spearman’s rho – Costs and Desire for EMU Membership ................................... 35
1.0 Introduction
Introducing this report, the events leading up to the problem approached are being outlined, giving context to further discussion and background to the situation and environment from which this study is drawn. The discussion is then narrowed down towards the problem approached in, and the purpose of, this study.
1.1 Context and Background
“I want the whole of Europe to have one currency; it will make trading much easier” – Napoleon Bonaparte, 1807, quoted in Johnson & Turner, 2006 p162
The Single European Act in 1992, specified that an Economic and Monetary Union (EMU) was an objective of the European Union (EU). In the same year, the Maastricht Treaty outlined the following three-stage process for achieving this EMU (Hitiris, 2003):
Stage 1 (1990-1993). All current currencies within the European Community should join the Exchange rate Mechanism (ERM), which simply means that exchange rate variability between EU states is reduced in order to achieve monetary stability in Europe. This was however not what happened, since Greece remained outside until 1998 and the UK and Italy withdrew in 1992.
Stage 2 (1994-1998). The establishment of the European Monetary Institute (EMI), which defines the procedures and instruments within the European Central Bank (ECB) and monitors the economic situation within the member states. Monetary policy is however being monitored by the national central banks during this time.
Stage 3 (1999). Exchange rates are locked and the European EMU policy is implemented by the ECB and the national central banks. 11 of the then 15 member states joined the EMU when it was launched on 1 January 1999, Greece joined 1 January 2001 and the UK and
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Denmark has an ‘opt-out clause’ for joining. Sweden, who joined the EU in 1995, is not a member of the EMS and was judged to have failed the EMU criteria. Euro banknotes and coins were introduced January 1 2002 and thirteen countries within the European Union has currently adopted the euro as their common currency (the eurozone), namely Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and most recently Slovenia (European Commission, 2007). Since the time of Prime Minister Mrs Thatcher in the 1980’s, there has been a British belief in the Single European Market, as the ultimate form of economic integration. In this, an organisation can be created to optimise market conditions without transferring power from the national to the supernational level. Under the leadership of Mrs Thatcher’s successor John Major, the United Kingdom has chosen not to participate in the third stage of the Economic and Monetary Union, therefore not implementing the euro, keeping the same broad reservations (Johnson & Turner, 2006). Joining the ERM in 1990, the United Kingdom exited again in 1992, following a surge of Pound Sterling selling on the world’s exchanges, leading to currency speculation, an estimated £10bn spending on trying to bolster the pound back up, and an interest rate as high as 15% (Elliot et al, 1992).
This coincided with currency speculation and exchange rate crises elsewhere in Europe, creating, in effect, financial instability and a serious threat to the ERM. Italy experienced a similar situation to that in the United Kingdom, and opted out of the ERM as well. In Sweden and Finland, sharp depreciations of their currencies, speculation and a general economic recession lead to their abandonment of fixed exchange rates, and both countries were effectively relieved of their informal commitment to the ERM (Neal, 2007). The main reason given for the UK’s delayed entry into the EMU, however, was the perception that not all of the EMU states were at the same stage of the trade cycle (Johnson & Turner, 2006).
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In 1997, the British Chancellor of the Exchequer laid out five economic tests that need to be satisfied before the UK would re-enter the Exchange Rate Mechanism (Johnson & Turner, 2006). These included (El-Agraa, 2004 p172): ? ? ? ? ?
the compatibility of business cycles and economic structures flexibility to deal with problems arising if the euro would encourage long-term investment in the UK how the competition in the financial service area would develop if the euro would lead to more jobs, stability and growth
Six years later, in 2003, the Chancellor announced that the United Kingdom had not become satisfied with the results from these tests, as the only test passed was the one relating to the financial services, and will therefore not join the EMU in the near future (Johnson & Turner, 2006).
1.2 Discussion of the Problem
The single market combined with the euro will have profound implications for businesses, especially for the multinational players. EMU and its single currency eliminate businesses exchange risks, reduces their transaction costs, increase price transparency and competition, and creates bigger and more efficient financial markets (EIU European Policy Analyst, 2002).
Not only the second biggest economy in the European Union, but the fourth biggest in the world, the United Kingdom is regarded as the headquarters and primary EU location for many major multinational companies. The fact that the UK is not participating in the eurozone can have a negative effect on foreign investments and the competitiveness of UK companies. Furthermore, there is a case of decreasing Foreign Direct Investments (FDI) in the UK related to other EU countries that can possibly be explained by their non participation of the euro (Johnson & Turner, 2006).
However, statistical data has shown that the UK has had a greater GDP growth between 2002 and 2004 compared to the eurozone. Its ‘GDP per head quota’ in 2005 were also greater than
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in the eurozone. Furthermore, inflation and unemployment levels are substantially lower in the UK than in the eurozone states (ibid).
Figure 1 Data comparison – GDP, unemployment and inflation (Source: Johnson and Turner, 2006 p. 179) Furthermore, Patrick Minford (2004), in his investigation of the British relationship with the Euro, concludes that the exchange risk gains from adopting the Euro in the UK might well be more than offset by the greater volatility in the relationship between the Euro and the US dollar, than between the Pound Sterling and the USD.
Nonetheless, as the EMU continues to expand, the benefits for European business will increase (Ibid.). Additionally, it seems a logical conclusion that most of the benefits of the European integration would have a direct impact on business within the monetary union, and the goals of integration are in many cases directly linked to business and their operations.
Minford (2004) uses a set of gains and costs which he finds most relevant to weight against each other in the assessment of the UK’s hypothetical introduction into the EMU collaboration. These are used throughout this study as points of reference and models for our 4
hypotheses and include (gains): (1) reduction in transaction costs of changing currency, (2) reduction of exchange risk leading to greater trade and foreign investment with the rest of Europe, and to a lower risk-premium embodied in the cost of raising capital, and (3) increased transparency in price comparison, as well as (costs); (1) the difficulty of dealing with shocks without the use of independent interest rate and exchange rate movements; (2) the effects of “harmonization” initiatives associated with the EMU and (3) the concerns that we could be involved in the bailing-out of continental countries with financial problems particularly associated with state pension deficits.
Costs of joining the EMU can be seen as benefits for the stakeholders of staying outside of the single currency partnership. The study focuses on costs in terms of lack of economic convergence, lack of political stability, weakening of the UK economy as a whole, trading in a less stable currency and conversion of accounting and administration tools.
As discussed further in section 2.4, Selection of companies, the authors chose to target a group that theory told us would be most affected by the issues raised in this report; big companies with high levels of cross-border trade (EIU European Policy Analyst, 2002).
Consequently, the focus of this research will be to investigate how the perceived consequences for businesses outside of the eurozone, more specifically in the Chemical Manufacturing Industry of the United Kingdom, affect the desire for a UK EMU membership among the companies investigated.
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1.3 Problem Definition
Through the perspective of UK chemical export companies, is a UK membership of the EMU desirable, and if so, which perceived benefits and/or costs of such a membership have the strongest impact on this desire, and what roles do size and levels of imports/exports play?
1.4 Purpose
Based on the problem discussion, the approach of this paper is to find if there is a general trend within the bigger corporations, more specifically the exporting chemical manufacturers acting in the UK towards a ‘pro’ or ‘against’ stance towards a future integration of the common currency. Subsequently, theory is compared with the views of the companies.
Babbie (2004) lists three distinct purposes of research; exploration, description and explanation. Of these three, exploration is aimed at learning more about a subject that is relatively unknown to the researchers, as the business perspective in the UK towards the euro is to the authors of this report. Thus, the purpose of this study could be described as the exploration of the chosen subject. On the other hand, Sunders et al (2007) pinpoints the explanatory purpose as, for example, the quantitative collection of data for statistical analysis of correlations and other relationships. This would suggest that this report uses a combination of these two approaches.
The percieved added value of this study to existing knowledge in academia is the perspective of the companies identified as stakeholders in the approached problem, as opposed to the scholars of economics and politicians represented in the theory reviewed.
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1.5 Hypotheses
In a classic approach to statistical study of quantitative data, this report follows the line of disproving null hypotheses, H0, to substantiate the alternative hypotheses, H1, for example (Jacobsen, 2002).
Derived from the background of the problem approached in this dissertation and the discussion found in reviewed studies, the main question that this dissertation aims to explore is whether or not the questioned companies would like to see a UK membership of the EMU. Then, from this, attempts to identify reasons for these opinions will be made on the basis of reviewed theory and investigated hypotheses as found in our research.
Primary hypothesis
H1) UK chemical exporting companies want a UK membership in the EMU. Secondary hypotheses
H2) Issues of size and levels of exports/imports are factors in determining desire for a membership.
H3) Reducing transaction costs is a factor which has a strong impact on the business desire for the UK to join the EMU.
H4) Elimination of exchange rate uncertainty is a factor which has a strong impact on the business desire for the UK to join the EMU.
H5) An increase of Foreign Direct Investments (FDI) is a factor which has a strong impact on the business desire for the UK to join the EMU.
H6) Perceived costs influence the overall desire for a UK EMU membership towards a nullification of the primary hypothesis.
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2.0 Methodology
In this section, the structural and theoretical approach is described from a scientific perspective, as well as the actual processes and practices used.
2.1 Approach to Research
As the first question to answer in any study or research, the issue of relevance needs to be confronted before any valuable deliberation can be made about other aspects of the work. Research needs to be ‘worthwhile’, and should relate to existing knowledge and needs (Denscombe, 2002). To this, the integration of the European Economies could quite arguably be considered a very topical subject and the perspective of businesses in the country of study to be an interesting and meaningful thing to investigate.
In following the general approach to studies within the social sciences popularised as early as the time of Hippocrates, a positivist mindset has been adopted in this report. This really just means that the aim is an objective projection of the problem faced, and to emphasise only that which is directly observable (McQueen & Knussen, 2002).
As the answers to the questionaire used in this survey represent the subjecitve opinions of individuals, the authors realise that objectivity will only be reached when findings are accumulated with other research and theory within the area of study.
Saunders et al. (2007) describes the two different approaches that are commonly used in scientific research; deduction and induction. Briefly, deduction is described as a way to test theory by collecting empirical data and compare it with a hypothesis. Induction on the other hand is used as a method to build theory from the analysis of empirical data. Since the purpose is to investigate the practices and perceptions of particular companies towards the issue presented through the collection and analysis of measurable data, the deductive approach seems to be the most applicable, and the only plausible in the persuit of quantitative analysis according to Jacobsen (2002).
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A risk taken in the adoption of this approach is that the information collected is limited by what the surveyors have found to be relevant. An attempt to approach this risk has been made in the inclusion of the last, open question, of the questionnaire.
2.2 Sources of Literature
Putting together the existing knowledge and establishing an overview of the history, development, current situation and perceived future prospects of the investigated question constituted the first step in this study. Two main categories emerged during this process, in the form of the academic books mainly discussing the historical and theoretical framework of the European Union, the common currency and the United Kingdom’s parts in this, and other topical resources giving the authors insight into the debate surrounding the study, academics’ and experts’ view on the topic and even, in some cases, historical facts. These have mainly taken the form of journal articles, from reliable, respected and where applicable reviewed sources, and institutional publications and speeches. In review of our references, we can establish that no bias – e.g. political – articles or opinion pieces have been used as bases for the information used in this study.
Access to the academic books has been gained through the libraries of the University of Lincoln and the University of Westminster, both in England, and from the curriculum of the authors’ earlier studies at Halmstad University, and the other topical resources through online search engines and databases such as:
Primarily ? Factiva, Business Source Premier and ABI/Inform
Secondarily ? ? ? Google.com Newspapers’ Online Archives Institutional Online Archives
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In searching these databases for articles, publications and other resources, some of the main keywords used in the queries have been:
EMU, COMMON CURRENCY, SINGLE MARKET, EURO AREA, EUROZONE, SINGLE CURRENCY AREA, EUROPEAN INTEGRATION, EUROPEAN BUSINESS, UNITED KINGDOM, UK, FDI, FOREIGN DIRECT INVESTMENT, EXCHANGE RATE,
TRANSACTION COSTS, PRICE TRANSPARENCY
2.3 Approach to Study
Using the deductive approach emphasises the collection of quantitative, measurable data. Collecting a substantial amount of measurable data from a large number of respondents allows for analysis through rigorous statistical tests, compared to using a qualitative approach aimed at a closer investigation of smaller group of respondents (Saunders et al. 2007).
Surveys, within the confines of quantitative data gathering, are described by Babbie (2004) as an appropriate alternative when aiming to collect original data for describing a large population, and an excellent way of investigating attitudes and orientations in a large population. Furthermore, of the different ways to carry out surveys, the structured questionnaire is identified as essential to survey research and widely used in many other forms of study, such as experiments and field research.
2.4 Selection of Companies
Concepts central to the value of a representative projection of investigated questions in a larger population, are probability sampling and the interlinked random selection. The latter is the most widely used in modern research within the social sciences, and is seen as the best way to gain a valuable representation of a studied population when the characteristics of the same are reasonably homogenous, creating a sample of with high probability to reflect the whole population. On the other hand, when large distinctions between possible respondents, and more importantly; when knowledge of a population gives the researcher insight into factors giving
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certain respondents a better position or opportunity to reflect the relevant information, a purposive or judgemental sampling can create a more representative selection. This approach is referred to as non-probability sampling (Babbie, 2004).
With this in mind, the authors chose to target a group that theory told us would be most affected by the issues raised in this report; big companies with high levels of cross-border trade (EIU European Policy Analyst, 2002).
As the main exports of the UK are manufactured goods, chemicals and foodstuffs (BBC News, 2007).
According to the Chemical Industries Association (2007), the chemical manufacturing industry is the biggest exporter among the sub-sectors of the manufacturing industry as a whole, and the 188 full members of the CIA was therefore selected as the target group.
The UK Office of National Statistics confirms the position of the chemical manufacturing industry as the main UK exporter in a division and quantification of manufacturing sectors for the third quarter of 2007, as well as the great gap between the manufacturing industry and the second largest export sector (ONS, 2007).
Some basic fact of the chemical manufacturing industry in the UK (CIA, 2006): ? ? ? ? ? ? ?
Turnover 2003 incl. merchanted goods (imported and re-sold) estimated at £50 billion Domestic sales 2003 of £34 billion 92% of domestic production was exported in 2004, 61% of which to the EU In 2004, exports exceeded imports by £4.5 billion Biggest sub-sector by far is pharmaceuticals (37% of gross value added by the chemical manufacturing industry in 2003) Total gross value added by the industry in 2003 amounted to 2% of the UK GDP Provides direct employment to 214,000 and supports several hundred thousand additional jobs
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Furthermore, the European pharmaceutical market, as part of the chemical manufacturing industry, alone, is the fifth biggest industry in the whole EU (Timur et al, 2007).
2.5 Collection of Data
Having chosen to investigate the questions through a structured questionnaire survey of 188 chemical exporters, the authors agreed that the most efficient method to retain the wanted information would be to approach the companies by electronic mail, attaching an URL-link to a web-based questionnaire. Using a specialised online service, free for basic users but requiring a minor subscription fee for the purposes of this survey, an online questionnaire was created with relative ease, where an account allowed continuous survey of responses and exportation of statistics.
Accuracy in research needs to be assured through the consideration and strict control of all parts of their work being; neutral, without bias of results due to issues of techniques used for data collection etcetera, and; consistent, throughout the study of different situations and respondents (Denscombe, 2002). This has been kept in the minds of the investigators during their work, thus ensuring the maximised value of the results.
In order to increase the number of respondents to the study, Jacobsen (2002) propose several precautions to be regarded.
Anonymity
The participants are guaranteed anonymity through the absence of data collection that can connect responses to the identity of the company. All respondents have been contacted by an e-mail with solely them as the receiver.
Clarifying the Purpose of the Study
When contacted to participate in the study, a brief summary of the study intended has been outlined in the body of the e-mail (see attachment 4 for the e-mail sent).
Using Rewards
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The companies are offered to receive a copy of the final report simply by replying to the email received.
Design and Extent of the Questionnaire
The aim of the questionnaire is to have an appealing design and clarity regarding the information wanted. Asking only questions which are suitable for the study intended (see attachment 3 for full survey with answers).
2.6 Weaknesses in Methodology
Generalisation in studies of a representative selection from the investigated population will always be a weakness, as long as the investigator has to project the observed phenomena to unstudied actors in the environment (McQueen & Knussen, 2002). While this is an issue that needs to be considered in any study of this type, the authors believe that in doing so, they have been able to control the extent to which this affects the value of the findings.
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2.7 Credibility
Saunders et al (2003) states that in order to reduce the possibility of getting answers wrong, it is important to assess the reliability and validity of the research made. This depends largely on the design and structure of the questionnaire and its questions. Hence, a valid question will enable accurate data to be collected and a reliable question ensures that the data is collected consistently.
There are four stages that must occur in order for a question to be reliable and valid (ibid). Firstly, the researcher must be clear about the information required when designing the question. Secondly, the respondent decodes the question in the way that the researchers intended. Thirdly, the respondent answers the question. Finally, the researcher decodes the answer in the way the respondent intended.
Keeping this in mind, the questionnaire was compiled with a coherent design using a limited variety of commonly used scales and possible answers. The questions are almost exclusively closed ones, as this forces the respondent to consider all possible responses.
In order to ensure the validity of collected data used, Chi-Square testing has been applied in order to see how probable it is that the data could occur by chance alone.
Furthermore, to increase the reliability and validity, the questionnaire has been reviewed by the academic supervisor responsible for final assessment of this report.
2.8 Response Rate of Questionnaire
The selection of companies resulted in a total of 188 businesses from the member list of the Chemical Industries Association (CIA, 2007). After researching the websites of the companies, looking for valid contact addresses, a mail list of 116 unique businesses was compiled. In order to assure a high response rate, the ‘request for participation e-mail’ was succeeded by a reminding e-mail, sent out 5 times with intervals of approximately 10 days between each send-out.
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As the final compiling of responses was undertaken, a database of 83 valid responses had been aggregated. To avoid distortion of the empirical data, 9 invalid respondents were filtered out, mainly due to failure to complete the survey.
Saunders et al (2003) describes how to calculate the total and the active response rates:
The total response rate: (total number of responses) / (total number in sample - ineligible) = total response rate (92) / (188 - 9) = 0.514 = 51.4 % The active response rate: (total number of responses) / (total number in sample – (ineligible + unreachable)) = active response rate (92) / (188 – (9+72) = 0.860 = 86%
2.9 Respondents
When designing the questionnaire, an attempt to find out more about the respondent while maintaining anonymity was made in the form of their role in the company (Question 1). The motivation behind this was to attempt to find trends in opinions between different types of respondents, e.g. between financial roles and marketing or operational roles. However, this was at best a secondary goal in the overall purpose. Moreover, as 77,1% of the respondents could not be categorised by the alternatives in the question – selecting the “Other” response) – this attempt was mute. Another motivation behind Question 1 was to ensure that the respondents had roles in the companies which gave them sufficient experience of and insight into the topics surveyed. In analysis of the risk in not knowing the role of these 77,1% respondents, we find that the findings of the survey cannot be seen as representative of a certain profession. However, in review of the identification of and contact with respondents, it appears unlikely that the questionnaire reached roles which were not qualified to respond.
