The Impact of Europe 1992—Internal and External
The Impact of Europe 1992—Internal and External
There are several major internal concerns about Europe 1992. The first is the spread of bureaucracy, centralization, overregulation, and socialism on the part of the free market side of the EC members, especially Britain. As former U.K. Prime Minister Margaret Thatcher said, "We haven't worked all these years to free Britain from the paralysis of socialism only to see it creep through the back door of central control and bureaucracy from Brussels."18
A second problem is the acceptance of key changes, such as the harmonization of the VAT. Although consumers in high-tax countries might welcome the lowering of the average VAT, consumers in low-tax countries will not appreciate the increase of the average VAT.
A third problem is the potential effect on unemployment. Although most experts believe that Europe 1992 will bring faster economic growth and the creation of jobs, local unions are not convinced. In northern Europe, in particular, unions are concerned that the free movement of capital will cause firms to seek lower costs in southern Europe.
A fourth problem is the possible elimination of small and medium-sized firms. This could occur for two different reasons. The first is elimination due to competition, since the freeing up of borders should expand the reach of large, efficient firms as they take advantage of better distribution systems. The second is the wave of mergers and acquisitions taking place as firms attempt to grow in order to compete with U.S. and Japanese rivals in Europe.
The major external concern of Europe 1992 is often referred to as "Fortress Europe." The fear is that European regulations will favor European firms and exclude foreign, especially U.S. and Japanese, firms. While that does not seem to be the case up to this point, foreign firms are adopting a variety of strategies to reserve a place in Europe. Some large MNEs, such as Ford, Coca-Cola, and IBM, are more European than are the European firms in terms of their geographic spread, as we saw in the opening case. The medium-sized firms that are currently operating in Europe are taking part in the merger and acquisition wave to expand their size and market share. Those that are servicing Europe merely through exports are establishing offices in order to have a physical presence.19 Those that have avoided Europe are now looking carefully at it as a market of 320 million consumers and a GNP in excess of $4 trillion.
An example of the impact of 1992 on corporate strategy, other than the Ford example in the opening incident, is that of Philips, the large Dutch electronics firm. Philips operates around Europe (as do the U.S. multinationals) by moving parts and components to different countries for final assembly and sale, as well as by centralizing the manufacture of finished goods and shipping them to distribution centers around Europe. In the pre-1992 environment, Philips management estimated that trucks spent 30 percent of their travel time waiting in customs lines. Factories could never tell when they would ci-devdopmeiif coststories, averaging 23 percent of sales as compared to around 14 percent for U.S. and Japanese manufacturers. Local standards caused Philips to have large product lines. Because of the 1992 regulations that are being issued, Philips management feels that it will be able to save $300 million per year by 1992 in transportation, warehousing, and clerical costs. As local standards vanish, Philips will be able to shrink its product lines and standardize its parts and components even more, thus increasing quality and lowering costs. In one of its television plants, Philips has 70 engineers who do nothing but adjust models to local European technical requirements. These jobs will be eliminated as management eliminates different models. These are not the only jobs that will be eliminated, however. In late 1990, Philips management announced that 45,000 jobs, or about one-sixth of Philips' worldwide work force, would be eliminated by the end of 1991. In all, 1992 is expected to increase efficiency and lower costs.
There are several major internal concerns about Europe 1992. The first is the spread of bureaucracy, centralization, overregulation, and socialism on the part of the free market side of the EC members, especially Britain. As former U.K. Prime Minister Margaret Thatcher said, "We haven't worked all these years to free Britain from the paralysis of socialism only to see it creep through the back door of central control and bureaucracy from Brussels."18
A second problem is the acceptance of key changes, such as the harmonization of the VAT. Although consumers in high-tax countries might welcome the lowering of the average VAT, consumers in low-tax countries will not appreciate the increase of the average VAT.
A third problem is the potential effect on unemployment. Although most experts believe that Europe 1992 will bring faster economic growth and the creation of jobs, local unions are not convinced. In northern Europe, in particular, unions are concerned that the free movement of capital will cause firms to seek lower costs in southern Europe.
A fourth problem is the possible elimination of small and medium-sized firms. This could occur for two different reasons. The first is elimination due to competition, since the freeing up of borders should expand the reach of large, efficient firms as they take advantage of better distribution systems. The second is the wave of mergers and acquisitions taking place as firms attempt to grow in order to compete with U.S. and Japanese rivals in Europe.
The major external concern of Europe 1992 is often referred to as "Fortress Europe." The fear is that European regulations will favor European firms and exclude foreign, especially U.S. and Japanese, firms. While that does not seem to be the case up to this point, foreign firms are adopting a variety of strategies to reserve a place in Europe. Some large MNEs, such as Ford, Coca-Cola, and IBM, are more European than are the European firms in terms of their geographic spread, as we saw in the opening case. The medium-sized firms that are currently operating in Europe are taking part in the merger and acquisition wave to expand their size and market share. Those that are servicing Europe merely through exports are establishing offices in order to have a physical presence.19 Those that have avoided Europe are now looking carefully at it as a market of 320 million consumers and a GNP in excess of $4 trillion.
An example of the impact of 1992 on corporate strategy, other than the Ford example in the opening incident, is that of Philips, the large Dutch electronics firm. Philips operates around Europe (as do the U.S. multinationals) by moving parts and components to different countries for final assembly and sale, as well as by centralizing the manufacture of finished goods and shipping them to distribution centers around Europe. In the pre-1992 environment, Philips management estimated that trucks spent 30 percent of their travel time waiting in customs lines. Factories could never tell when they would ci-devdopmeiif coststories, averaging 23 percent of sales as compared to around 14 percent for U.S. and Japanese manufacturers. Local standards caused Philips to have large product lines. Because of the 1992 regulations that are being issued, Philips management feels that it will be able to save $300 million per year by 1992 in transportation, warehousing, and clerical costs. As local standards vanish, Philips will be able to shrink its product lines and standardize its parts and components even more, thus increasing quality and lowering costs. In one of its television plants, Philips has 70 engineers who do nothing but adjust models to local European technical requirements. These jobs will be eliminated as management eliminates different models. These are not the only jobs that will be eliminated, however. In late 1990, Philips management announced that 45,000 jobs, or about one-sixth of Philips' worldwide work force, would be eliminated by the end of 1991. In all, 1992 is expected to increase efficiency and lower costs.
Comments
Post a Comment