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STRATEGIES
EUROPEAN UNION (EU) 1993
OBJECTIVE
The European Union (EU) is one of the worlds triad markets. It is the home of one-third of the worlds
largest 500 firms. Also, many foreign MNEs from Asia and North America are now doing business in the
EU or are targeting the area in their expansion plans. This chapter examines the EU environment and
reviews some of the major
strategy considerations that must be addressed by companies doing business in this economic bloc.
THE EU ENVIRONMENT:
EU consists of 26 countries.
Pre-2004 EU consists of 15 countries. In 2004, 10 other countries joined
EU: Poland, Hungary, Czech Republic etc.
Today, EU26 has a population of almost 500million & generates 26%
share of world nominal GDP.
Huge opportunities for MNEs to tap in it.
BENEFITS OF EU MARKET:
Elimination of custom duties among member countries.
Free flow of import/export of goods and services among member states.
Free movement of people and capital within the bloc.
Common measures of consumer protection.
Acceptance of common agriculture policies, transport policies, health & safety
regulations, and educational degrees.
Regional funds to encourage the economic development of countries.
Greater monetary and fiscal policies among member states.
Council of minister:
The major policy decisions, making body and other important institutional decisions taken by
those
ministers, consisting of one minister from each of member states.
2.Investment spending:
Investment spending in EU countries has traditionally lagged behind. Part of this can be
explained by rapid increases in wages and benefits, during the 1980s that were not offset
by increases in productivity. As a result, EU firms found themselves without the capital to
invest and had to resort to borrowing.
3.Education:
Another area in which EU countries have failed to maintain a competitive edge is education.
While all three triad groups spend approximately 5 percent of GDP on education, the
approaches are different. The European university curriculum is more theoretical than in
either the United States or Japan. European educational institutions are also more rigid and
less able to adapt to the changing needs of business, and there is less interaction between
European educational institutions and industry.
EVALUATING LOCATIONS:
The EU is likely to be a very competitive market in the future. The most important location
factors tend to be:
(1) access to customers, (2) quality of labor, (3) expansion prospects, (4) level of wage costs,
(5) attractive environment, (6) access to suppliers, (7) non-financial regional assistance, (8)
absence of restrictions for expansion, (9) infrastructure, (10) level of rents, and (11) public
transportation.
Another factor often mentioned is the ease with which a company that is not doing well can
withdraw. This includes laying off workers, selling facilities, and other factors involved in exiting
a market.
STRATEGY ISSUES:
The number of strategic issues that need to be considered when doing business in the EU:
2- Exporting:
Those firms that continue to export to the EU will have to address a number of legal/financial
matters:
Customs duties and taxes, Product standards, Conducting export operations.
4- Marketing considerations:
Pricing:
The European Commission has estimated that the price of goods
and services throughout the EU will decline. Five specific
developments will make this work: (1) decreasing costs of doing
business, now that internal barriers and restrictions have been
removed; (2) the opening up of public procurement contracts to
broader competition; (3) foreign investment that will increase
production capacity; (4) more rigorous enforcement of competition
policy; and (5) general intensified competition brought about by
economic reforms.
Direct marketing:
Another strategy likely to receive a great deal of attention is direct marketing.
5- Manufacturing consideration:
Reducing costs
Factory networks
R&D alliances
6- Management considerations:
Adjusting to cultural differences:
There are a number of differences between US and European workers. For example,
Europeans are more accustomed to participating in decision making. They have a long
history of worker participation programs and of holding seats on the board of directors.
Major EU Barriers
The two most common trade law entry barriers are countervailing duty (CVD) laws and
antidumping duty (AD) laws.
Both CVD and AD are import tariffs intended to protect domestic
producers from harmful dumping and subsidization by foreign governments. However, it has been
demonstrated in several studies that these laws have been captured and used by weak firms seeking
shelter from strong competition by rival MNEs in the triad.
However, it is clear that non-EU firms in the chemical, electronics, and iron and steel
sectors should probably anticipate some resistance if they plan to begin exporting to the EU market
with a view to competing with domestic producers.
Import Restrictions
Case Study
REGION