2.10 Non-response
Analysis of the non-respondents starts with a review of the e-mail send-outs. The neutrality of these e-mails was meticulously approached. Thus, bias would appear unlikely. A greater interest in the surveyed questions in the “Yes” camp of the EMU discussion than within their opponents’ cannot be ruled out, but neither has it been proven. However, one reason for non-response may be that the questionnaire did not reach a role in the company identified by recipients as familiar with these topics.
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3.0 Theoretical Framework
This section focuses on the business environment in the United Kingdom, and describes how the euro can affect companies in the country, based on theoretical discussion.
3.1 The Single European Market
There are currently 27 member states within the European Union, with Romania and Bulgaria being the most recent joiners at January 1st 2007 (Europa.eu, 2007).
In the framework of the European Union, there are four fundamental standards, often called the Four Freedoms, which have been adopted. These are free trade in goods, free trade in services, free mobility of capital and free mobility of labour (Hitiris, 2003).
Benefits of the development of a single market can be summarised into the following five categories (El-Agraa, 2004, p190): ? ? ? ? ?
businesses and consumers benefit from price reductions producer power decreases and innovation and product development are stimulated due to the increased market competition producers gain opportunities to realise economies of scale by the broadening of their markets regulatory interventions are refocused, leading to modernised processes and elimination of unnecessary duplication the economy can increase its aggregate output due to the improvements in resource allocations, if the factors of production are fully employed
It is said that the Single European Market provides the platform for the European Economic and Monetary Union (Johnson & Turner, 2006).
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3.2 The European Economic and Monetary Union (EMU)
EMU, the European Economic and Monetary Union, is regarded as the possible next stage of integration after the Single European Market. Separate national currencies are seen by many as one of the remaining barriers to a complete, barrier-free single market within the European Union (Johnson & Turner, 2006).
National currencies cause random price fluctuations due to exchange rates, disturbing the integration process (Hitiris, 2003). The basic case in favour of a monetary union rests on the desirability of eliminating exchange rate uncertainty, which hinders trade and investment. The adoption of a single currency eliminates this. Facing exchange rate uncertainties is regarded as a risk that leads to explicit costs if it is to be avoided. Since exchange rate risks affect trade in both directions, it tends to reduce a country's exports and imports and with regard to the EU, the single market has led to a substantial rise in trade among the member states. With only one currency to trade in, transaction costs for converting currencies are being eliminated (Tavlas, 2004). However, some evidence has suggested that the growth of intra-European trade has been more a result of globalisation and the Single European Market than benefits from the common currency (Schönberg, 2007). The intention of the euro can be regarded as a way to give equal benefits to European firms as the need for hedging against exchange rate fluctuations disappears, and the cost savings from this can be used to lower customer prices. Moreover, the unified financial environment that the EMU provides gives opportunities for firms as the cost of capital converges (Grambovas & McLeay, 2006).
Furthermore, a single currency leads to less market segmentation due to an increase in price transparency, thus simplifying price comparisons. This leads to increased competition and more effective markets. Conversely, open economies, like the UK, risk facing unstable price levels if the exchange rates are unstable. Additionally, the more a currency is being used, the more useful it is, giving economies of scale for account and exchange functions (Tavlas, 2004).
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Benefits of integrating regional economies in an Economic and Monetary Union are (Johnson & Turner, 2006): ? ? ? ? ? ? lower interest rates elimination of transaction costs in intra-EMU trade removal of exchange rate uncertainty in intra-EMU trade aiding the development of a genuine Small and Medium-sized Enterprise (SME) by increasing price transparency and promoting international specialisation removal of the option of competitive devaluations between member states an international currency to represent the combined economic weight of the economies
Pelkmans (2006) mentions additional benefits through the weakening of unjustified favouring of domestic businesses, i.e. ‘home bias’, and other forms of protectionism.
3.3 The Business Environment and the European Integration
Johnson and Turner (2006) states that some of the strongest advocates for a European integration have in fact been businesses, the launch of the SEM and the EMU received a lot of pressure from for example the European Roundtable of Industrialists who are an informal forum of around 45 chief executives and chairmen of major multinational companies based in Europe, covering a wide range of industry and technology sectors (ERT, no date).
Common business challenges and opportunities from integration are the following (Johnson & Turner, 2006, p54): ? ? ? ? ? ? ?
financing opportunities through integrated capital markets operational efficiencies derived from economies of scale possible harmonisation of labour conditions exploitation of the international division of labour greater price transparency pressure upon costs and prices stimulus to product innovation
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? ? ? ? ? ?
reorganisation of production and distribution systems on a transnational basis rationalisation of product lines development of networking relationships enhanced value-added from more diverse sourcing opportunities greater opportunities within foreign markets greater intensity of competition within domestic markets
The single market combined with the euro will have profound implications for businesses, especially for the multinational players. EMU and its single currency eliminate businesses exchange risks, reduces their transaction costs, increase price transparency and competition, and creates bigger and more efficient financial markets (EIU European Policy Analyst, 2002).
A paper by Bris (2003) reveals that the euro has increased the value of the firms that are expected to benefit the most from the elimination of currency costs, namely big businesses within the eurozone. It has also lowered the cost of capital for businesses.
Minford (2004) divide the main benefits for businesses into the following three categories:
Reduction of transaction costs in changing currencies
Businesses benefits from the elimination of costs for converting one national currency into another within the EMU. Efficient financial markets lead to reduced costs and increased access to capital for European companies (Minford, 2004).
Reduction of exchange risk
Since currency risk is eliminated within the EMU, the need to hedge business transactions is no longer needed, simplifying the investment planning process. This leads to greater trade and foreign investments with the rest of Europe (Minford, 2004).
Bigger markets and price transparency
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The marketplace within the EMU is the second biggest in the world next to the US (EIU European Policy Analyst, 2002). The integrated market leads to consumers more willing to purchase across national boundaries. Not affected by exchange-rate variation or the complexity of comparing different currencies (Minford, 2004). If price transparency is effective, it will force prices down by increasing competition in supplier markets and reducing the prices of intermediate goods in business to business transactions (Reid and Smith, 2003). However, the big pharmaceutical market is still one of the most segmented markets within the EU by demonstrating big price differences between countries (Timur et al, 2007). Price transparency has lead businesses to develop strategies to avoid losses in profitability. Common ways to do this is by using variable pricing where prices are matched to variations in market conditions, asking the customer how much they are willing to pay or to simply set the price at any instant to match supply to demand (Reid and Smith, 2003).
3.4 The United Kingdom and the EMU
The fact that the UK is not participating in the eurozone can have a negative effect on foreign investments and the competitiveness of UK companies. Figure 2 reveals a decrease in Foreign Direct Investments (FDI) in the UK related to other EU countries since 2000. Johnson and Turner (2006) suggest that this can be explained by UK’s non participation of the euro.
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Figure 2 Inward FDI in $ USD (Source: Johnson and Turner, 2006 p. 181) Some major UK enterprises have identified major impacts from the common currency even though they are located outside of the eurozone, and have shifted their accounting to the euro. This pressures small and medium-sized enterprises (SMEs) to face the cost of operating dual currency systems or risk potential losses (ibid).
Reid and Smith (2003) states that the UK firms that trade in the European Union have had to become more euro-literate. They argue that it is better to take on the currency risk and transaction costs by tendering, pricing and invoicing in euros than to retain the pound sterling pricing and risk losing market share.
Minford (2004) means that the greatest savings in reduced transaction costs are found where transactions are small and where banking systems are less advanced. Since Britain has advanced systems, the savings are said to be around 0.1 percent of GDP. The changeover cost for joining the EMU is estimated to be £30 billion. He calculates that this mean that the cost of joining the EMU and the gain in reduced transaction costs can be a zero-sum gain.
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The impact of price transparency has been seen in for example the pesticide industry, where UK suppliers had to drop their price radically in 2002 in order to compete with the continental Europe. Prices within whole industries were dropping as the eurozone transparency washed its way over Britain (van den Bos, 2003).
Even though there is theoretical gain for businesses if Britain where to join the EMU, research revealed in 2006 that 56.7 percent of UK exporters would say no to the euro (Business Credit, 2006).
“So much barbarism, however, still remains in the transactions of most civilised nations, that almost all independent countries choose to assert their nationality by having, to their own inconvenience and their neighbours’, a peculiar currency of their own.” - John Stuart Mill, 1848, quoted in Hitiris, 2003 p127
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4.0 Empirical Data
In presenting the collected quantitative data from the survey, this section provides statistical support for the findings, briefly discussing some correlations between answers, and tries to paint a picture of the investigated population in light of the perspective of the theoretical framework. The survey itself, complete with questions and answers, can be found in Appendix 3, and a small reference guide to statistical terms in Appendix 1.
4.1 Opinion on the EMU: The Main Question
As the final question in the distributed questionnaire, not counting an open field for feedback and opinions, the respondents were asked if they, through their perspective as representatives of their respective company, would like to see a future UK membership of the EMU.
Figure 3 Desired membership of the EMU This question, which the rest of the survey is, in one way or another, building up to, lies at the core of this investigation into the questioned companies’ perspective on a UK membership of the EMU. In the rest of the survey, different attempts have been made to create an understanding as to why this particular, Yes or No, view has been taken. 23
Presented in figure 1 are the answers to the question. Out of 83 respondents, 56, or 67.5%, wanted to see a UK membership in the EMU.
4.2 Size of Companies and Imports/Exports
Exports
One of the first hypotheses presented by the Theoretical Framework outlined earlier in this report is that bigger companies, with high levels of cross-border trade, would enjoy the greatest benefits from an economic monetary union. This is also part of this investigation’s second hypothesis put forward in the beginning of this report, that size and levels of import/export would be contributing variables in the investigation of desire for an EMU membership.
Figure 4 presents a series of tables (4.1ab-4.2ab) with some cross-tabulations from the survey, processed in the SPSS analytical software. These show the frequencies in answers to the question of desired membership of the EMU, as distributed among respondents on merit of UK turnover attributed to exports (a), and part of these exports that goes to EMU member states (b).
When investigating an association between variables in a data source, the Chi-Square test provides a probability rating of any observed association happening by chance, and thus enables its user to discard null hypotheses and effectively prove associations.
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Figure 4 Statistics – Exports and Desired Membership of EMU 4.1a) Cross-tabulation 4.1b) Cross-tabulation
Future EMU membership? Yes 0-9,9% UK turnover attributed to exports 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 3 0 1 0 5 6 12 8 12 9 0 56 No 7 6 3 2 2 1 1 1 2 1 1 27 10 UK exports to the EMU members 6 4 2 7 7 13 9 14 10 1 83 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% Future EMU membership? Yes 1 1 2 1 2 8 14 17 7 3 56 No 5 0 1 0 5 1 4 4 5 2 27 6 1 3 1 7 9 18 21 12 5 83
Total
Total
Total
Total
Saunders et al (2007) describes the prerequisites to performing these tests, including having no more than 20 per cent of the cells associated with a value less than 5. The accepted solution is to combine rows and/or columns as seen below (figure 4.2ab).
4.2a) Cross-tabulation
Future EMU membership? Yes UK total exports 0 - 49.9% 50 - 100% 9 47 56 No Exports EMU 20 7 27 29 54 83
4.2b) Cross-tabulation
Future EMU membership? Yes 0 - 49.9% 50 - 100% 7 49 56 No 11 16 27 18 65 83
Total
Total
Total
Total
Now, in these new cross-tabulations, the data is narrowed down into four cells, and is left with only one degree of freedom ((2-1)*(2-1)). Referring to the Chi-Square Table of Significance (see Appendix 1) found in Jacobsen (2002), the data produced in Chi-Square tests (See Appendix 2, tables 1 and 2) of these cross-tabulations constitute proof that there is very little risk for the association found between the variables to have been produced by chance.
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Both tests have a limit test value of 6.53 for 1% significance, and the Total Exports test reaches a value of 26.96, and that of EMU Member States Exports 8.56, which means that there is a statistical certainty of at least 99% that there are real associations between these variables. Thus, the null hypothesis of “There is no association between these variables” can be statistically discarded.
Furthermore, even the initial cross-tabulations paint a picture to the naked eye of increased desires for the UK to join the EMU as the level of exports increase.
Looking at the strength of the association, in terms of correlation between these variables, Spearman’s rho test is a statistical tool for measuring the level of correlation. Applied to the original data with all cells intact, the exports as part of turnover correlates negatively at -0.479, and the amount of exports that goes to the eurozone at -125 (Appendix 2, table 3). The first is a medium strength correlation, and the second shows no proven correlation at all.
The negative value is explained by the fact that a Yes answer in the survey to the question on EMU membership has been given the value 1, and No the value 2. Hence, an increase in exports leads the answers towards a desired membership in the EMU, or a Yes, with the lower numerical number, creating a negative correlation.
When calculated on the 2*2 matrix, both correlations are significantly strengthened, and the total exports show quite a strong correlation at -.570, while the EMU part is lifted above the limit for a weak correlation (+/-0.3) at -.321 (table 4 in Appendix 2). Emerged as the main “contributor” to the desire for membership, exports to EMU member states also seem to be on the rise since the introduction of the monetary union.
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Figure 5 Perceived Changes in Imports/Exports Here, when grading the “scale” from Decreased Significantly to Increased Significantly into numbers from 1 to 5, a mean value can be found of the perceived changes of exports to member states since the introduction of the euro in 1999 of 3.65, and of imports of 2.96. Roughly 41% of respondents has seen exports increase slightly, and 19% significantly. The same numbers for imports are approximately 23% and 6%, and more respondents have seen a decrease than the reverse.
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Imports
In terms of quantifying the imports of the respondents to this survey, beyond the perceived changes described above, the question asked was how much of their imports came from EMU member states.
Figure 6 Imports from EMU Members and Desired Membership of EMU 1. Cross-tabulation
Future EMU membership? Yes 0-9,9% Imports from EMU member states? 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 5 6 7 13 9 10 2 2 0 2 56 No Imports from EMU? 3 2 6 5 4 3 1 0 1 2 27 8 8 13 18 13 13 3 2 1 4 83 0 - 49.9% 50 - 100%
2. Cross-tabulation
Future EMU membership? Yes 40 16 56 No 20 7 27 60 23 83
Total
Total
Total
Total
Noticeably, and in complete contrast to the EMU member state exports, the large majority of respondents source less than 50% of their imports from the eurozone. Apart from this, this variable seems to have little association or correlation to the question of desired membership in the monetary union. Having tested the Spearman’s rho (Appendix 2, table 5), no correlation is found between the variables (-.034). The Chi-Square test (table 6) for the original data cells find a test value of 5.72, well below the 5% significance for 9 degrees of freedom (limit of 16.92), and carries 65% of the cells with sub-limit respondents (less than 5). When confined to a 2*2 grid of responses, and thus 1 degree of freedom, all cells are above the 5 response limit, but the value for significance is a mere 0.064 (table 7).
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Figure 7 Belief that an Enlargement of the EMU Would Mean New Suppliers Above, the question of the companies’ perception on how enlargement could bring new suppliers is presented, along with the respondents’ answers. Here, 49% of the respondents disagreed or strongly disagreed with the statement, and only 22% agreed.
Size
As for size in terms of turnover, the data suggests a correlation, but in terms of Chi-Square, it is harder to prove statistically that the association was not created by chance. This is due to the wide spread of company turnover among respondents, with many of the cells in between left blank.
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Cross-tabulation
Future EMU membership? Yes 0-99 999 999 100m – 199 999 999 Turnover, in GBP (£), in the UK 200m – 299 999 999 300m – 399 999 999 400m – 499 999 999 500m – 599 999 999 600m – 699 999 999 700m – 799 999 999 800m – 899 999 999 900m – 999 999 999 ?1 000 000 000 13 16 7 6 1 5 1 3 2 2 56 No 21 3 2 0 1 0 0 0 0 0 27 34 19 9 6 2 5 1 3 2 2 83
Total
Total
Figure 8 Turnover and Desired Membership of EMU In a test for correlation, namely Spearman’s rho, these two variables show a value of -0.503, indicating a medium strength negative correlation.
However, in terms of Chi-Square, this cross-tabulation has 75% of its cells under the minimum of 5 respondents, making conclusions from a test unreliable. In joining cells together, and decreasing the levels of freedom, a Chi-Square test gives the value 7.43, which indicates with 99% certainty that the association between these two variables is real and not coincidental, while there are still 25% of the cells with under 5 respondents, making it impossible to actually discard a null hypothesis in terms of the turnover variable.
For review of these tests, please refer to Appendix 2, tables 9 and 10, and for the correlation, see table 8.
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4.2 Benefits of an EMU Membership
Identified in the Theoretical Framework are some benefits for businesses in joining an economic monetary union.
As the main ones, most commonly mentioned in theory, this investigation has focused on three separate and distinct benefits; removal of exchange rate uncertainty; reduced transaction costs, and; increased Foreign Direct Investment flows.
Cross-tabulations
Cross-tabulation
Future EMU membership? Yes Elimination of Transaction Costs Strongly Disagree Disagree Neutral Agree Strongly Agree 0 1 35 20 56 No 17 4 6 0 27 17 5 41 20 83
Total
Total
Figure 9 Elimination of Transaction Costs and Desired EMU Membership When asked about the perceived benefits for their companies in a UK membership of the EMU, respondents were generally in agreement that the elimination of transaction costs would be a great positive in a future scenario of UK integration into the union.
About 49% of respondents agreed that this would be a benefit, 24% strongly agreed, and only 20% disagreed. No respondent strongly disagreed with this statement.
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Cross-tabulation
Future EMU membership? Yes Strongly Disagree Removal of Exchange Rate Uncertainty Disagree Neutral Agree Strongly Agree 1 0 31 24 56 No 18 2 7 0 27 19 2 38 24 83
Total
Total
Figure 10 Removal of Exchange Rate Uncertainty and Desired EMU Membership Removal of exchange rate uncertainty also received strong agreement from the respondents. This statement met more than 46% agreement and 29% strong agreement, only 23% in disagreement, and no strong disagreement.
Figure 11 Exchange Rate Fluctuations as a Problem When asked about exchange rate fluctuations as a problem for the companies, responses were generally in strong agreement.
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Cross-tabulation
Future EMU membership? Yes Strongly Disagree Increased Inflow of Foreign Investment Disagree Neutral Agree Strongly Agree 2 33 15 6 56 No 2 12 8 5 27 4 45 23 11 83
Total
Total
Figure 12 Inflow of Foreign Investment and Desired EMU Membership However, review of the responses to the statement of increased inflow of foreign investment as a result of a possible membership of the EMU shows more or less a reverse picture. A mere 13% were in agreement, none agreed strongly, and 59% of the respondents were in disagreement or strong disagreement with the notion of this benefit.
Correlation and Association
Statistical analysis of correlations between the desire for EMU membership and agreement with these three statements respectively through the use of Spearman’s rho show a very strong negative correlation between this desire and agreement with the two first statements, and almost none at all with the last one (table 11 in Appendix 2).
At -.812, the correlation between desired membership and the belief that this would lead to elimination of transaction costs has the strongest correlation of the tested data, approaching perfect negative correlation at -1.
Not far behind, is the -.775 negative correlation between said desire and belief in removal of exchange rate uncertainty.
On the other hand, there appears to be almost perfect independence between the desire for integration and belief that an increase in the inflow of foreign investment would follow, with a positive correlation of only .115.
