Management: World beyond Europe

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The Independent Online
It would no doubt discomfit Tory rebels, but in business, being 'European' is widely regarded as a virtue.

Executives in EC companies regularly declare that 'we must look at all of Europe as our home market'. European companies are today more likely to look to Europe for acquisition and merger candidates than to North America or Asia.

The task of producing a new generation of Euro-managers, which will lay aside national jealousies in the interest of pan-European profits, occupies personnel managers in many European multinationals.

Recruiters demand that fast-track aspirants speak a Continental European language. Management conference organisers know that the prefix 'European' adds instant sex appeal to an otherwise dull topic.

Seeking to exploit this Europhilia, one of France's leading business schools calls itself the European Institute of Business Administration. And until their plans were upset by the electorate, many of France's policymakers were still at work trying to turn yesterday's national champions into tomorrow's European champions.

In all of this there lurks, I believe, the real danger of a Euro-centrism that may blind EC companies to the fast-changing realities of global competition.

A central goal of European integration has been to create a unified mega-market that could give European companies the chance to neutralise the scale advantages derived by American and Japanese firms from their large, homogenous home markets. While European fragmentation has put many EC companies at a scale disadvantage (in industries such as telecommunications, electrical equipment, and cars), the single market, by itself, will not make much of a contribution to the global competitiveness of European companies.

Sheer size is less and less a competitive advantage. IBM was not humbled by a pan-European giant, nor a Japanese monolith, but by American companies typically less than 10 per cent of its size. Mazda, a puny company by the standards of GM or Volkswagen, can nevertheless develop and produce cars for substantially less than its obese competitors. Likewise, Virgin Atlantic has caused substantial heartburn to executives running airlines many times as large.

The truth is that the single market is just as likely to be a prison for European firms as a launching pad. European companies have not, on average, surrendered their share of the European market to American and Japanese firms. European companies command roughly the same share of the European market today as they did 30 years ago. Where European companies have been losing out is in markets outside Europe.

Fiat, Rover, and Peugeot sell more than 90 per cent of their output in Europe; Olivetti more than 80 per cent; Siemens more than 70 per cent. These companies, and many of their European compatriots, have largely retreated from the US market.

This is particularly worrying since success in the super-heated competitive environment of the United States is the best barometer of any company's global competitiveness. Frank Sinatra was right: 'If you can make it there, you can make it anywhere.'

Because Asian markets are growing three to five times faster than European markets, any company that does not have 20 to 30 per cent of its sales in Asia is losing global market share.

European executives should check their diaries: how many trips did they make last year to Jakarta, Kuala Lumpur, Tokyo, Hong Kong or Peking, versus how many trips to Paris, Frankfurt or Brussels?

Every executive must ask: Where in the world is the centre of technology creation in my industry, where are the world's most sophisticated customers? Where is the supplier base located? Where are the fastest- growing markets? And where are my toughest global competitors based? Seldom will the answer to each of these questions be 'Europe'.

Winning companies will be those that assemble and direct global networks spanning America, Europe and Asia. Even today, Europe's most successful companies tend to be those that are the least 'Euro-centric'. If managers in Glaxo, Shell, Ericsson or ABB ever thought of Europe as the home market, it is unlikely they do so today.

European companies and business schools must work to produce global managers, not Euro-managers.

It is probably more important for a British manager to understand Japan than to understand Germany, and important for a German manager to be more familiar with China than Italy, and for an Italian manager to be equally at home in America and France.

American managers have long been criticised for not being more internationally minded. It would be a sad irony if European managers fell victim to a similar Continental myopia. The sooner managers across Europe shift their attention from the single market to the world market, the sooner European industry will reclaim its rightful share of global opportunities.

The author is associate professor of strategic management at London Business School.

(Photograph omitted)

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