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Associations to the main question in terms of significance proven by Chi-Square tests of 1% are strongly indicated towards both elimination of transaction costs and to removal of exchange rate uncertainty, with values of 56.018 and 52.665 respectively (limit at 3 degrees of freedom of 11.34). However, both tests carry 2 out of 6 cells with less than the minimum of 5 respondents, and consequently fail to reach the 20% requirement (albeit with only 5%) for the tests to be statistically conclusive.
As for the foreign investment statement, a Chi-Square test shows the very low value of 2.151, as well as 37.5% of the cells under the 5 respondent limit.
For full Chi-Square tests of these associations, please refer to tables 12-14 in Appendix 2.
4.3 Costs of an EMU Membership
Figure 13 Perceived Costs of EMU Membership As the main question showed quite a strong desire for a UK EMU membership, the bulk of statistical analysis has been focused on the reasons for this in terms of perceived benefits. However, if one was to investigate the reasons for not wanting to see such a membership, the costs listed in figure 11 could be influential factors.
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Clearly, the respondents to this survey have not seen the majority of these costs as influential in terms of their own businesses, apart from that of converting accounting and administration costs.
Looking at the correlations between agreement with these statements and the main question, there is a medium to strong positive correlation between all costs except for that of converting accounting and administration tools (see Table 12 below).
Correlations
Future EMU Membership? Correlation Coefficient Lack of economic convergence Sig. (2-tailed) N Correlation Coefficient Lack of political stability Sig. (2-tailed) N Correlation Coefficient Weakening of the UK economy as a whole Sig. (2-tailed) N Correlation Coefficient Trading in a less stable currency Sig. (2-tailed) N Correlation Coefficient Conversion of accounting and administration tools Sig. (2-tailed) N ** Correlation is significant at the 0.01 level (2-tailed). ,524(**) ,000 83 ,472(**) ,000 83 ,617(**) ,000 83 ,572(**) ,000 83 ,167 ,132 83
Figure 14 Spearman’s rho – Costs and Desire for EMU Membership
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5.0 Analysis
This part of the report contains analysis and discussion on the findings presented in the previous section of Empirical Data. Connections are made back to the hypotheses approached in this survey, outlined in the introductory part of the report, and attempts are made to tie the investigation together towards the conclusions.
5.1 Primary Hypothesis - Desire for EMU Membership
With a positive response to the main question of the questionnaire, “Would you, as a representative of your company, like to see a UK membership of the EMU, and subsequently an introduction of the Euro in the United Kingdom?”, of 67.5%, the main hypothesis, that UK chemical manufacturing exporters want a UK membership of the EMU, is supported.
Research presented in the Theoretical Framework showed a majority of UK exporters as negative towards a UK membership. This difference in results would suggest that the incentives for joining the EMU were stronger in the investigated population of this study.
The difference in opinion between respondents in the two surveys may simply be due to the size of the companies, as the companies surveyed in this study were chosen for their size and thus the size of their import/export and exposure to factors related to currency.
Meanwhile, while it is not clear in the Business Credit article what selection of UK exporters that is represented in these numbers, the reasons for their negative stance are listed: 43,7% believe it would contribute to a European super-state; 37,6% are concerned about the constitutional implications, and; 18.7% believe it would weaken relations with the U.S. These are not considerations taken into account in this study, and a comparison between the results is therefore difficult.
Several sources cited in the theory presented incentives for businesses to desire an EMU membership as strongest among larger companies with high levels of cross-border trade. If the surveyed population is, in fact, generally more in line with these factors, it should be due 36
to the deliberate selection of the investigators of a population which would fit these criteria, in order to gain the highest possible level of insight into which of the perceived benefits and/or costs that influences the desire most notably.
The approach of this study, and the design of the hypotheses tested, was designed so as to find out how the general opinion of this population in terms of a UK EMU membership is directed, and then, based on the theoretically portrayed benefits of such a membership for businesses of this type, attempt to shed light on the reasoning behind these opinions, or desires.
In terms of actually proving the hypotheses, this one can not really be assigned a null hypothesis to be disproved, as it is not quite absolute. It can, however, be said that there is a very strong trend in this population, and a strong majority, towards the desire for a UK membership of the European economic monetary union.
5.2 Second Hypothesis – Issues of Size and Imports/Exports
As mentioned above, theory suggests that these factors, of size and levels of cross-border trade, should play a major role in determining the extent to which companies will benefit from economic integration. Thus, a logical extension of these theories would be that larger companies that fit these descriptions would lean towards positive responses to the question asked for the primary hypothesis.
Statistical review of the level of exports in relation to answers to the question of EMU membership shows beyond reasonable doubt that these variables are associated, and null hypotheses to the contrary can easily be discarded. In short, companies with higher levels of exports, both in total, and to the eurozone in particular, tend to have a greater desire for integration. The strength of these correlations, as supposed to the ruling out of chance creating association between the variables, is quite strong in the case of total exports as part of turnover, and weaker but above the lower level of proven correlation with the EMU exports.
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In contrast, level of imports that these companies source from the eurozone, seems to have no real association or correlation to the main question. This was quite surprising, along with the fact that a clear majority of respondents did not see that an enlargement of the EMU would mean additional suppliers for the companies to source from. Theory says that economic integration brings greater price transparency, which, if effective, will force prices down, by increasing competition in supplier markets and reducing the prices of intermediate goods in business-to-business transactions.
When looking at size in terms of pure turnover, association to the main question is harder to prove beyond chance as the values of this variable are very disparate, but the correlation seems apparent on review, and carries medium strength when tested. All of these factors, as mentioned, have been put forward by theory, and all seem very logical when considering the increased impact of the following factors when business increases in size, and the percentage of turnover attributed to exports and that of total imports attributed to affected host nations rises.
5.3 Third to Fifth Hypotheses - Benefits of an EMU Membership
Again, theorists are agreed when stating that the following three benefits of economic integration should constitute strong incentives for businesses in terms of being positive towards a national membership of the EMU.
Elimination of Transaction Costs
Transaction costs are removed as conversion of currencies in trade become superfluous in the process adopting a common currency. Efficient financial markets follow, with reduced costs and increased access to capital. Naturally, companies with high levels of cross-boarder trade are affected by this, and should see it as a great positive of EMU membership.
A large majority of the respondents agreed with the statement that a future UK membership in the monetary union would create benefits for their business in the form of eliminated transaction costs, and only one fifth of the answers were in disagreement.
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The research found that many larger corporations – especially in economies with developed financial systems – will already have systems in place to reduce the costs of financial transactions related to currencies. This was not entirely corroborated in the findings of this study in that the respondents viewed reduction of transaction costs and simplified accounting tools as potential benefits of the UK joining the EMU. Furthermore, only about 36% of respondents stated that their company already used the Euro as one of their accounting currencies.
74,4% of respondents agreed with the statement that the conversion of accounting and administration tools would constitute a cost for the company if the UK was to join the EMU.
Correlation to the main question here was the strongest found in the investigation, closing in on perfect correlation between the variables. However, the extremely high value shown in a test for significance is somewhat clouded by the fact that answers failed to cover enough of the response options, making it impossible to completely rule out chance as having orchestrated the association, if only by a small margin.
Removal of Exchange Rate Uncertainty
In establishing a common currency, the need for hedging against exchange rate uncertainty is removed, creating a more equal marketplace, and allowing companies to use the capital saved to lower prices on their products and/or services. Also, the removal of exchange rate uncertainty, and thus of the need for hedging, simplifies the investment planning process, leading to more trade with the rest of Europe and increased foreign investment flows.
When asked about whether or not they see this aspect of integration as a possible benefit for their company in a UK membership of the EMU, most respondents were in strong agreement with theory, and the mean value of agreement (as graded between 1-5) was the highest in the study (3.81).
As for correlation and association to the question of desired EMU membership, this variable showed more or less parallel values to that of transaction costs, with the same strong
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correlation, and the slight margin making it impossible to positively discard a null hypothesis against an association between these two variables.
Increased Inflow of Foreign Direct Investment
Since the shift to the new millennium, the inflow of foreign direct into the United Kingdom has seen a sharp decrease. With theory supporting increased flows of investments across boarders of economically integrated countries, this is a possible great positive for business in general, and in light of recent developments, for that in the UK in particular.
However, the views presented in this study shows that these companies do not share this view with the theorists, and the numbers on agreement are essentially reversed from the two other benefits. If this is simply because individual companies fail to see this as a beneficial prospect for their particular businesses, or if it is an outlook that they generally do not believe in, the figures fail to disclose.
Furthermore, neither correlation nor association with the main question exists here.
5.4 Sixth Hypothesis – Costs of an EMU Membership
With the finding that the main hypothesis was in fact supported by the collected empirical data, the focus on explaining the underlying factors to this view among the companies fell naturally on the perceived benefits of a UK membership of the EMU and an introduction of the Euro in the United Kingdom. Thus, a review of the cost factors becomes more of a control of consistency in responses, as well as a means to explain why some of the companies would take a negative stance against the question of desired UK participation in the final stages of European economic integration.
Issues listed as possible costs, and generally not considered to be influential in deciding if the UK should join in with the rest of the eurozone and adopt the euro, include “lack of economic convergence”, “lack of political stability”, “weakening of the UK economy as a whole”, and “trading in a less stable currency”.
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All of these also show a medium to strong correlation to the question of the primary hypothesis, where respondents that want a membership show stronger disagreement in these issues.
The one cost that received a wide agreement among respondents was that of conversion costs of accounting and administration tools in the face of an EMU membership. Here, there was no correlation with the main question, as about three quarters of the respondents agreed with this cost, more or less regardless of views in other questions. This could imply that this cost was a given, which held little weight when put to the scales along with other issues on this general subject.
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6.0 Conclusions
In this final section of the report, conclusions are drawn from the findings of the study, and the discussions in the analysis, the hypotheses are confirmed and/or rejected and suggestions for further study are made.
6.1 Problem Defined
Through the perspective of UK chemical export companies, is a UK membership of the EMU desirable, and if so, which perceived benefits and/or costs of such a membership have the strongest impact on this desire, and what roles do size and levels of imports/exports play?
The hypotheses outlined and analysed in this study have been approached with this problem in mind. Straight away, the question of whether or not the investigated population would like to see a future integration of the UK into the European monetary union stands out as the main focus, and from this, the study continues to examine the underlying reasoning of the responding companies.
6.2 Hypotheses
H1) UK chemical exporting companies want a UK membership in the EMU As the main question asked in this study, this hypothesis has been directly supported by simply asking the respondents for a Yes or No answer, where a two-to-one majority were positive to such a prospect. Then, by elaborating on underlying reasoning to these opinions, H1 has been indirectly supported through strong trends in other data.
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H2) Issues of size and levels of exports/imports are factors in determining desire for a membership
Secondary data in the form of the theoretical framework to this study agrees with the primary data of the survey when it describes a correlation between the size and levels of exports of companies, and their desire for economical and monetary integration. In short, larger companies, with high levels of exports, have a greater desire for this type of integration.
However, the trial of this hypothesis also discovered an anomaly in terms of the views in theory on the correlation between levels of imports and desire for integration. Higher levels are known or believed to correlate with a desire for integration, while the study showed no such correlation.
H3) Reducing transaction costs is a factor which has a strong impact on the business desire for the UK to join the EMU
In complete agreement with secondary data in the theoretical framework, the survey showed a very strong correlation between beliefs in the reduction of transaction costs as a consequence and benefit of joining the EMU, and a desire for the UK to do so.
It should be noted, however, that chance could not be entirely ruled out as the creator of this statistical correlation.
H4) Elimination of exchange rate uncertainty is a factor which has a strong impact on the business desire for the UK to join the EMU
A strong correlation was shown in the study between a belief in the fact that a membership of the EMU would bring elimination of exchange rate uncertainty, as a benefit for respondents, and a desire for such a membership among these companies. This is in full agreement with the theoretical framework. However, the impact of chance on this finding could not be entirely ruled out.
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H5) An increase of Foreign Direct Investments (FDI) is a factor which has a strong impact on the business desire for the UK to join the EMU
In contrast to the perspective on increased inflow of foreign investment in reviewed theory as a benefit for business and consequence of EMU membership, the study of the UK chemical manufacturing industry showed little belief in this prospect in the surveyed population.
No correlation was found between the disbelief in this factor as a possible benefit of EMU membership, and the hypothesis can be discarded.
H6) Perceived costs influence the overall desire for a UK EMU membership towards a nullification of the primary hypothesis
As the primary hypothesis found support, this hypothesis can be instantly discarded.
However, a review of the perceived costs of EMU membership found correlations between disbelief in the impact of these costs, namely; lack of economic convergence; lack of political stability; weakening of the UK economy as a whole, and; trading in a less stable currency: and the desire for UK EMU membership.
The one cost that found support as a potential negative consequence of a membership was that of converting accounting and administration tools. Still, this seemed to have little effect on other variables and opinions.
6.3 Suggestions for Further Study
Interesting discoveries of this study that the authors would like to get the opportunity to investigate further in the future, were those of how levels of imports or the prospect of increased foreign investments did not correlate with the desire for a UK EMU membership. Additionally, a larger study with fewer “response cells” below 5 responses in order to rule out chance in correlations could be another goal for further studies.
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Babbie, E. (2004) The Practice of Social Research, 10th edition, Wadsworth/Thomson Learning, Belmont, USA BBC News (2007) Country Profile: United Kingdom, bbc.co.uk (Online), available from: http://news.bbc.co.uk/1/hi/world/europe/country_profiles/1038758.stm#facts, accessed on 2007-04-12 Bris, A. (2003) The euro is good after all, Canadian Investment Review, Vol. 16. Iss. 2, p 36 Business Credit (2006) 56.7 Percent Of UK Exporters Say ‘No’ To Euro, Business Credit. Jul/Aug 2006, p 35 CIA (2006) Facts and Figures – UK Chemical Industry, CIA (Online), available from: http://www.cia.org.uk/newsite/industry_glance/facts_leaflet_2006.pdf, accessed on 2007-04-10 CIA (2007) Full Members, CIA (Online), available from: http://www.cia.org.uk/newsite/membership/full_list.htm, accessed on 2007-04-12 Denscombe, M. (2002) Ground Rules for Good Research: A 10 Point Guide for Social Researchers, Open University Press/McGraw-Hill Education, Maidenhead, UK El-Agraa, A.M. (2004) The European Union: Economics and Policies, 7th edition, Pearson Education Limited, Essex, UK Elliott, L., Hutton, W. and Wolf, J. (1992) September 17 1992: Pound Drops out of ERM, Guardian Unlimited Politics (Online), available from http://politics.guardian.co.uk/euro/story/0,,506405,00.html, accessed on 2007-03-24 ERT (no date) European Round Table of Industrialists, European Round Table of Industrialists (Online), available from http://www.ert.be/home.aspx, accessed on 2007-03-25 EIU European Policy Analyst (2002) Critical Issue: the single currency, EIU European Policy Analyst, September 2002 Europa.eu (2007) The History of the European Union – 2007, Europa.eu (Online), available from http://www.europa.eu/abc/history/2000_today/2007/index_en.htm, accessed on 2007-03-25 European Commission (2007) The Euro, Our Currency, European Commission (Online), available from http://ec.europa.eu/economy_finance/euro/our_currency_en.htm, accessed on 2007-03-25 Grambovas, C. A. & McLeay, S. (2006) Corporate Earnings and Exchange Rates: An Analysis of the eurozone, The Irish Accounting Review, Vol. 13, pp 65 - 84
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Hitiris, T. (2003) European Union Economics, 5th edition, Pearson Education Limited, Essex, UK Jacobsen, D. I. (2002) Vad, Hur och Varför?, Studentlitteratur, Lund, Sweden Johnson, D. and Turner, C. (2006) European Business, 2nd edition, Routledge, Oxon, UK McQueen, R. and Knussen, C. (2002) Research Methods for Social Science: An Introduction, Pearson Education Limited, Essex, UK Minford, P. (2004) Britain, the Euro and the Five Tests, Cato Journal, Vol. 24. Iss. 1/2. pp 7587. Neal, L. (2007) The Economics of Europe and the European Union, Cambridge University Press, Cambridge, UK Office for National Statistics (2007) UK Trade in Goods Analysed in Terms of Industries Quarter 3 2007, ONS (Online), available from http://www.statistics.gov.uk/downloads/theme_economy/Mq10Q307.pdf, accessed on 2008-06-22 Pelkmans, J. (2006) European Integration: Methods and Economic Analysis, 3rd edition, Pearson Education Limited, Essex, UK Reid, G. and Smith, J. (2003) Crystal Clearance, Financial Management, April 2003, pp 26 – 27. Saunders, M., Lewis, P. and Thornhill, A. (2003) Research Methods for Business Students, 3rd edition, Pearson Education Limited, Essex, UK Saunders, M., Lewis, P. and Thornhill, A. (2007) Research Methods for Business Students, 4th edition, Pearson Education Limited, Essex, UK Schönberg, S. (2007) Why Germans Love The Euro, The International Economy, Vol. 21. Iss. 2. pp 52 – 53, 85. Tavlas, G. S. (2004) Benefits and Costs of Entering the Eurozone, Cato Journal, Vol. 24. Iss. 1/2. pp 89 – 107. Timur, A. Picone, G. and DeSimone, J. (2007) The Impact of the European Integration on the Pharmaceutical Industry, The Business Review, Cambridge, Vol. 7. Iss. 1. pp 315 – 321. Van den Bos, J. (2003) Mixed fortunes for UK growers from euro-zone transparency, Crops, March 1 2003, p 36
46
Appendices
Appendix 1 – Statistics
Commonly Used Terms in Statistics Compiled from Saunders et al (2003)
Chi-Square Test Statistical test to determine the probability that two data variables are associated. A common use is to discover whether there are statistically significant (significance) differences between observed frequencies and the expected frequencies of two variables presented in a crosstabulation.
Level of Significance Degrees of Freedom 1 2 3 4 5 6 7 8 9 10 15 20 25 30 5% 3,84 5,99 7,82 9,49 11,07 12,59 14,07 15,51 16,92 18,31 25,00 31,41 37,65 43,77 1% 6,53 9,21 11,34 13,28 15,09 16,81 18,48 20,08 21,67 23,21 30,58 37,57 44,31 50,89
Simplified Chi-Square Table (Adapted from Jacobsen, 2002)
Degrees of Freedom The number of values free to vary when computing a statistic, calculated as: (number of rows in the table - 1) * (number of columns in the table -1).
47
Significance A result is called significant if it is unlikely to have occurred by chance. A probability (significance) of 0.05 means that there is only a 5 per cent chance of the data occuring by chance alone.
Correlation Coefficient Number between +1 and -1 representing the strength of the relationship between two quantifiable or ranked variables. Correlation coefficients between +1 and -1 represent weaker positive and negative correlations as +1 represents a perfect positive correlation and -1 represents a perfect negative correlation. A value of 0 therefore represent that the variables are perfectly independent Spearman’s Rank Correlation Coefficient (Spearman’s Rho) Statistical test that assesses the strength of the relationship (correlation) between two ranked variables. It is also important to calculate the probability of the correlation having occurred by chance alone (significance).
-1
-0,7
-0,3
0
+0,3
+0,7
+1
perfect negative
strong negative
weak negative
perfect independence
weak positive
strong positive
perfect positive
Values of the Correlation Coefficient (Adapted from Saunders et al, 2003, p 363)
48
Appendix 2 – Statistical Tests
Chi-Square Test – UK total exports * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 9,43. 26,636 83 1 ,000 26,961(b) 24,470 27,135 df 1 1 1 Asymp. Sig. (2-sided) ,000 ,000 ,000 ,000 ,000 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 1 Chi-Square Test – UK Total Exports and Desired EMU Membership Chi-Square Test – Exports to EMU * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 5,86. 8,451 83 1 ,004 8,555(b) 6,973 8,107 df 1 1 1 Asymp. Sig. (2-sided) ,003 ,008 ,004 ,009 ,005 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 2 Chi-Square Test – EMU Member States Exports and Desired EMU Membership
Correlations Future EMU Membership? Correlation Coefficient Spearman's rho UK turnover attributed to exports Sig. (2-tailed) N Correlation Coefficient UK exports to EMU member states Sig. (2-tailed) N -,479(**) ,000 83 -,125 ,258 83
** Correlation is significant at the 0.01 level (2-tailed).
Table 3 Spearman’s rho – Exports and Desired EMU Membership (full cell data)
49
Correlations Future EMU Membership? Correlation Coefficient Spearman's rho UK turnover attributed to exports Sig. (2-tailed) N Correlation Coefficient UK exports to EMU member states Sig. (2-tailed) N -,570(**) ,000 83 -,321(**) ,003 83
** Correlation is significant at the 0.01 level (2-tailed).
Table 4 Spearman’s rho – Exports and Desired EMU Membership (cells limited to 2*2)
Correlation Future EMU Imports (to the UK) from Membership? EMU member states? Correlation Coefficient Future EMU Membership? Spearman's rho Sig. (2-tailed) N Correlation Coefficient Sig. (2-tailed) N 1,000 . 83 -,034 ,762 83 -,034 ,762 83 1,000 . 83
Imports (to the UK) from EMU member states?
Table 5 Spearman’s rho – EMU Imports and Desired EMU Membership Chi-Square Test – Imports from EMU * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 5,724(a) 6,458 ,004 83 df 9 9 1 Asymp. Sig. (2-sided) ,767 ,693 ,950
a 13 cells (65,0%) have expected count less than 5. The minimum expected count is ,33.
Table 6 Chi-Square Test – Imports from EMU and Desired EMU Membership
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Chi-Square Test – Imports from EMU * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 7,48. ,063 83 1 ,802 ,064(b) ,000 ,064 df 1 1 1 Asymp. Sig. (2-sided) ,801 1,000 ,800 1,000 ,509 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 7 Chi-Square Test – Imports from EMU and Desired EMU Membership (Turnover combined into two cells)
Correlation Future EMU Membership? Correlation Coefficient Future EMU Membership? Spearman's rho Sig. (2-tailed) N Correlation Coefficient Turnover in the UK? Sig. (2-tailed) N 1,000 . 83 -,503** ,000 83 Turnover in the UK? -,503** ,000 83 1,000 . 83
**. Correlation is significant at the 0.01 level (2-tailed).
Table 8 Spearman’s rho – Turnover and Desired EMU Membership
Chi-Square Test – Turnover * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 25,540(a) 30,598 13,403 83 df 9 9 1 Asymp. Sig. (2-sided) ,002 ,000 ,000
a 15 cells (75,0%) have expected count less than 5. The minimum expected count is ,33.
Table 9 Chi-Square Test – Turnover and Desired EMU Membership
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Chi-Square Test – Turnover * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (25,0%) have expected count less than 5. The minimum expected count is 4,23. 7,342 83 1 ,007 7,432(b) 5,778 11,362 df 1 1 1 Asymp. Sig. (2-sided) ,006 ,016 ,001 ,007 ,004 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 10 Chi-Square Test – Turnover and Desired EMU Membership (Turnover combined into two cells)
Correlations
Desired EMU Membership?
Correlation Coefficient -,812(**) ,000 83 -,775(**) ,000 83 ,115 ,301 83
Elimination of transaction costs
Sig. (2-tailed) N Correlation Coefficient
Spearman's rho
Removal of exchange rate uncertainty
Sig. (2-tailed) N Correlation Coefficient
Increased inflow of foreign investment
** Correlation is significant at the 0.01 level (2-tailed).
Sig. (2-tailed) N
Table 11 Spearman’s rho – EMU Membership Benefits and Desire for EMU Membership Chi-Square Test – Transaction Costs * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 56,018(a) 65,572 51,409 83 df 3 3 1 Asymp. Sig. (2-sided) ,000 ,000 ,000
a 2 cells (25,0%) have expected count less than 5. The minimum expected count is 1,63.
Table 12 Chi-Square Test – Elimination of Transaction Costs and Desired EMU Membership
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Chi-Square Test – Exch. Rate Uncertainty * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 52,665(a) 60,571 48,944 83 df 3 3 1 Asymp. Sig. (2-sided) ,000 ,000 ,000
a 2 cells (25,0%) have expected count less than 5. The minimum expected count is ,65.
Table 13 Chi-Square Test – Removal of Exchange Rate Uncertainty and Desire for EMU Membership Chi-Square Test – Inflow of Foreign Investm. * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 2,151(a) 2,097 ,629 83 df 3 3 1 Asymp. Sig. (2-sided) ,542 ,553 ,428
a 3 cells (37,5%) have expected count less than 5. The minimum expected count is 1,30.
Table 14 Chi-Square Test – Increased Inflow of Foreign Investment and Desire for EMU Membership
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Appendix 3 – Survey
Note: The graphic bars in these results have been somewhat distorted.
Results: The UK Chemical Manufacturing Industry and the Euro
1) Which position do you hold within your company?
Percentage Responses Chief Communications Officer Chief Executive Officer Chief Financial Officer Chief Information Officer Chief Marketing Officer Other 7.2 1.2 0.0 1.2 13.3 77.1 Total responses: 6 1 0 1 11 64 83
2) Please confirm that you have the relevant insight concerning your company's international business related to payments.
Percentage Responses True False 100.0% 0.0% Total responses: 83 0 83
3) Please indicate the turnover, in Pound Sterling (£), of your company in the UK.
Percentage Responses 0-99 999 999 100 000 000-199 999 999 200 000 000-299 999 999 300 000 000-399 999 999 400 000 000-499 999 999 500 000 000-599 999 999 600 000 000-699 999 999 700 000 000-799 999 999 800 000 000-899 999 999 900 000 000-999 999 999 1000 000 000 or more 41.0 22.9 10.8 7.2 2.4 6.0 1.2 3.6 2.4 2.4 0.0 Total responses: 34 19 9 6 2 5 1 3 2 2 0 83
54
4) Please indicate the number of employees that your company employs in the UK.
Percentage Responses 0-4 999 5 000-5 999 10 000-14 999 15 000-19 999 20 000-24 999 25 000-29 999 30 000-34 999 35 000-39 999 40 000-44 999 45 000-49 999 50 000 or more 75.9 15.7 7.2 0.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 Total responses: 63 13 6 0 1 0 0 0 0 0 0 83
5) Please specify what type/-s of customers your company deals with.
Percentage Responses Businesses Consumers Both businesses and consumers 69.9 4.8 25.3 Total responses: 58 4 21 83
6) Please specify the type/-s of chemicals that your company produces (all that applies)
Percentage Responses Pharmaceuticals Basic organics Soaps, toiletries and/or cleaning preparations Paints, varnishers and/or printing incs Plastics and/or synthetic rubbers Basic inorganics Industrial gases Agrochemicals Dyes and/or pigments Fertilisers 9.9 14.3 6.8 6.2 8.1 14.9 1.2 4.3 7.5 4.3
16 23 11 10 13 24 2 7 12 7
55
Man-made fibers Other specialities
1.2 21.1
2 34
7) How much of your UK turnover could be attributed to exports?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 12.0 7.2 4.8 2.4 8.4 8.4 15.7 10.8 16.9 12.0 1.2 Total responses: 10 6 4 2 7 7 13 9 14 10 1 83
8) Which EMU member states do you export to from the UK (please tick all that applies)?
Percentage Responses Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain None 7.7 9.1 6.5 9.2 9.5 7.7 8.5 7.8 3.0 9.7 7.4 4.0 9.1 0.7
53 63 45 64 66 53 59 54 21 67 51 28 63 5
56
9) How much of your UK exports goes to these EMU member states?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 7.2 1.2 3.6 1.2 8.4 10.8 21.7 25.3 14.5 6.0 0.0 Total responses: 6 1 3 1 7 9 18 21 12 5 0 83
10) Do you source any products or services (to the UK) from EMU member state suppliers? Please tick the applicable boxes below for the member states that you source from (or the "None" box if you do not source from any EMU member states).
Percentage Responses Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain None 4.8 8.3 3.5 11.5 14.7 4.5 6.1 11.9 0.3 14.7 6.1 2.2 9.0 2.2
15 26 11 36 46 14 19 37 1 46 19 7 28 7
57
11) How much of your imports (to the UK) comes from these EMU member states?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 9.6 9.6 15.7 21.7 15.7 15.7 3.6 2.4 1.2 4.8 0.0 Total responses: 8 8 13 18 13 13 3 2 1 4 0 83
12) Have you seen an increase/decrease in export and/or import to/from the EMU member states (to/from the UK) since the introduction of the Euro in 1999?
1 2 Decreased Decreased significantly slightly Export Import 1 (1.20%) 5 (6.02%) 10 (12.05%) 22 (26.51%) 3 No real change 22 (26.51%) 32 (38.55%) 4 5 Increased Increased Responses slightly significantly 34 (40.96%) 19 (22.89%) 16 (19.28%) 5 (6.02%) 83 83 Average Score 3.65 / 5 (73.00%) 2.96 / 5 (59.20%) 3.31 / 5 (66.20%)
13) Which of the following currencies is your accounting currency/-ies in the UK (please tick all that applies)?
Percentage Responses Pound Sterling (£) US Dollar ($) Euro (€) Other/-s 49.7 25.8 20.2 4.3
81 42 33 7
58
14) Are you insured against exchange rate fluctuations (please indicate type/-s of insurance/-s if you are)?
Percentage Responses Futures Options Other/-s No, we are not insured 12.4 4.5 21.3 61.8
11 4 19 55
15) "Exchange rate fluctuations is a problem for our company".
1 Strongly disagree Exchange Rate Fluctuations 1 (1.20%) 2 Disagree 17 (20.48%) 3 Neutral 10 (12.05%) 4 Agree 28 (33.73%) 5 Strongly Agree 27 (32.53%) Responses Average Score 3.76 / 5 (75.20%) 3.76 / 5 (75.20%)
83
16) "The general level of prices in our EMU marketplace has changed since the introduction of the Euro in 1999, due to issues related to the currency (such as price convergence)".
1 Strongly disagree General change in prices 1 (1.20%) 2 Disagree 19 (22.89%) 3 Neutral 17 (20.48%) 4 Agree 43 (51.81%) 5 Strongly Agree 3 (3.61%) Responses Average Score 3.34 / 5 (66.80%) 3.34 / 5 (66.80%)
83
17) "We have noticed a change in prices from our EMU member state suppliers since the introduction of the Euro in 1999, due to issues related to the currency".
1 Strongly disagree Difference in supplier prices 1 (1.20%) 2 Disagree 15 (18.07%) 3 Neutral 19 (22.89%) 4 Agree 43 (51.81%) 5 Strongly Agree 5 (6.02%) Responses Average Score 3.43 / 5 (68.60%) 3.43 / 5 (68.60%)
83
59
18) "Since 1999 and the introduction of the Euro, we have experienced an increased need for price adaptation in the EMU marketplace".
1 Strongly disagree Need for price adaptation 2 (2.41%) 2 Disagree 38 (45.78%) 3 Neutral 26 (31.33%) 4 Agree 16 (19.28%) 5 Strongly Agree 1 (1.20%) Responses Average Score 2.71 / 5 (54.20%) 2.71 / 5 (54.20%)
83
19) Do you use differenciated pricing in your EMU marketplace?
Percentage Responses Yes No 65.1% 34.9% Total responses: 54 29 83
20) "We have become more prone to invest towards the EMU member states since the introduction of the Euro in 1999".
1 Strongly disagree Investment towards EMU member states 2 Disagree 3 Neutral 4 Agree 5 Strongly Agree Responses Average Score
2 (2.41%)
40 (48.19%)
24 (28.92%)
16 (19.28%)
1 (1.20%)
83
2.69 / 5 (53.80%) 2.69 / 5 (53.80%)
21) "Enlargement of the EMU is and will be affecting our company in terms of":
1 Strongly disagree New suppliers New markets Increased competition No affect 6 (7.23%) 2 (2.41%) 1 (1.20%) 24 (28.92%) 2 Disagree 35 (42.17%) 14 (16.87%) 15 (18.07%) 39 (46.99%) 3 Neutral 24 (28.92%) 8 (9.64%) 10 (12.05%) 14 (16.87%) 4 Agree 18 (21.69%) 47 (56.63%) 49 (59.04%) 6 (7.23%) 5 Strongly Agree 0 (0.00%) 12 (14.46%) 8 (9.64%) 0 (0.00%) Responses Average Score 2.65 / 5 (53.00%) 3.64 / 5 (72.80%) 3.58 / 5 (71.60%) 2.02 / 5 (40.40%) 2.97 / 5 (59.40%)
83 83 83 83
60
22) "A future UK membership of the EMU would benefit our company in terms of":
1 Strongly disagree Elimination of transaction costs Removal of exchange rate uncertainty Increased inflow of foreign investment Trading in a strong, combined European currency Simplified accounting and administration 0 (0.00%) 2 Disagree 17 (20.48%) 3 Neutral 4 Agree 41 (49.40%) 5 Strongly Agree 20 (24.10%) Responses Average Score 3.77 / 5 (75.40%)
5 (6.02%)
83
0 (0.00%)
19 (22.89%)
2 (2.41%)
38 (45.78%)
24 (28.92%)
83
3.81 / 5 (76.20%)
4 (4.82%)
45 (54.22%)
23 (27.71%)
11 (13.25%)
0 (0.00%)
83
2.49 / 5 (49.80%)
4 (4.82%)
37 (44.58%)
23 (27.71%)
19 (22.89%)
0 (0.00%)
83
2.69 / 5 (53.80%)
8 (9.64%)
15 (18.07%)
4 (4.82%)
45 (54.22%)
11 (13.25%)
83
3.43 / 5 (68.60%) 3.24 / 5 (64.80%)
23) "A future UK membership of the EMU would cost our company in terms of":
1 Strongly disagree Lack of economic convergence Lack of political stability Weakening of the UK economy as a whole Trading in a less stable currency Conversion of accounting and administration tools 3 (3.61%) 2 Disagree 40 (48.19%) 42 (50.60%) 3 Neutral 26 (31.33%) 26 (31.33%) 4 Agree 12 (14.46%) 5 Strongly Agree 2 (2.41%) Responses Average Score 2.64 / 5 (52.80%) 2.48 / 5 (49.60%)
83
6 (7.23%)
7 (8.43%)
2 (2.41%)
83
21 (25.30%)
33 (39.76%)
17 (20.48%)
11 (13.25%)
1 (1.20%)
83
2.25 / 5 (45.00%)
3 (3.61%)
35 (42.17%)
20 (24.10%)
24 (28.92%)
1 (1.20%)
83
2.82 / 5 (56.40%)
1 (1.20%)
6 (7.23%)
4 (4.82%)
62 (74.70%)
10 (12.05%)
83
3.89 / 5 (77.80%)
2.82 / 5 (56.40%)
61
24) Could you estimate (subjectively) how much the fact that the UK remains outside of the EMU costs your company annually (in terms of bank fees, transaction costs, administration etc)?
1 No cost Cost 7 (8.43%) 2 4 3 5 Negligibly Significant Responses Some cost High cost small cost cost 34 (40.96%) 31 (37.35%) 11 (13.25%) 0 (0.00%) 83 Average Score 2.55 / 5 (51.00%) 2.55 / 5 (51.00%)
25) Now, could you estimate your percieved financial benefits if the UK was to join the EMU (in regard to the previous question)?
2 1 Negligibly No benefit small benefit Benefit 11 (13.25%) 25 (30.12%) 3 Some benefit 26 (31.33%) 4 Significant benefit 16 (19.28%) 5 High benefit 5 (6.02%) Average Score 2.75 / 5 (55.00%) 2.75 / 5 (55.00%)
Responses
83
26) Would you, as a representative of your company, like to see a UK membership of the EMU, and subsequently an introduction of the Euro in the United Kingdom?
Percentage Responses Yes No 67.5% 32.5% Total responses: 56 27 83
27) Please add any additional thoughts or comments below, related to the questions asked or the survey as such.
62
Appendix 4 – E-mail Sent to Respondents
Request for participation in a Survey of the UK Chemical Manufacturing Industry
Please note: this survey is aimed at your company specifically, and depend heavily on low loss of participation.
To whom it may concern Dear Sir or Madam, We are two Swedish students studying our final year of Undergraduate studies towards Bachelor’s degrees in International Business Management and Strategy, at the University of Westminster and Lincoln respectively, out of Halmstad University in Sweden. As the final part of our studies before we graduate, we are now writing a dissertation exploring the views on the European common currency in the Chemical Manufacturing Industry of the United Kingdom. Because this survey investigates questions related to currency, markets and exports/imports, would you please make sure that this letter reaches the appropriate respondent for these types of questions within your company. The analysis and discussion of our dissertation will be based and centred on a survey aimed specifically at your company and 187 of your fellow UK Chemical Manufacturers, a selection based on the Chemical Industry Association’s list of full members. This limited number of possible respondents makes it crucial that we limit the number of companies that choose not to participate in the survey. We therefore humbly plead that you consider sparing us and our survey a few minutes of your time. Our reasons for targeting your industry in particular are based on many factors supported by theory on this subject, with the fact that the value of your exports outweighs any other sub-sector of the UK Manufactured Goods Industry as the most decisive. In seven sections, many of which will take no more than a few seconds to respond to, we ask mainly for some basic information surrounding your business, your import/export relationships with the members of the EMU, and finally for your view on the UK staying outside of the common currency integration of the European economies. All things considered, the survey should take you no more than 5-10 minutes to complete in total. You will find the survey, which is web-based, through the following hyperlink (copy and paste it into your address field if you can not "click" it):
http://FreeOnlineSurveys.com/rendersurvey.asp?sid=z6laj340o1mrx0l287230
Should you wish to review our findings, which should be ready in early June, we will be glad to send you a summary along with our full report. Please reply to this e-mail (to [email protected]), and we will save your address for when our work is completed. If you feel that someone else in your organisation would be better equipped to answer the questions raised in this survey, please forward this letter to that person.
63
Our survey will be conducted over the next couple of weeks, and we would therefore kindly ask you to spare the time to answer these questions before the 18 of May at the very latest. Naturally, all participants will be treated anonymously. Thank you very much for your time. Yours faithfully,
Olof Lindh and Fredrik Bonat University of Westminster University of Lincoln Halmstad University +447928792944 +447847220767
64
doc_882607776.pdf
The global production value is about $85 billion. Fine chemicals are used as starting materials for specialty chemicals, particularly pharmaceuticals, bio pharmaceuticals.
2007-08-15 Halmstad University School of Business and Engineering (SET) European Business Programme 180 hp (Swedish University Credits)
The UK Chemical Manufacturing Industry and the Euro
Final Year Undergraduate Dissertation Business Administration 61-90 hp
Authors Bonat, Fredrik 811027 Lindh, Olof 850221
Tutor Joakim Tell
Abstract
In a questionnaire survey of the UK chemical manufacturing industry, this report investigates the views of these companies on economic and monetary integration of Europe. More specifically, the question of whether or not these companies would like to see a UK membership of the European Economic and Monetary Union (EMU) is asked, following a more thorough questioning aimed at examining the underlying reasoning behind their viewpoints.
The findings show a two-to-one majority on the side of a positive stance towards a UK participation in this final stage of integration of the European marketplace, and support theory in its belief that strong incentives for such a view include removal of exchange rate uncertainty, and elimination of transaction costs.
Additionally, and also in accordance with the collected theoretical framework, larger companies, and companies with high levels of exports, are found to have a greater desire for a UK EMU membership.
Findings in contrast with theory include that of a lack of correlation between high levels of imports and a desire for integration, as well as a lack of belief in increased inflow of foreign investment as a prospective benefit of membership in the questioned population.
Correlations found between the main question and the removal of exchange rate uncertainty and elimination of transaction costs were very strong, but positive statistical determination for the absence of chance in creating the associations could not be made, due to the small scale of the survey, creating response alternatives with less than five accumulated responses.
Table of Contents
1.0 Introduction .......................................................................................................................... 1 1.1 Context and Background .............................................................................................. 1 1.2 Discussion of the Problem............................................................................................ 3 1.3 Problem Definition ....................................................................................................... 6 1.4 Purpose ......................................................................................................................... 6 1.5 Hypotheses ................................................................................................................... 7 2.0 Methodology ........................................................................................................................ 8 2.1 Approach to Research .................................................................................................. 8 2.2 Sources of Literature .................................................................................................... 9 2.3 Approach to Study...................................................................................................... 10 2.4 Selection of Companies .............................................................................................. 10 2.5 Collection of Data ...................................................................................................... 12 2.6 Weaknesses in Methodology...................................................................................... 13 2.7 Credibility................................................................................................................... 14 2.8 Response Rate of Questionnaire ................................................................................ 14 2.9 Respondents ............................................................................................................... 15 2.10 Non-response ............................................................................................................ 15 3.0 Theoretical Framework ...................................................................................................... 16 3.1 The Single European Market...................................................................................... 16 3.2 The European Economic and Monetary Union (EMU) ............................................. 17 3.3 The Business Environment and the European Integration ......................................... 18 3.4 The United Kingdom and the EMU ........................................................................... 20 4.0 Empirical Data.................................................................................................................... 23 4.1 Opinion on the EMU: The Main Question ................................................................. 23 4.2 Size of Companies and Imports/Exports .................................................................... 24 4.2 Benefits of an EMU Membership .............................................................................. 31 4.3 Costs of an EMU Membership ................................................................................... 34 5.0 Analysis .............................................................................................................................. 36 5.1 Primary Hypothesis - Desire for EMU Membership ................................................. 36 5.2 Second Hypothesis – Issues of Size and Imports/Exports ......................................... 37 5.3 Third to Fifth Hypotheses - Benefits of an EMU Membership.................................. 38 5.4 Sixth Hypothesis – Costs of an EMU Membership ................................................... 40 6.0 Conclusions ........................................................................................................................ 42 6.1 Problem Defined ........................................................................................................ 42 6.2 Hypotheses ................................................................................................................. 42 6.3 Suggestions for Further Study .................................................................................... 44 References ................................................................................................................................ 45 Appendices ............................................................................................................................... 47
Figures
Figure 1 Data comparison – GDP, unemployment and inflation .............................................. 4 Figure 2 Inward FDI in $ USD (Source: Johnson and Turner, 2006 p. 181) .......................... 21 Figure 3 Desired membership of the EMU .............................................................................. 23 Figure 4 Statistics – Exports and Desired Membership of EMU ............................................. 25 Figure 5 Perceived Changes in Imports/Exports ..................................................................... 27 Figure 6 Imports from EMU Members and Desired Membership of EMU ............................. 28 Figure 7 Belief that an Enlargement of the EMU Would Mean New Suppliers ...................... 29 Figure 8 Turnover and Desired Membership of EMU ............................................................. 30 Figure 9 Elimination of Transaction Costs and Desired EMU Membership .......................... 31 Figure 10 Removal of Exchange Rate Uncertainty and Desired EMU Membership .............. 32 Figure 11 Exchange Rate Fluctuations as a Problem ............................................................. 32 Figure 12 Inflow of Foreign Investment and Desired EMU Membership ............................... 33 Figure 13 Perceived Costs of EMU Membership .................................................................... 34 Figure 14 Spearman’s rho – Costs and Desire for EMU Membership ................................... 35
1.0 Introduction
Introducing this report, the events leading up to the problem approached are being outlined, giving context to further discussion and background to the situation and environment from which this study is drawn. The discussion is then narrowed down towards the problem approached in, and the purpose of, this study.
1.1 Context and Background
“I want the whole of Europe to have one currency; it will make trading much easier” – Napoleon Bonaparte, 1807, quoted in Johnson & Turner, 2006 p162
The Single European Act in 1992, specified that an Economic and Monetary Union (EMU) was an objective of the European Union (EU). In the same year, the Maastricht Treaty outlined the following three-stage process for achieving this EMU (Hitiris, 2003):
Stage 1 (1990-1993). All current currencies within the European Community should join the Exchange rate Mechanism (ERM), which simply means that exchange rate variability between EU states is reduced in order to achieve monetary stability in Europe. This was however not what happened, since Greece remained outside until 1998 and the UK and Italy withdrew in 1992.
Stage 2 (1994-1998). The establishment of the European Monetary Institute (EMI), which defines the procedures and instruments within the European Central Bank (ECB) and monitors the economic situation within the member states. Monetary policy is however being monitored by the national central banks during this time.
Stage 3 (1999). Exchange rates are locked and the European EMU policy is implemented by the ECB and the national central banks. 11 of the then 15 member states joined the EMU when it was launched on 1 January 1999, Greece joined 1 January 2001 and the UK and
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Denmark has an ‘opt-out clause’ for joining. Sweden, who joined the EU in 1995, is not a member of the EMS and was judged to have failed the EMU criteria. Euro banknotes and coins were introduced January 1 2002 and thirteen countries within the European Union has currently adopted the euro as their common currency (the eurozone), namely Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and most recently Slovenia (European Commission, 2007). Since the time of Prime Minister Mrs Thatcher in the 1980’s, there has been a British belief in the Single European Market, as the ultimate form of economic integration. In this, an organisation can be created to optimise market conditions without transferring power from the national to the supernational level. Under the leadership of Mrs Thatcher’s successor John Major, the United Kingdom has chosen not to participate in the third stage of the Economic and Monetary Union, therefore not implementing the euro, keeping the same broad reservations (Johnson & Turner, 2006). Joining the ERM in 1990, the United Kingdom exited again in 1992, following a surge of Pound Sterling selling on the world’s exchanges, leading to currency speculation, an estimated £10bn spending on trying to bolster the pound back up, and an interest rate as high as 15% (Elliot et al, 1992).
This coincided with currency speculation and exchange rate crises elsewhere in Europe, creating, in effect, financial instability and a serious threat to the ERM. Italy experienced a similar situation to that in the United Kingdom, and opted out of the ERM as well. In Sweden and Finland, sharp depreciations of their currencies, speculation and a general economic recession lead to their abandonment of fixed exchange rates, and both countries were effectively relieved of their informal commitment to the ERM (Neal, 2007). The main reason given for the UK’s delayed entry into the EMU, however, was the perception that not all of the EMU states were at the same stage of the trade cycle (Johnson & Turner, 2006).
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In 1997, the British Chancellor of the Exchequer laid out five economic tests that need to be satisfied before the UK would re-enter the Exchange Rate Mechanism (Johnson & Turner, 2006). These included (El-Agraa, 2004 p172): ? ? ? ? ?
the compatibility of business cycles and economic structures flexibility to deal with problems arising if the euro would encourage long-term investment in the UK how the competition in the financial service area would develop if the euro would lead to more jobs, stability and growth
Six years later, in 2003, the Chancellor announced that the United Kingdom had not become satisfied with the results from these tests, as the only test passed was the one relating to the financial services, and will therefore not join the EMU in the near future (Johnson & Turner, 2006).
1.2 Discussion of the Problem
The single market combined with the euro will have profound implications for businesses, especially for the multinational players. EMU and its single currency eliminate businesses exchange risks, reduces their transaction costs, increase price transparency and competition, and creates bigger and more efficient financial markets (EIU European Policy Analyst, 2002).
Not only the second biggest economy in the European Union, but the fourth biggest in the world, the United Kingdom is regarded as the headquarters and primary EU location for many major multinational companies. The fact that the UK is not participating in the eurozone can have a negative effect on foreign investments and the competitiveness of UK companies. Furthermore, there is a case of decreasing Foreign Direct Investments (FDI) in the UK related to other EU countries that can possibly be explained by their non participation of the euro (Johnson & Turner, 2006).
However, statistical data has shown that the UK has had a greater GDP growth between 2002 and 2004 compared to the eurozone. Its ‘GDP per head quota’ in 2005 were also greater than
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in the eurozone. Furthermore, inflation and unemployment levels are substantially lower in the UK than in the eurozone states (ibid).
Figure 1 Data comparison – GDP, unemployment and inflation (Source: Johnson and Turner, 2006 p. 179) Furthermore, Patrick Minford (2004), in his investigation of the British relationship with the Euro, concludes that the exchange risk gains from adopting the Euro in the UK might well be more than offset by the greater volatility in the relationship between the Euro and the US dollar, than between the Pound Sterling and the USD.
Nonetheless, as the EMU continues to expand, the benefits for European business will increase (Ibid.). Additionally, it seems a logical conclusion that most of the benefits of the European integration would have a direct impact on business within the monetary union, and the goals of integration are in many cases directly linked to business and their operations.
Minford (2004) uses a set of gains and costs which he finds most relevant to weight against each other in the assessment of the UK’s hypothetical introduction into the EMU collaboration. These are used throughout this study as points of reference and models for our 4
hypotheses and include (gains): (1) reduction in transaction costs of changing currency, (2) reduction of exchange risk leading to greater trade and foreign investment with the rest of Europe, and to a lower risk-premium embodied in the cost of raising capital, and (3) increased transparency in price comparison, as well as (costs); (1) the difficulty of dealing with shocks without the use of independent interest rate and exchange rate movements; (2) the effects of “harmonization” initiatives associated with the EMU and (3) the concerns that we could be involved in the bailing-out of continental countries with financial problems particularly associated with state pension deficits.
Costs of joining the EMU can be seen as benefits for the stakeholders of staying outside of the single currency partnership. The study focuses on costs in terms of lack of economic convergence, lack of political stability, weakening of the UK economy as a whole, trading in a less stable currency and conversion of accounting and administration tools.
As discussed further in section 2.4, Selection of companies, the authors chose to target a group that theory told us would be most affected by the issues raised in this report; big companies with high levels of cross-border trade (EIU European Policy Analyst, 2002).
Consequently, the focus of this research will be to investigate how the perceived consequences for businesses outside of the eurozone, more specifically in the Chemical Manufacturing Industry of the United Kingdom, affect the desire for a UK EMU membership among the companies investigated.
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1.3 Problem Definition
Through the perspective of UK chemical export companies, is a UK membership of the EMU desirable, and if so, which perceived benefits and/or costs of such a membership have the strongest impact on this desire, and what roles do size and levels of imports/exports play?
1.4 Purpose
Based on the problem discussion, the approach of this paper is to find if there is a general trend within the bigger corporations, more specifically the exporting chemical manufacturers acting in the UK towards a ‘pro’ or ‘against’ stance towards a future integration of the common currency. Subsequently, theory is compared with the views of the companies.
Babbie (2004) lists three distinct purposes of research; exploration, description and explanation. Of these three, exploration is aimed at learning more about a subject that is relatively unknown to the researchers, as the business perspective in the UK towards the euro is to the authors of this report. Thus, the purpose of this study could be described as the exploration of the chosen subject. On the other hand, Sunders et al (2007) pinpoints the explanatory purpose as, for example, the quantitative collection of data for statistical analysis of correlations and other relationships. This would suggest that this report uses a combination of these two approaches.
The percieved added value of this study to existing knowledge in academia is the perspective of the companies identified as stakeholders in the approached problem, as opposed to the scholars of economics and politicians represented in the theory reviewed.
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1.5 Hypotheses
In a classic approach to statistical study of quantitative data, this report follows the line of disproving null hypotheses, H0, to substantiate the alternative hypotheses, H1, for example (Jacobsen, 2002).
Derived from the background of the problem approached in this dissertation and the discussion found in reviewed studies, the main question that this dissertation aims to explore is whether or not the questioned companies would like to see a UK membership of the EMU. Then, from this, attempts to identify reasons for these opinions will be made on the basis of reviewed theory and investigated hypotheses as found in our research.
Primary hypothesis
H1) UK chemical exporting companies want a UK membership in the EMU. Secondary hypotheses
H2) Issues of size and levels of exports/imports are factors in determining desire for a membership.
H3) Reducing transaction costs is a factor which has a strong impact on the business desire for the UK to join the EMU.
H4) Elimination of exchange rate uncertainty is a factor which has a strong impact on the business desire for the UK to join the EMU.
H5) An increase of Foreign Direct Investments (FDI) is a factor which has a strong impact on the business desire for the UK to join the EMU.
H6) Perceived costs influence the overall desire for a UK EMU membership towards a nullification of the primary hypothesis.
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2.0 Methodology
In this section, the structural and theoretical approach is described from a scientific perspective, as well as the actual processes and practices used.
2.1 Approach to Research
As the first question to answer in any study or research, the issue of relevance needs to be confronted before any valuable deliberation can be made about other aspects of the work. Research needs to be ‘worthwhile’, and should relate to existing knowledge and needs (Denscombe, 2002). To this, the integration of the European Economies could quite arguably be considered a very topical subject and the perspective of businesses in the country of study to be an interesting and meaningful thing to investigate.
In following the general approach to studies within the social sciences popularised as early as the time of Hippocrates, a positivist mindset has been adopted in this report. This really just means that the aim is an objective projection of the problem faced, and to emphasise only that which is directly observable (McQueen & Knussen, 2002).
As the answers to the questionaire used in this survey represent the subjecitve opinions of individuals, the authors realise that objectivity will only be reached when findings are accumulated with other research and theory within the area of study.
Saunders et al. (2007) describes the two different approaches that are commonly used in scientific research; deduction and induction. Briefly, deduction is described as a way to test theory by collecting empirical data and compare it with a hypothesis. Induction on the other hand is used as a method to build theory from the analysis of empirical data. Since the purpose is to investigate the practices and perceptions of particular companies towards the issue presented through the collection and analysis of measurable data, the deductive approach seems to be the most applicable, and the only plausible in the persuit of quantitative analysis according to Jacobsen (2002).
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A risk taken in the adoption of this approach is that the information collected is limited by what the surveyors have found to be relevant. An attempt to approach this risk has been made in the inclusion of the last, open question, of the questionnaire.
2.2 Sources of Literature
Putting together the existing knowledge and establishing an overview of the history, development, current situation and perceived future prospects of the investigated question constituted the first step in this study. Two main categories emerged during this process, in the form of the academic books mainly discussing the historical and theoretical framework of the European Union, the common currency and the United Kingdom’s parts in this, and other topical resources giving the authors insight into the debate surrounding the study, academics’ and experts’ view on the topic and even, in some cases, historical facts. These have mainly taken the form of journal articles, from reliable, respected and where applicable reviewed sources, and institutional publications and speeches. In review of our references, we can establish that no bias – e.g. political – articles or opinion pieces have been used as bases for the information used in this study.
Access to the academic books has been gained through the libraries of the University of Lincoln and the University of Westminster, both in England, and from the curriculum of the authors’ earlier studies at Halmstad University, and the other topical resources through online search engines and databases such as:
Primarily ? Factiva, Business Source Premier and ABI/Inform
Secondarily ? ? ? Google.com Newspapers’ Online Archives Institutional Online Archives
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In searching these databases for articles, publications and other resources, some of the main keywords used in the queries have been:
EMU, COMMON CURRENCY, SINGLE MARKET, EURO AREA, EUROZONE, SINGLE CURRENCY AREA, EUROPEAN INTEGRATION, EUROPEAN BUSINESS, UNITED KINGDOM, UK, FDI, FOREIGN DIRECT INVESTMENT, EXCHANGE RATE,
TRANSACTION COSTS, PRICE TRANSPARENCY
2.3 Approach to Study
Using the deductive approach emphasises the collection of quantitative, measurable data. Collecting a substantial amount of measurable data from a large number of respondents allows for analysis through rigorous statistical tests, compared to using a qualitative approach aimed at a closer investigation of smaller group of respondents (Saunders et al. 2007).
Surveys, within the confines of quantitative data gathering, are described by Babbie (2004) as an appropriate alternative when aiming to collect original data for describing a large population, and an excellent way of investigating attitudes and orientations in a large population. Furthermore, of the different ways to carry out surveys, the structured questionnaire is identified as essential to survey research and widely used in many other forms of study, such as experiments and field research.
2.4 Selection of Companies
Concepts central to the value of a representative projection of investigated questions in a larger population, are probability sampling and the interlinked random selection. The latter is the most widely used in modern research within the social sciences, and is seen as the best way to gain a valuable representation of a studied population when the characteristics of the same are reasonably homogenous, creating a sample of with high probability to reflect the whole population. On the other hand, when large distinctions between possible respondents, and more importantly; when knowledge of a population gives the researcher insight into factors giving
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certain respondents a better position or opportunity to reflect the relevant information, a purposive or judgemental sampling can create a more representative selection. This approach is referred to as non-probability sampling (Babbie, 2004).
With this in mind, the authors chose to target a group that theory told us would be most affected by the issues raised in this report; big companies with high levels of cross-border trade (EIU European Policy Analyst, 2002).
As the main exports of the UK are manufactured goods, chemicals and foodstuffs (BBC News, 2007).
According to the Chemical Industries Association (2007), the chemical manufacturing industry is the biggest exporter among the sub-sectors of the manufacturing industry as a whole, and the 188 full members of the CIA was therefore selected as the target group.
The UK Office of National Statistics confirms the position of the chemical manufacturing industry as the main UK exporter in a division and quantification of manufacturing sectors for the third quarter of 2007, as well as the great gap between the manufacturing industry and the second largest export sector (ONS, 2007).
Some basic fact of the chemical manufacturing industry in the UK (CIA, 2006): ? ? ? ? ? ? ?
Turnover 2003 incl. merchanted goods (imported and re-sold) estimated at £50 billion Domestic sales 2003 of £34 billion 92% of domestic production was exported in 2004, 61% of which to the EU In 2004, exports exceeded imports by £4.5 billion Biggest sub-sector by far is pharmaceuticals (37% of gross value added by the chemical manufacturing industry in 2003) Total gross value added by the industry in 2003 amounted to 2% of the UK GDP Provides direct employment to 214,000 and supports several hundred thousand additional jobs
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Furthermore, the European pharmaceutical market, as part of the chemical manufacturing industry, alone, is the fifth biggest industry in the whole EU (Timur et al, 2007).
2.5 Collection of Data
Having chosen to investigate the questions through a structured questionnaire survey of 188 chemical exporters, the authors agreed that the most efficient method to retain the wanted information would be to approach the companies by electronic mail, attaching an URL-link to a web-based questionnaire. Using a specialised online service, free for basic users but requiring a minor subscription fee for the purposes of this survey, an online questionnaire was created with relative ease, where an account allowed continuous survey of responses and exportation of statistics.
Accuracy in research needs to be assured through the consideration and strict control of all parts of their work being; neutral, without bias of results due to issues of techniques used for data collection etcetera, and; consistent, throughout the study of different situations and respondents (Denscombe, 2002). This has been kept in the minds of the investigators during their work, thus ensuring the maximised value of the results.
In order to increase the number of respondents to the study, Jacobsen (2002) propose several precautions to be regarded.
Anonymity
The participants are guaranteed anonymity through the absence of data collection that can connect responses to the identity of the company. All respondents have been contacted by an e-mail with solely them as the receiver.
Clarifying the Purpose of the Study
When contacted to participate in the study, a brief summary of the study intended has been outlined in the body of the e-mail (see attachment 4 for the e-mail sent).
Using Rewards
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The companies are offered to receive a copy of the final report simply by replying to the email received.
Design and Extent of the Questionnaire
The aim of the questionnaire is to have an appealing design and clarity regarding the information wanted. Asking only questions which are suitable for the study intended (see attachment 3 for full survey with answers).
2.6 Weaknesses in Methodology
Generalisation in studies of a representative selection from the investigated population will always be a weakness, as long as the investigator has to project the observed phenomena to unstudied actors in the environment (McQueen & Knussen, 2002). While this is an issue that needs to be considered in any study of this type, the authors believe that in doing so, they have been able to control the extent to which this affects the value of the findings.
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2.7 Credibility
Saunders et al (2003) states that in order to reduce the possibility of getting answers wrong, it is important to assess the reliability and validity of the research made. This depends largely on the design and structure of the questionnaire and its questions. Hence, a valid question will enable accurate data to be collected and a reliable question ensures that the data is collected consistently.
There are four stages that must occur in order for a question to be reliable and valid (ibid). Firstly, the researcher must be clear about the information required when designing the question. Secondly, the respondent decodes the question in the way that the researchers intended. Thirdly, the respondent answers the question. Finally, the researcher decodes the answer in the way the respondent intended.
Keeping this in mind, the questionnaire was compiled with a coherent design using a limited variety of commonly used scales and possible answers. The questions are almost exclusively closed ones, as this forces the respondent to consider all possible responses.
In order to ensure the validity of collected data used, Chi-Square testing has been applied in order to see how probable it is that the data could occur by chance alone.
Furthermore, to increase the reliability and validity, the questionnaire has been reviewed by the academic supervisor responsible for final assessment of this report.
2.8 Response Rate of Questionnaire
The selection of companies resulted in a total of 188 businesses from the member list of the Chemical Industries Association (CIA, 2007). After researching the websites of the companies, looking for valid contact addresses, a mail list of 116 unique businesses was compiled. In order to assure a high response rate, the ‘request for participation e-mail’ was succeeded by a reminding e-mail, sent out 5 times with intervals of approximately 10 days between each send-out.
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As the final compiling of responses was undertaken, a database of 83 valid responses had been aggregated. To avoid distortion of the empirical data, 9 invalid respondents were filtered out, mainly due to failure to complete the survey.
Saunders et al (2003) describes how to calculate the total and the active response rates:
The total response rate: (total number of responses) / (total number in sample - ineligible) = total response rate (92) / (188 - 9) = 0.514 = 51.4 % The active response rate: (total number of responses) / (total number in sample – (ineligible + unreachable)) = active response rate (92) / (188 – (9+72) = 0.860 = 86%
2.9 Respondents
When designing the questionnaire, an attempt to find out more about the respondent while maintaining anonymity was made in the form of their role in the company (Question 1). The motivation behind this was to attempt to find trends in opinions between different types of respondents, e.g. between financial roles and marketing or operational roles. However, this was at best a secondary goal in the overall purpose. Moreover, as 77,1% of the respondents could not be categorised by the alternatives in the question – selecting the “Other” response) – this attempt was mute. Another motivation behind Question 1 was to ensure that the respondents had roles in the companies which gave them sufficient experience of and insight into the topics surveyed. In analysis of the risk in not knowing the role of these 77,1% respondents, we find that the findings of the survey cannot be seen as representative of a certain profession. However, in review of the identification of and contact with respondents, it appears unlikely that the questionnaire reached roles which were not qualified to respond.
2.10 Non-response
Analysis of the non-respondents starts with a review of the e-mail send-outs. The neutrality of these e-mails was meticulously approached. Thus, bias would appear unlikely. A greater interest in the surveyed questions in the “Yes” camp of the EMU discussion than within their opponents’ cannot be ruled out, but neither has it been proven. However, one reason for non-response may be that the questionnaire did not reach a role in the company identified by recipients as familiar with these topics.
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3.0 Theoretical Framework
This section focuses on the business environment in the United Kingdom, and describes how the euro can affect companies in the country, based on theoretical discussion.
3.1 The Single European Market
There are currently 27 member states within the European Union, with Romania and Bulgaria being the most recent joiners at January 1st 2007 (Europa.eu, 2007).
In the framework of the European Union, there are four fundamental standards, often called the Four Freedoms, which have been adopted. These are free trade in goods, free trade in services, free mobility of capital and free mobility of labour (Hitiris, 2003).
Benefits of the development of a single market can be summarised into the following five categories (El-Agraa, 2004, p190): ? ? ? ? ?
businesses and consumers benefit from price reductions producer power decreases and innovation and product development are stimulated due to the increased market competition producers gain opportunities to realise economies of scale by the broadening of their markets regulatory interventions are refocused, leading to modernised processes and elimination of unnecessary duplication the economy can increase its aggregate output due to the improvements in resource allocations, if the factors of production are fully employed
It is said that the Single European Market provides the platform for the European Economic and Monetary Union (Johnson & Turner, 2006).
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3.2 The European Economic and Monetary Union (EMU)
EMU, the European Economic and Monetary Union, is regarded as the possible next stage of integration after the Single European Market. Separate national currencies are seen by many as one of the remaining barriers to a complete, barrier-free single market within the European Union (Johnson & Turner, 2006).
National currencies cause random price fluctuations due to exchange rates, disturbing the integration process (Hitiris, 2003). The basic case in favour of a monetary union rests on the desirability of eliminating exchange rate uncertainty, which hinders trade and investment. The adoption of a single currency eliminates this. Facing exchange rate uncertainties is regarded as a risk that leads to explicit costs if it is to be avoided. Since exchange rate risks affect trade in both directions, it tends to reduce a country's exports and imports and with regard to the EU, the single market has led to a substantial rise in trade among the member states. With only one currency to trade in, transaction costs for converting currencies are being eliminated (Tavlas, 2004). However, some evidence has suggested that the growth of intra-European trade has been more a result of globalisation and the Single European Market than benefits from the common currency (Schönberg, 2007). The intention of the euro can be regarded as a way to give equal benefits to European firms as the need for hedging against exchange rate fluctuations disappears, and the cost savings from this can be used to lower customer prices. Moreover, the unified financial environment that the EMU provides gives opportunities for firms as the cost of capital converges (Grambovas & McLeay, 2006).
Furthermore, a single currency leads to less market segmentation due to an increase in price transparency, thus simplifying price comparisons. This leads to increased competition and more effective markets. Conversely, open economies, like the UK, risk facing unstable price levels if the exchange rates are unstable. Additionally, the more a currency is being used, the more useful it is, giving economies of scale for account and exchange functions (Tavlas, 2004).
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Benefits of integrating regional economies in an Economic and Monetary Union are (Johnson & Turner, 2006): ? ? ? ? ? ? lower interest rates elimination of transaction costs in intra-EMU trade removal of exchange rate uncertainty in intra-EMU trade aiding the development of a genuine Small and Medium-sized Enterprise (SME) by increasing price transparency and promoting international specialisation removal of the option of competitive devaluations between member states an international currency to represent the combined economic weight of the economies
Pelkmans (2006) mentions additional benefits through the weakening of unjustified favouring of domestic businesses, i.e. ‘home bias’, and other forms of protectionism.
3.3 The Business Environment and the European Integration
Johnson and Turner (2006) states that some of the strongest advocates for a European integration have in fact been businesses, the launch of the SEM and the EMU received a lot of pressure from for example the European Roundtable of Industrialists who are an informal forum of around 45 chief executives and chairmen of major multinational companies based in Europe, covering a wide range of industry and technology sectors (ERT, no date).
Common business challenges and opportunities from integration are the following (Johnson & Turner, 2006, p54): ? ? ? ? ? ? ?
financing opportunities through integrated capital markets operational efficiencies derived from economies of scale possible harmonisation of labour conditions exploitation of the international division of labour greater price transparency pressure upon costs and prices stimulus to product innovation
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? ? ? ? ? ?
reorganisation of production and distribution systems on a transnational basis rationalisation of product lines development of networking relationships enhanced value-added from more diverse sourcing opportunities greater opportunities within foreign markets greater intensity of competition within domestic markets
The single market combined with the euro will have profound implications for businesses, especially for the multinational players. EMU and its single currency eliminate businesses exchange risks, reduces their transaction costs, increase price transparency and competition, and creates bigger and more efficient financial markets (EIU European Policy Analyst, 2002).
A paper by Bris (2003) reveals that the euro has increased the value of the firms that are expected to benefit the most from the elimination of currency costs, namely big businesses within the eurozone. It has also lowered the cost of capital for businesses.
Minford (2004) divide the main benefits for businesses into the following three categories:
Reduction of transaction costs in changing currencies
Businesses benefits from the elimination of costs for converting one national currency into another within the EMU. Efficient financial markets lead to reduced costs and increased access to capital for European companies (Minford, 2004).
Reduction of exchange risk
Since currency risk is eliminated within the EMU, the need to hedge business transactions is no longer needed, simplifying the investment planning process. This leads to greater trade and foreign investments with the rest of Europe (Minford, 2004).
Bigger markets and price transparency
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The marketplace within the EMU is the second biggest in the world next to the US (EIU European Policy Analyst, 2002). The integrated market leads to consumers more willing to purchase across national boundaries. Not affected by exchange-rate variation or the complexity of comparing different currencies (Minford, 2004). If price transparency is effective, it will force prices down by increasing competition in supplier markets and reducing the prices of intermediate goods in business to business transactions (Reid and Smith, 2003). However, the big pharmaceutical market is still one of the most segmented markets within the EU by demonstrating big price differences between countries (Timur et al, 2007). Price transparency has lead businesses to develop strategies to avoid losses in profitability. Common ways to do this is by using variable pricing where prices are matched to variations in market conditions, asking the customer how much they are willing to pay or to simply set the price at any instant to match supply to demand (Reid and Smith, 2003).
3.4 The United Kingdom and the EMU
The fact that the UK is not participating in the eurozone can have a negative effect on foreign investments and the competitiveness of UK companies. Figure 2 reveals a decrease in Foreign Direct Investments (FDI) in the UK related to other EU countries since 2000. Johnson and Turner (2006) suggest that this can be explained by UK’s non participation of the euro.
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Figure 2 Inward FDI in $ USD (Source: Johnson and Turner, 2006 p. 181) Some major UK enterprises have identified major impacts from the common currency even though they are located outside of the eurozone, and have shifted their accounting to the euro. This pressures small and medium-sized enterprises (SMEs) to face the cost of operating dual currency systems or risk potential losses (ibid).
Reid and Smith (2003) states that the UK firms that trade in the European Union have had to become more euro-literate. They argue that it is better to take on the currency risk and transaction costs by tendering, pricing and invoicing in euros than to retain the pound sterling pricing and risk losing market share.
Minford (2004) means that the greatest savings in reduced transaction costs are found where transactions are small and where banking systems are less advanced. Since Britain has advanced systems, the savings are said to be around 0.1 percent of GDP. The changeover cost for joining the EMU is estimated to be £30 billion. He calculates that this mean that the cost of joining the EMU and the gain in reduced transaction costs can be a zero-sum gain.
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The impact of price transparency has been seen in for example the pesticide industry, where UK suppliers had to drop their price radically in 2002 in order to compete with the continental Europe. Prices within whole industries were dropping as the eurozone transparency washed its way over Britain (van den Bos, 2003).
Even though there is theoretical gain for businesses if Britain where to join the EMU, research revealed in 2006 that 56.7 percent of UK exporters would say no to the euro (Business Credit, 2006).
“So much barbarism, however, still remains in the transactions of most civilised nations, that almost all independent countries choose to assert their nationality by having, to their own inconvenience and their neighbours’, a peculiar currency of their own.” - John Stuart Mill, 1848, quoted in Hitiris, 2003 p127
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4.0 Empirical Data
In presenting the collected quantitative data from the survey, this section provides statistical support for the findings, briefly discussing some correlations between answers, and tries to paint a picture of the investigated population in light of the perspective of the theoretical framework. The survey itself, complete with questions and answers, can be found in Appendix 3, and a small reference guide to statistical terms in Appendix 1.
4.1 Opinion on the EMU: The Main Question
As the final question in the distributed questionnaire, not counting an open field for feedback and opinions, the respondents were asked if they, through their perspective as representatives of their respective company, would like to see a future UK membership of the EMU.
Figure 3 Desired membership of the EMU This question, which the rest of the survey is, in one way or another, building up to, lies at the core of this investigation into the questioned companies’ perspective on a UK membership of the EMU. In the rest of the survey, different attempts have been made to create an understanding as to why this particular, Yes or No, view has been taken. 23
Presented in figure 1 are the answers to the question. Out of 83 respondents, 56, or 67.5%, wanted to see a UK membership in the EMU.
4.2 Size of Companies and Imports/Exports
Exports
One of the first hypotheses presented by the Theoretical Framework outlined earlier in this report is that bigger companies, with high levels of cross-border trade, would enjoy the greatest benefits from an economic monetary union. This is also part of this investigation’s second hypothesis put forward in the beginning of this report, that size and levels of import/export would be contributing variables in the investigation of desire for an EMU membership.
Figure 4 presents a series of tables (4.1ab-4.2ab) with some cross-tabulations from the survey, processed in the SPSS analytical software. These show the frequencies in answers to the question of desired membership of the EMU, as distributed among respondents on merit of UK turnover attributed to exports (a), and part of these exports that goes to EMU member states (b).
When investigating an association between variables in a data source, the Chi-Square test provides a probability rating of any observed association happening by chance, and thus enables its user to discard null hypotheses and effectively prove associations.
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Figure 4 Statistics – Exports and Desired Membership of EMU 4.1a) Cross-tabulation 4.1b) Cross-tabulation
Future EMU membership? Yes 0-9,9% UK turnover attributed to exports 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 3 0 1 0 5 6 12 8 12 9 0 56 No 7 6 3 2 2 1 1 1 2 1 1 27 10 UK exports to the EMU members 6 4 2 7 7 13 9 14 10 1 83 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% Future EMU membership? Yes 1 1 2 1 2 8 14 17 7 3 56 No 5 0 1 0 5 1 4 4 5 2 27 6 1 3 1 7 9 18 21 12 5 83
Total
Total
Total
Total
Saunders et al (2007) describes the prerequisites to performing these tests, including having no more than 20 per cent of the cells associated with a value less than 5. The accepted solution is to combine rows and/or columns as seen below (figure 4.2ab).
4.2a) Cross-tabulation
Future EMU membership? Yes UK total exports 0 - 49.9% 50 - 100% 9 47 56 No Exports EMU 20 7 27 29 54 83
4.2b) Cross-tabulation
Future EMU membership? Yes 0 - 49.9% 50 - 100% 7 49 56 No 11 16 27 18 65 83
Total
Total
Total
Total
Now, in these new cross-tabulations, the data is narrowed down into four cells, and is left with only one degree of freedom ((2-1)*(2-1)). Referring to the Chi-Square Table of Significance (see Appendix 1) found in Jacobsen (2002), the data produced in Chi-Square tests (See Appendix 2, tables 1 and 2) of these cross-tabulations constitute proof that there is very little risk for the association found between the variables to have been produced by chance.
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Both tests have a limit test value of 6.53 for 1% significance, and the Total Exports test reaches a value of 26.96, and that of EMU Member States Exports 8.56, which means that there is a statistical certainty of at least 99% that there are real associations between these variables. Thus, the null hypothesis of “There is no association between these variables” can be statistically discarded.
Furthermore, even the initial cross-tabulations paint a picture to the naked eye of increased desires for the UK to join the EMU as the level of exports increase.
Looking at the strength of the association, in terms of correlation between these variables, Spearman’s rho test is a statistical tool for measuring the level of correlation. Applied to the original data with all cells intact, the exports as part of turnover correlates negatively at -0.479, and the amount of exports that goes to the eurozone at -125 (Appendix 2, table 3). The first is a medium strength correlation, and the second shows no proven correlation at all.
The negative value is explained by the fact that a Yes answer in the survey to the question on EMU membership has been given the value 1, and No the value 2. Hence, an increase in exports leads the answers towards a desired membership in the EMU, or a Yes, with the lower numerical number, creating a negative correlation.
When calculated on the 2*2 matrix, both correlations are significantly strengthened, and the total exports show quite a strong correlation at -.570, while the EMU part is lifted above the limit for a weak correlation (+/-0.3) at -.321 (table 4 in Appendix 2). Emerged as the main “contributor” to the desire for membership, exports to EMU member states also seem to be on the rise since the introduction of the monetary union.
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Figure 5 Perceived Changes in Imports/Exports Here, when grading the “scale” from Decreased Significantly to Increased Significantly into numbers from 1 to 5, a mean value can be found of the perceived changes of exports to member states since the introduction of the euro in 1999 of 3.65, and of imports of 2.96. Roughly 41% of respondents has seen exports increase slightly, and 19% significantly. The same numbers for imports are approximately 23% and 6%, and more respondents have seen a decrease than the reverse.
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Imports
In terms of quantifying the imports of the respondents to this survey, beyond the perceived changes described above, the question asked was how much of their imports came from EMU member states.
Figure 6 Imports from EMU Members and Desired Membership of EMU 1. Cross-tabulation
Future EMU membership? Yes 0-9,9% Imports from EMU member states? 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 5 6 7 13 9 10 2 2 0 2 56 No Imports from EMU? 3 2 6 5 4 3 1 0 1 2 27 8 8 13 18 13 13 3 2 1 4 83 0 - 49.9% 50 - 100%
2. Cross-tabulation
Future EMU membership? Yes 40 16 56 No 20 7 27 60 23 83
Total
Total
Total
Total
Noticeably, and in complete contrast to the EMU member state exports, the large majority of respondents source less than 50% of their imports from the eurozone. Apart from this, this variable seems to have little association or correlation to the question of desired membership in the monetary union. Having tested the Spearman’s rho (Appendix 2, table 5), no correlation is found between the variables (-.034). The Chi-Square test (table 6) for the original data cells find a test value of 5.72, well below the 5% significance for 9 degrees of freedom (limit of 16.92), and carries 65% of the cells with sub-limit respondents (less than 5). When confined to a 2*2 grid of responses, and thus 1 degree of freedom, all cells are above the 5 response limit, but the value for significance is a mere 0.064 (table 7).
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Figure 7 Belief that an Enlargement of the EMU Would Mean New Suppliers Above, the question of the companies’ perception on how enlargement could bring new suppliers is presented, along with the respondents’ answers. Here, 49% of the respondents disagreed or strongly disagreed with the statement, and only 22% agreed.
Size
As for size in terms of turnover, the data suggests a correlation, but in terms of Chi-Square, it is harder to prove statistically that the association was not created by chance. This is due to the wide spread of company turnover among respondents, with many of the cells in between left blank.
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Cross-tabulation
Future EMU membership? Yes 0-99 999 999 100m – 199 999 999 Turnover, in GBP (£), in the UK 200m – 299 999 999 300m – 399 999 999 400m – 499 999 999 500m – 599 999 999 600m – 699 999 999 700m – 799 999 999 800m – 899 999 999 900m – 999 999 999 ?1 000 000 000 13 16 7 6 1 5 1 3 2 2 56 No 21 3 2 0 1 0 0 0 0 0 27 34 19 9 6 2 5 1 3 2 2 83
Total
Total
Figure 8 Turnover and Desired Membership of EMU In a test for correlation, namely Spearman’s rho, these two variables show a value of -0.503, indicating a medium strength negative correlation.
However, in terms of Chi-Square, this cross-tabulation has 75% of its cells under the minimum of 5 respondents, making conclusions from a test unreliable. In joining cells together, and decreasing the levels of freedom, a Chi-Square test gives the value 7.43, which indicates with 99% certainty that the association between these two variables is real and not coincidental, while there are still 25% of the cells with under 5 respondents, making it impossible to actually discard a null hypothesis in terms of the turnover variable.
For review of these tests, please refer to Appendix 2, tables 9 and 10, and for the correlation, see table 8.
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4.2 Benefits of an EMU Membership
Identified in the Theoretical Framework are some benefits for businesses in joining an economic monetary union.
As the main ones, most commonly mentioned in theory, this investigation has focused on three separate and distinct benefits; removal of exchange rate uncertainty; reduced transaction costs, and; increased Foreign Direct Investment flows.
Cross-tabulations
Cross-tabulation
Future EMU membership? Yes Elimination of Transaction Costs Strongly Disagree Disagree Neutral Agree Strongly Agree 0 1 35 20 56 No 17 4 6 0 27 17 5 41 20 83
Total
Total
Figure 9 Elimination of Transaction Costs and Desired EMU Membership When asked about the perceived benefits for their companies in a UK membership of the EMU, respondents were generally in agreement that the elimination of transaction costs would be a great positive in a future scenario of UK integration into the union.
About 49% of respondents agreed that this would be a benefit, 24% strongly agreed, and only 20% disagreed. No respondent strongly disagreed with this statement.
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Cross-tabulation
Future EMU membership? Yes Strongly Disagree Removal of Exchange Rate Uncertainty Disagree Neutral Agree Strongly Agree 1 0 31 24 56 No 18 2 7 0 27 19 2 38 24 83
Total
Total
Figure 10 Removal of Exchange Rate Uncertainty and Desired EMU Membership Removal of exchange rate uncertainty also received strong agreement from the respondents. This statement met more than 46% agreement and 29% strong agreement, only 23% in disagreement, and no strong disagreement.
Figure 11 Exchange Rate Fluctuations as a Problem When asked about exchange rate fluctuations as a problem for the companies, responses were generally in strong agreement.
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Cross-tabulation
Future EMU membership? Yes Strongly Disagree Increased Inflow of Foreign Investment Disagree Neutral Agree Strongly Agree 2 33 15 6 56 No 2 12 8 5 27 4 45 23 11 83
Total
Total
Figure 12 Inflow of Foreign Investment and Desired EMU Membership However, review of the responses to the statement of increased inflow of foreign investment as a result of a possible membership of the EMU shows more or less a reverse picture. A mere 13% were in agreement, none agreed strongly, and 59% of the respondents were in disagreement or strong disagreement with the notion of this benefit.
Correlation and Association
Statistical analysis of correlations between the desire for EMU membership and agreement with these three statements respectively through the use of Spearman’s rho show a very strong negative correlation between this desire and agreement with the two first statements, and almost none at all with the last one (table 11 in Appendix 2).
At -.812, the correlation between desired membership and the belief that this would lead to elimination of transaction costs has the strongest correlation of the tested data, approaching perfect negative correlation at -1.
Not far behind, is the -.775 negative correlation between said desire and belief in removal of exchange rate uncertainty.
On the other hand, there appears to be almost perfect independence between the desire for integration and belief that an increase in the inflow of foreign investment would follow, with a positive correlation of only .115.
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Associations to the main question in terms of significance proven by Chi-Square tests of 1% are strongly indicated towards both elimination of transaction costs and to removal of exchange rate uncertainty, with values of 56.018 and 52.665 respectively (limit at 3 degrees of freedom of 11.34). However, both tests carry 2 out of 6 cells with less than the minimum of 5 respondents, and consequently fail to reach the 20% requirement (albeit with only 5%) for the tests to be statistically conclusive.
As for the foreign investment statement, a Chi-Square test shows the very low value of 2.151, as well as 37.5% of the cells under the 5 respondent limit.
For full Chi-Square tests of these associations, please refer to tables 12-14 in Appendix 2.
4.3 Costs of an EMU Membership
Figure 13 Perceived Costs of EMU Membership As the main question showed quite a strong desire for a UK EMU membership, the bulk of statistical analysis has been focused on the reasons for this in terms of perceived benefits. However, if one was to investigate the reasons for not wanting to see such a membership, the costs listed in figure 11 could be influential factors.
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Clearly, the respondents to this survey have not seen the majority of these costs as influential in terms of their own businesses, apart from that of converting accounting and administration costs.
Looking at the correlations between agreement with these statements and the main question, there is a medium to strong positive correlation between all costs except for that of converting accounting and administration tools (see Table 12 below).
Correlations
Future EMU Membership? Correlation Coefficient Lack of economic convergence Sig. (2-tailed) N Correlation Coefficient Lack of political stability Sig. (2-tailed) N Correlation Coefficient Weakening of the UK economy as a whole Sig. (2-tailed) N Correlation Coefficient Trading in a less stable currency Sig. (2-tailed) N Correlation Coefficient Conversion of accounting and administration tools Sig. (2-tailed) N ** Correlation is significant at the 0.01 level (2-tailed). ,524(**) ,000 83 ,472(**) ,000 83 ,617(**) ,000 83 ,572(**) ,000 83 ,167 ,132 83
Figure 14 Spearman’s rho – Costs and Desire for EMU Membership
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5.0 Analysis
This part of the report contains analysis and discussion on the findings presented in the previous section of Empirical Data. Connections are made back to the hypotheses approached in this survey, outlined in the introductory part of the report, and attempts are made to tie the investigation together towards the conclusions.
5.1 Primary Hypothesis - Desire for EMU Membership
With a positive response to the main question of the questionnaire, “Would you, as a representative of your company, like to see a UK membership of the EMU, and subsequently an introduction of the Euro in the United Kingdom?”, of 67.5%, the main hypothesis, that UK chemical manufacturing exporters want a UK membership of the EMU, is supported.
Research presented in the Theoretical Framework showed a majority of UK exporters as negative towards a UK membership. This difference in results would suggest that the incentives for joining the EMU were stronger in the investigated population of this study.
The difference in opinion between respondents in the two surveys may simply be due to the size of the companies, as the companies surveyed in this study were chosen for their size and thus the size of their import/export and exposure to factors related to currency.
Meanwhile, while it is not clear in the Business Credit article what selection of UK exporters that is represented in these numbers, the reasons for their negative stance are listed: 43,7% believe it would contribute to a European super-state; 37,6% are concerned about the constitutional implications, and; 18.7% believe it would weaken relations with the U.S. These are not considerations taken into account in this study, and a comparison between the results is therefore difficult.
Several sources cited in the theory presented incentives for businesses to desire an EMU membership as strongest among larger companies with high levels of cross-border trade. If the surveyed population is, in fact, generally more in line with these factors, it should be due 36
to the deliberate selection of the investigators of a population which would fit these criteria, in order to gain the highest possible level of insight into which of the perceived benefits and/or costs that influences the desire most notably.
The approach of this study, and the design of the hypotheses tested, was designed so as to find out how the general opinion of this population in terms of a UK EMU membership is directed, and then, based on the theoretically portrayed benefits of such a membership for businesses of this type, attempt to shed light on the reasoning behind these opinions, or desires.
In terms of actually proving the hypotheses, this one can not really be assigned a null hypothesis to be disproved, as it is not quite absolute. It can, however, be said that there is a very strong trend in this population, and a strong majority, towards the desire for a UK membership of the European economic monetary union.
5.2 Second Hypothesis – Issues of Size and Imports/Exports
As mentioned above, theory suggests that these factors, of size and levels of cross-border trade, should play a major role in determining the extent to which companies will benefit from economic integration. Thus, a logical extension of these theories would be that larger companies that fit these descriptions would lean towards positive responses to the question asked for the primary hypothesis.
Statistical review of the level of exports in relation to answers to the question of EMU membership shows beyond reasonable doubt that these variables are associated, and null hypotheses to the contrary can easily be discarded. In short, companies with higher levels of exports, both in total, and to the eurozone in particular, tend to have a greater desire for integration. The strength of these correlations, as supposed to the ruling out of chance creating association between the variables, is quite strong in the case of total exports as part of turnover, and weaker but above the lower level of proven correlation with the EMU exports.
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In contrast, level of imports that these companies source from the eurozone, seems to have no real association or correlation to the main question. This was quite surprising, along with the fact that a clear majority of respondents did not see that an enlargement of the EMU would mean additional suppliers for the companies to source from. Theory says that economic integration brings greater price transparency, which, if effective, will force prices down, by increasing competition in supplier markets and reducing the prices of intermediate goods in business-to-business transactions.
When looking at size in terms of pure turnover, association to the main question is harder to prove beyond chance as the values of this variable are very disparate, but the correlation seems apparent on review, and carries medium strength when tested. All of these factors, as mentioned, have been put forward by theory, and all seem very logical when considering the increased impact of the following factors when business increases in size, and the percentage of turnover attributed to exports and that of total imports attributed to affected host nations rises.
5.3 Third to Fifth Hypotheses - Benefits of an EMU Membership
Again, theorists are agreed when stating that the following three benefits of economic integration should constitute strong incentives for businesses in terms of being positive towards a national membership of the EMU.
Elimination of Transaction Costs
Transaction costs are removed as conversion of currencies in trade become superfluous in the process adopting a common currency. Efficient financial markets follow, with reduced costs and increased access to capital. Naturally, companies with high levels of cross-boarder trade are affected by this, and should see it as a great positive of EMU membership.
A large majority of the respondents agreed with the statement that a future UK membership in the monetary union would create benefits for their business in the form of eliminated transaction costs, and only one fifth of the answers were in disagreement.
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The research found that many larger corporations – especially in economies with developed financial systems – will already have systems in place to reduce the costs of financial transactions related to currencies. This was not entirely corroborated in the findings of this study in that the respondents viewed reduction of transaction costs and simplified accounting tools as potential benefits of the UK joining the EMU. Furthermore, only about 36% of respondents stated that their company already used the Euro as one of their accounting currencies.
74,4% of respondents agreed with the statement that the conversion of accounting and administration tools would constitute a cost for the company if the UK was to join the EMU.
Correlation to the main question here was the strongest found in the investigation, closing in on perfect correlation between the variables. However, the extremely high value shown in a test for significance is somewhat clouded by the fact that answers failed to cover enough of the response options, making it impossible to completely rule out chance as having orchestrated the association, if only by a small margin.
Removal of Exchange Rate Uncertainty
In establishing a common currency, the need for hedging against exchange rate uncertainty is removed, creating a more equal marketplace, and allowing companies to use the capital saved to lower prices on their products and/or services. Also, the removal of exchange rate uncertainty, and thus of the need for hedging, simplifies the investment planning process, leading to more trade with the rest of Europe and increased foreign investment flows.
When asked about whether or not they see this aspect of integration as a possible benefit for their company in a UK membership of the EMU, most respondents were in strong agreement with theory, and the mean value of agreement (as graded between 1-5) was the highest in the study (3.81).
As for correlation and association to the question of desired EMU membership, this variable showed more or less parallel values to that of transaction costs, with the same strong
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correlation, and the slight margin making it impossible to positively discard a null hypothesis against an association between these two variables.
Increased Inflow of Foreign Direct Investment
Since the shift to the new millennium, the inflow of foreign direct into the United Kingdom has seen a sharp decrease. With theory supporting increased flows of investments across boarders of economically integrated countries, this is a possible great positive for business in general, and in light of recent developments, for that in the UK in particular.
However, the views presented in this study shows that these companies do not share this view with the theorists, and the numbers on agreement are essentially reversed from the two other benefits. If this is simply because individual companies fail to see this as a beneficial prospect for their particular businesses, or if it is an outlook that they generally do not believe in, the figures fail to disclose.
Furthermore, neither correlation nor association with the main question exists here.
5.4 Sixth Hypothesis – Costs of an EMU Membership
With the finding that the main hypothesis was in fact supported by the collected empirical data, the focus on explaining the underlying factors to this view among the companies fell naturally on the perceived benefits of a UK membership of the EMU and an introduction of the Euro in the United Kingdom. Thus, a review of the cost factors becomes more of a control of consistency in responses, as well as a means to explain why some of the companies would take a negative stance against the question of desired UK participation in the final stages of European economic integration.
Issues listed as possible costs, and generally not considered to be influential in deciding if the UK should join in with the rest of the eurozone and adopt the euro, include “lack of economic convergence”, “lack of political stability”, “weakening of the UK economy as a whole”, and “trading in a less stable currency”.
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All of these also show a medium to strong correlation to the question of the primary hypothesis, where respondents that want a membership show stronger disagreement in these issues.
The one cost that received a wide agreement among respondents was that of conversion costs of accounting and administration tools in the face of an EMU membership. Here, there was no correlation with the main question, as about three quarters of the respondents agreed with this cost, more or less regardless of views in other questions. This could imply that this cost was a given, which held little weight when put to the scales along with other issues on this general subject.
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6.0 Conclusions
In this final section of the report, conclusions are drawn from the findings of the study, and the discussions in the analysis, the hypotheses are confirmed and/or rejected and suggestions for further study are made.
6.1 Problem Defined
Through the perspective of UK chemical export companies, is a UK membership of the EMU desirable, and if so, which perceived benefits and/or costs of such a membership have the strongest impact on this desire, and what roles do size and levels of imports/exports play?
The hypotheses outlined and analysed in this study have been approached with this problem in mind. Straight away, the question of whether or not the investigated population would like to see a future integration of the UK into the European monetary union stands out as the main focus, and from this, the study continues to examine the underlying reasoning of the responding companies.
6.2 Hypotheses
H1) UK chemical exporting companies want a UK membership in the EMU As the main question asked in this study, this hypothesis has been directly supported by simply asking the respondents for a Yes or No answer, where a two-to-one majority were positive to such a prospect. Then, by elaborating on underlying reasoning to these opinions, H1 has been indirectly supported through strong trends in other data.
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H2) Issues of size and levels of exports/imports are factors in determining desire for a membership
Secondary data in the form of the theoretical framework to this study agrees with the primary data of the survey when it describes a correlation between the size and levels of exports of companies, and their desire for economical and monetary integration. In short, larger companies, with high levels of exports, have a greater desire for this type of integration.
However, the trial of this hypothesis also discovered an anomaly in terms of the views in theory on the correlation between levels of imports and desire for integration. Higher levels are known or believed to correlate with a desire for integration, while the study showed no such correlation.
H3) Reducing transaction costs is a factor which has a strong impact on the business desire for the UK to join the EMU
In complete agreement with secondary data in the theoretical framework, the survey showed a very strong correlation between beliefs in the reduction of transaction costs as a consequence and benefit of joining the EMU, and a desire for the UK to do so.
It should be noted, however, that chance could not be entirely ruled out as the creator of this statistical correlation.
H4) Elimination of exchange rate uncertainty is a factor which has a strong impact on the business desire for the UK to join the EMU
A strong correlation was shown in the study between a belief in the fact that a membership of the EMU would bring elimination of exchange rate uncertainty, as a benefit for respondents, and a desire for such a membership among these companies. This is in full agreement with the theoretical framework. However, the impact of chance on this finding could not be entirely ruled out.
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H5) An increase of Foreign Direct Investments (FDI) is a factor which has a strong impact on the business desire for the UK to join the EMU
In contrast to the perspective on increased inflow of foreign investment in reviewed theory as a benefit for business and consequence of EMU membership, the study of the UK chemical manufacturing industry showed little belief in this prospect in the surveyed population.
No correlation was found between the disbelief in this factor as a possible benefit of EMU membership, and the hypothesis can be discarded.
H6) Perceived costs influence the overall desire for a UK EMU membership towards a nullification of the primary hypothesis
As the primary hypothesis found support, this hypothesis can be instantly discarded.
However, a review of the perceived costs of EMU membership found correlations between disbelief in the impact of these costs, namely; lack of economic convergence; lack of political stability; weakening of the UK economy as a whole, and; trading in a less stable currency: and the desire for UK EMU membership.
The one cost that found support as a potential negative consequence of a membership was that of converting accounting and administration tools. Still, this seemed to have little effect on other variables and opinions.
6.3 Suggestions for Further Study
Interesting discoveries of this study that the authors would like to get the opportunity to investigate further in the future, were those of how levels of imports or the prospect of increased foreign investments did not correlate with the desire for a UK EMU membership. Additionally, a larger study with fewer “response cells” below 5 responses in order to rule out chance in correlations could be another goal for further studies.
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Appendices
Appendix 1 – Statistics
Commonly Used Terms in Statistics Compiled from Saunders et al (2003)
Chi-Square Test Statistical test to determine the probability that two data variables are associated. A common use is to discover whether there are statistically significant (significance) differences between observed frequencies and the expected frequencies of two variables presented in a crosstabulation.
Level of Significance Degrees of Freedom 1 2 3 4 5 6 7 8 9 10 15 20 25 30 5% 3,84 5,99 7,82 9,49 11,07 12,59 14,07 15,51 16,92 18,31 25,00 31,41 37,65 43,77 1% 6,53 9,21 11,34 13,28 15,09 16,81 18,48 20,08 21,67 23,21 30,58 37,57 44,31 50,89
Simplified Chi-Square Table (Adapted from Jacobsen, 2002)
Degrees of Freedom The number of values free to vary when computing a statistic, calculated as: (number of rows in the table - 1) * (number of columns in the table -1).
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Significance A result is called significant if it is unlikely to have occurred by chance. A probability (significance) of 0.05 means that there is only a 5 per cent chance of the data occuring by chance alone.
Correlation Coefficient Number between +1 and -1 representing the strength of the relationship between two quantifiable or ranked variables. Correlation coefficients between +1 and -1 represent weaker positive and negative correlations as +1 represents a perfect positive correlation and -1 represents a perfect negative correlation. A value of 0 therefore represent that the variables are perfectly independent Spearman’s Rank Correlation Coefficient (Spearman’s Rho) Statistical test that assesses the strength of the relationship (correlation) between two ranked variables. It is also important to calculate the probability of the correlation having occurred by chance alone (significance).
-1
-0,7
-0,3
0
+0,3
+0,7
+1
perfect negative
strong negative
weak negative
perfect independence
weak positive
strong positive
perfect positive
Values of the Correlation Coefficient (Adapted from Saunders et al, 2003, p 363)
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Appendix 2 – Statistical Tests
Chi-Square Test – UK total exports * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 9,43. 26,636 83 1 ,000 26,961(b) 24,470 27,135 df 1 1 1 Asymp. Sig. (2-sided) ,000 ,000 ,000 ,000 ,000 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 1 Chi-Square Test – UK Total Exports and Desired EMU Membership Chi-Square Test – Exports to EMU * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 5,86. 8,451 83 1 ,004 8,555(b) 6,973 8,107 df 1 1 1 Asymp. Sig. (2-sided) ,003 ,008 ,004 ,009 ,005 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 2 Chi-Square Test – EMU Member States Exports and Desired EMU Membership
Correlations Future EMU Membership? Correlation Coefficient Spearman's rho UK turnover attributed to exports Sig. (2-tailed) N Correlation Coefficient UK exports to EMU member states Sig. (2-tailed) N -,479(**) ,000 83 -,125 ,258 83
** Correlation is significant at the 0.01 level (2-tailed).
Table 3 Spearman’s rho – Exports and Desired EMU Membership (full cell data)
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Correlations Future EMU Membership? Correlation Coefficient Spearman's rho UK turnover attributed to exports Sig. (2-tailed) N Correlation Coefficient UK exports to EMU member states Sig. (2-tailed) N -,570(**) ,000 83 -,321(**) ,003 83
** Correlation is significant at the 0.01 level (2-tailed).
Table 4 Spearman’s rho – Exports and Desired EMU Membership (cells limited to 2*2)
Correlation Future EMU Imports (to the UK) from Membership? EMU member states? Correlation Coefficient Future EMU Membership? Spearman's rho Sig. (2-tailed) N Correlation Coefficient Sig. (2-tailed) N 1,000 . 83 -,034 ,762 83 -,034 ,762 83 1,000 . 83
Imports (to the UK) from EMU member states?
Table 5 Spearman’s rho – EMU Imports and Desired EMU Membership Chi-Square Test – Imports from EMU * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 5,724(a) 6,458 ,004 83 df 9 9 1 Asymp. Sig. (2-sided) ,767 ,693 ,950
a 13 cells (65,0%) have expected count less than 5. The minimum expected count is ,33.
Table 6 Chi-Square Test – Imports from EMU and Desired EMU Membership
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Chi-Square Test – Imports from EMU * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (,0%) have expected count less than 5. The minimum expected count is 7,48. ,063 83 1 ,802 ,064(b) ,000 ,064 df 1 1 1 Asymp. Sig. (2-sided) ,801 1,000 ,800 1,000 ,509 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 7 Chi-Square Test – Imports from EMU and Desired EMU Membership (Turnover combined into two cells)
Correlation Future EMU Membership? Correlation Coefficient Future EMU Membership? Spearman's rho Sig. (2-tailed) N Correlation Coefficient Turnover in the UK? Sig. (2-tailed) N 1,000 . 83 -,503** ,000 83 Turnover in the UK? -,503** ,000 83 1,000 . 83
**. Correlation is significant at the 0.01 level (2-tailed).
Table 8 Spearman’s rho – Turnover and Desired EMU Membership
Chi-Square Test – Turnover * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 25,540(a) 30,598 13,403 83 df 9 9 1 Asymp. Sig. (2-sided) ,002 ,000 ,000
a 15 cells (75,0%) have expected count less than 5. The minimum expected count is ,33.
Table 9 Chi-Square Test – Turnover and Desired EMU Membership
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Chi-Square Test – Turnover * Desired EMU Membership
Value Pearson Chi-Square Continuity Correction(a) Likelihood Ratio Fisher's Exact Test Linear-by-Linear Association N of Valid Cases a Computed only for a 2x2 table b 0 cells (25,0%) have expected count less than 5. The minimum expected count is 4,23. 7,342 83 1 ,007 7,432(b) 5,778 11,362 df 1 1 1 Asymp. Sig. (2-sided) ,006 ,016 ,001 ,007 ,004 Exact Sig. Exact Sig. (2-sided) (1-sided)
Table 10 Chi-Square Test – Turnover and Desired EMU Membership (Turnover combined into two cells)
Correlations
Desired EMU Membership?
Correlation Coefficient -,812(**) ,000 83 -,775(**) ,000 83 ,115 ,301 83
Elimination of transaction costs
Sig. (2-tailed) N Correlation Coefficient
Spearman's rho
Removal of exchange rate uncertainty
Sig. (2-tailed) N Correlation Coefficient
Increased inflow of foreign investment
** Correlation is significant at the 0.01 level (2-tailed).
Sig. (2-tailed) N
Table 11 Spearman’s rho – EMU Membership Benefits and Desire for EMU Membership Chi-Square Test – Transaction Costs * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 56,018(a) 65,572 51,409 83 df 3 3 1 Asymp. Sig. (2-sided) ,000 ,000 ,000
a 2 cells (25,0%) have expected count less than 5. The minimum expected count is 1,63.
Table 12 Chi-Square Test – Elimination of Transaction Costs and Desired EMU Membership
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Chi-Square Test – Exch. Rate Uncertainty * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 52,665(a) 60,571 48,944 83 df 3 3 1 Asymp. Sig. (2-sided) ,000 ,000 ,000
a 2 cells (25,0%) have expected count less than 5. The minimum expected count is ,65.
Table 13 Chi-Square Test – Removal of Exchange Rate Uncertainty and Desire for EMU Membership Chi-Square Test – Inflow of Foreign Investm. * Desired EMU Membership
Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 2,151(a) 2,097 ,629 83 df 3 3 1 Asymp. Sig. (2-sided) ,542 ,553 ,428
a 3 cells (37,5%) have expected count less than 5. The minimum expected count is 1,30.
Table 14 Chi-Square Test – Increased Inflow of Foreign Investment and Desire for EMU Membership
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Appendix 3 – Survey
Note: The graphic bars in these results have been somewhat distorted.
Results: The UK Chemical Manufacturing Industry and the Euro
1) Which position do you hold within your company?
Percentage Responses Chief Communications Officer Chief Executive Officer Chief Financial Officer Chief Information Officer Chief Marketing Officer Other 7.2 1.2 0.0 1.2 13.3 77.1 Total responses: 6 1 0 1 11 64 83
2) Please confirm that you have the relevant insight concerning your company's international business related to payments.
Percentage Responses True False 100.0% 0.0% Total responses: 83 0 83
3) Please indicate the turnover, in Pound Sterling (£), of your company in the UK.
Percentage Responses 0-99 999 999 100 000 000-199 999 999 200 000 000-299 999 999 300 000 000-399 999 999 400 000 000-499 999 999 500 000 000-599 999 999 600 000 000-699 999 999 700 000 000-799 999 999 800 000 000-899 999 999 900 000 000-999 999 999 1000 000 000 or more 41.0 22.9 10.8 7.2 2.4 6.0 1.2 3.6 2.4 2.4 0.0 Total responses: 34 19 9 6 2 5 1 3 2 2 0 83
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4) Please indicate the number of employees that your company employs in the UK.
Percentage Responses 0-4 999 5 000-5 999 10 000-14 999 15 000-19 999 20 000-24 999 25 000-29 999 30 000-34 999 35 000-39 999 40 000-44 999 45 000-49 999 50 000 or more 75.9 15.7 7.2 0.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 Total responses: 63 13 6 0 1 0 0 0 0 0 0 83
5) Please specify what type/-s of customers your company deals with.
Percentage Responses Businesses Consumers Both businesses and consumers 69.9 4.8 25.3 Total responses: 58 4 21 83
6) Please specify the type/-s of chemicals that your company produces (all that applies)
Percentage Responses Pharmaceuticals Basic organics Soaps, toiletries and/or cleaning preparations Paints, varnishers and/or printing incs Plastics and/or synthetic rubbers Basic inorganics Industrial gases Agrochemicals Dyes and/or pigments Fertilisers 9.9 14.3 6.8 6.2 8.1 14.9 1.2 4.3 7.5 4.3
16 23 11 10 13 24 2 7 12 7
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Man-made fibers Other specialities
1.2 21.1
2 34
7) How much of your UK turnover could be attributed to exports?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 12.0 7.2 4.8 2.4 8.4 8.4 15.7 10.8 16.9 12.0 1.2 Total responses: 10 6 4 2 7 7 13 9 14 10 1 83
8) Which EMU member states do you export to from the UK (please tick all that applies)?
Percentage Responses Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain None 7.7 9.1 6.5 9.2 9.5 7.7 8.5 7.8 3.0 9.7 7.4 4.0 9.1 0.7
53 63 45 64 66 53 59 54 21 67 51 28 63 5
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9) How much of your UK exports goes to these EMU member states?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 7.2 1.2 3.6 1.2 8.4 10.8 21.7 25.3 14.5 6.0 0.0 Total responses: 6 1 3 1 7 9 18 21 12 5 0 83
10) Do you source any products or services (to the UK) from EMU member state suppliers? Please tick the applicable boxes below for the member states that you source from (or the "None" box if you do not source from any EMU member states).
Percentage Responses Austria Belgium Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Slovenia Spain None 4.8 8.3 3.5 11.5 14.7 4.5 6.1 11.9 0.3 14.7 6.1 2.2 9.0 2.2
15 26 11 36 46 14 19 37 1 46 19 7 28 7
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11) How much of your imports (to the UK) comes from these EMU member states?
Percentage Responses 0-9,9% 10-19,9% 20-29,9% 30-39,9% 40-49,9% 50-59,9% 60-69,9% 70-79,9% 80-89,9% 90-99,9% 100% 9.6 9.6 15.7 21.7 15.7 15.7 3.6 2.4 1.2 4.8 0.0 Total responses: 8 8 13 18 13 13 3 2 1 4 0 83
12) Have you seen an increase/decrease in export and/or import to/from the EMU member states (to/from the UK) since the introduction of the Euro in 1999?
1 2 Decreased Decreased significantly slightly Export Import 1 (1.20%) 5 (6.02%) 10 (12.05%) 22 (26.51%) 3 No real change 22 (26.51%) 32 (38.55%) 4 5 Increased Increased Responses slightly significantly 34 (40.96%) 19 (22.89%) 16 (19.28%) 5 (6.02%) 83 83 Average Score 3.65 / 5 (73.00%) 2.96 / 5 (59.20%) 3.31 / 5 (66.20%)
13) Which of the following currencies is your accounting currency/-ies in the UK (please tick all that applies)?
Percentage Responses Pound Sterling (£) US Dollar ($) Euro (€) Other/-s 49.7 25.8 20.2 4.3
81 42 33 7
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14) Are you insured against exchange rate fluctuations (please indicate type/-s of insurance/-s if you are)?
Percentage Responses Futures Options Other/-s No, we are not insured 12.4 4.5 21.3 61.8
11 4 19 55
15) "Exchange rate fluctuations is a problem for our company".
1 Strongly disagree Exchange Rate Fluctuations 1 (1.20%) 2 Disagree 17 (20.48%) 3 Neutral 10 (12.05%) 4 Agree 28 (33.73%) 5 Strongly Agree 27 (32.53%) Responses Average Score 3.76 / 5 (75.20%) 3.76 / 5 (75.20%)
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16) "The general level of prices in our EMU marketplace has changed since the introduction of the Euro in 1999, due to issues related to the currency (such as price convergence)".
1 Strongly disagree General change in prices 1 (1.20%) 2 Disagree 19 (22.89%) 3 Neutral 17 (20.48%) 4 Agree 43 (51.81%) 5 Strongly Agree 3 (3.61%) Responses Average Score 3.34 / 5 (66.80%) 3.34 / 5 (66.80%)
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17) "We have noticed a change in prices from our EMU member state suppliers since the introduction of the Euro in 1999, due to issues related to the currency".
1 Strongly disagree Difference in supplier prices 1 (1.20%) 2 Disagree 15 (18.07%) 3 Neutral 19 (22.89%) 4 Agree 43 (51.81%) 5 Strongly Agree 5 (6.02%) Responses Average Score 3.43 / 5 (68.60%) 3.43 / 5 (68.60%)
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59
18) "Since 1999 and the introduction of the Euro, we have experienced an increased need for price adaptation in the EMU marketplace".
1 Strongly disagree Need for price adaptation 2 (2.41%) 2 Disagree 38 (45.78%) 3 Neutral 26 (31.33%) 4 Agree 16 (19.28%) 5 Strongly Agree 1 (1.20%) Responses Average Score 2.71 / 5 (54.20%) 2.71 / 5 (54.20%)
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19) Do you use differenciated pricing in your EMU marketplace?
Percentage Responses Yes No 65.1% 34.9% Total responses: 54 29 83
20) "We have become more prone to invest towards the EMU member states since the introduction of the Euro in 1999".
1 Strongly disagree Investment towards EMU member states 2 Disagree 3 Neutral 4 Agree 5 Strongly Agree Responses Average Score
2 (2.41%)
40 (48.19%)
24 (28.92%)
16 (19.28%)
1 (1.20%)
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2.69 / 5 (53.80%) 2.69 / 5 (53.80%)
21) "Enlargement of the EMU is and will be affecting our company in terms of":
1 Strongly disagree New suppliers New markets Increased competition No affect 6 (7.23%) 2 (2.41%) 1 (1.20%) 24 (28.92%) 2 Disagree 35 (42.17%) 14 (16.87%) 15 (18.07%) 39 (46.99%) 3 Neutral 24 (28.92%) 8 (9.64%) 10 (12.05%) 14 (16.87%) 4 Agree 18 (21.69%) 47 (56.63%) 49 (59.04%) 6 (7.23%) 5 Strongly Agree 0 (0.00%) 12 (14.46%) 8 (9.64%) 0 (0.00%) Responses Average Score 2.65 / 5 (53.00%) 3.64 / 5 (72.80%) 3.58 / 5 (71.60%) 2.02 / 5 (40.40%) 2.97 / 5 (59.40%)
83 83 83 83
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22) "A future UK membership of the EMU would benefit our company in terms of":
1 Strongly disagree Elimination of transaction costs Removal of exchange rate uncertainty Increased inflow of foreign investment Trading in a strong, combined European currency Simplified accounting and administration 0 (0.00%) 2 Disagree 17 (20.48%) 3 Neutral 4 Agree 41 (49.40%) 5 Strongly Agree 20 (24.10%) Responses Average Score 3.77 / 5 (75.40%)
5 (6.02%)
83
0 (0.00%)
19 (22.89%)
2 (2.41%)
38 (45.78%)
24 (28.92%)
83
3.81 / 5 (76.20%)
4 (4.82%)
45 (54.22%)
23 (27.71%)
11 (13.25%)
0 (0.00%)
83
2.49 / 5 (49.80%)
4 (4.82%)
37 (44.58%)
23 (27.71%)
19 (22.89%)
0 (0.00%)
83
2.69 / 5 (53.80%)
8 (9.64%)
15 (18.07%)
4 (4.82%)
45 (54.22%)
11 (13.25%)
83
3.43 / 5 (68.60%) 3.24 / 5 (64.80%)
23) "A future UK membership of the EMU would cost our company in terms of":
1 Strongly disagree Lack of economic convergence Lack of political stability Weakening of the UK economy as a whole Trading in a less stable currency Conversion of accounting and administration tools 3 (3.61%) 2 Disagree 40 (48.19%) 42 (50.60%) 3 Neutral 26 (31.33%) 26 (31.33%) 4 Agree 12 (14.46%) 5 Strongly Agree 2 (2.41%) Responses Average Score 2.64 / 5 (52.80%) 2.48 / 5 (49.60%)
83
6 (7.23%)
7 (8.43%)
2 (2.41%)
83
21 (25.30%)
33 (39.76%)
17 (20.48%)
11 (13.25%)
1 (1.20%)
83
2.25 / 5 (45.00%)
3 (3.61%)
35 (42.17%)
20 (24.10%)
24 (28.92%)
1 (1.20%)
83
2.82 / 5 (56.40%)
1 (1.20%)
6 (7.23%)
4 (4.82%)
62 (74.70%)
10 (12.05%)
83
3.89 / 5 (77.80%)
2.82 / 5 (56.40%)
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24) Could you estimate (subjectively) how much the fact that the UK remains outside of the EMU costs your company annually (in terms of bank fees, transaction costs, administration etc)?
1 No cost Cost 7 (8.43%) 2 4 3 5 Negligibly Significant Responses Some cost High cost small cost cost 34 (40.96%) 31 (37.35%) 11 (13.25%) 0 (0.00%) 83 Average Score 2.55 / 5 (51.00%) 2.55 / 5 (51.00%)
25) Now, could you estimate your percieved financial benefits if the UK was to join the EMU (in regard to the previous question)?
2 1 Negligibly No benefit small benefit Benefit 11 (13.25%) 25 (30.12%) 3 Some benefit 26 (31.33%) 4 Significant benefit 16 (19.28%) 5 High benefit 5 (6.02%) Average Score 2.75 / 5 (55.00%) 2.75 / 5 (55.00%)
Responses
83
26) Would you, as a representative of your company, like to see a UK membership of the EMU, and subsequently an introduction of the Euro in the United Kingdom?
Percentage Responses Yes No 67.5% 32.5% Total responses: 56 27 83
27) Please add any additional thoughts or comments below, related to the questions asked or the survey as such.
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Appendix 4 – E-mail Sent to Respondents
Request for participation in a Survey of the UK Chemical Manufacturing Industry
Please note: this survey is aimed at your company specifically, and depend heavily on low loss of participation.
To whom it may concern Dear Sir or Madam, We are two Swedish students studying our final year of Undergraduate studies towards Bachelor’s degrees in International Business Management and Strategy, at the University of Westminster and Lincoln respectively, out of Halmstad University in Sweden. As the final part of our studies before we graduate, we are now writing a dissertation exploring the views on the European common currency in the Chemical Manufacturing Industry of the United Kingdom. Because this survey investigates questions related to currency, markets and exports/imports, would you please make sure that this letter reaches the appropriate respondent for these types of questions within your company. The analysis and discussion of our dissertation will be based and centred on a survey aimed specifically at your company and 187 of your fellow UK Chemical Manufacturers, a selection based on the Chemical Industry Association’s list of full members. This limited number of possible respondents makes it crucial that we limit the number of companies that choose not to participate in the survey. We therefore humbly plead that you consider sparing us and our survey a few minutes of your time. Our reasons for targeting your industry in particular are based on many factors supported by theory on this subject, with the fact that the value of your exports outweighs any other sub-sector of the UK Manufactured Goods Industry as the most decisive. In seven sections, many of which will take no more than a few seconds to respond to, we ask mainly for some basic information surrounding your business, your import/export relationships with the members of the EMU, and finally for your view on the UK staying outside of the common currency integration of the European economies. All things considered, the survey should take you no more than 5-10 minutes to complete in total. You will find the survey, which is web-based, through the following hyperlink (copy and paste it into your address field if you can not "click" it):
http://FreeOnlineSurveys.com/rendersurvey.asp?sid=z6laj340o1mrx0l287230
Should you wish to review our findings, which should be ready in early June, we will be glad to send you a summary along with our full report. Please reply to this e-mail (to [email protected]), and we will save your address for when our work is completed. If you feel that someone else in your organisation would be better equipped to answer the questions raised in this survey, please forward this letter to that person.
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Our survey will be conducted over the next couple of weeks, and we would therefore kindly ask you to spare the time to answer these questions before the 18 of May at the very latest. Naturally, all participants will be treated anonymously. Thank you very much for your time. Yours faithfully,
Olof Lindh and Fredrik Bonat University of Westminster University of Lincoln Halmstad University +447928792944 +447847220767
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