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PART FIVE: REGIONAL

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.

Single European Act (SEA):


An Act passed by the EU that contains many measures to further integrate the member
states, along economic and political dimensions, and that allows the Council of Ministers to
pass most proposals by a majority vote, in contrast to the unanimous vote needed
previously.

Single European Market (SEM):


A market consisting of all members of the EU, bound together by a single currency, a
special charter, complete harmonization of social and economic policies, and a common
defense policy

THE COMPETITIVE STATUS OF THE EU:


Several EU countries are currently at a competitive disadvantage in some
areas:
1.Productivity:
High wages, salaries, and fringe benefits put some EU firms at a disadvantage in competing
with their US and Japanese counterparts. Labor laws in all EU countries make it extremely
difficult to fire employees once they have been employed for a year. US companies have
much greater freedom and flexibility in hiring and firing their workers on short notice. This
means that employees must remain productive to retain their jobs and that companies can
adjust more readily to changes in demand for their product or service.

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:

1- Overall strategic analysis for the EU:


In formulating a strategy for doing business in the EU, we should look at both the process of
globalization through economic integration and the need for a firms national
responsiveness The ability of MNEs to understand different consumer tastes in segmented
regional markets and to respond to different national standards and regulations imposed by
autonomous governments and agencies

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.

3- Strategic acquisitions and alliances:


Harvard Business Review study analyzed 49 strategic alliances and concluded that the
chances of success are improved if the parties keep five guidelines in mind:
(1) acquisitions work better than alliances when developing core businesses; (2) alliances
are effective when firms want to gain entry into new geographic markets or businesses that
are tangential to the core business; (3) alliances between strong and weak companies
typically do not work well; (4) alliances that last are characterized by an ability to move
beyond the initially established expectations and objectives; (5) and alliances are more likely
to be successful when both sides hold an equal amount of financial ownership.

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.

BARRIERS TO EU MARKET ACCESS


Tariffs
Non-tariff barriers to trade
Import licenses
Export licenses
Import quotas
Subsidies
Voluntary Export Restraints
Local content requirements
Embargo
Currency devaluation
Trade restriction

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.

THE EU IS AN ATTRACTIVE MARKET TO DO BUSINESS WITH

We have 500 million consumers looking for quality goods


We are the world's largest single market with transparent rules and
regulations
We have a secure legal investment framework that is amongst the
most open in the world
We are the most open market to developing countries in the world

Import Restrictions

1.Textiles and Clothing


Upon the expiry of the textile safeguard quotas by the end of 2007, a joint system with China had been es
EU imports of Chinese textiles and apparel,
which was scheduled to operate for one year, covering 8 out of the 10 previously restricted categories.
Starting 1 January 2009, textile and clothing products originating in China no longer require any import lic
surveillance document before entering the EU.

2.Controls on Other Sectors


The EU import licensing system is based on the premise that no import licenses are required unless specifi
To import surveillance, quantitative restrictions or safeguard measures.
As regards import surveillance, specific products may be monitored by the EU in order to increase transpa
without the purpose of imposing limits on access to the EU market. As a result of this surveillance, statisti
controls on the origin of the products are established. In such cases, the objective is to avoid eventual div
customs fraud. EU surveillance measures apply to certain iron and steel imports from countries other than
European Free Trade Association (EFTA), countries which are parties to the Agreement on the European E
and Turkey. Surveillance measures also apply to certain textile products, wood and potassium chloride fro
but not currently from mainland China or Hong Kong.
2.

3.Restricted Use of Hazardous Materials


To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency
controls on wooden packaging materials originating in the Chinese mainland. Wood covered by the
measures must be stripped of its bark and free of insect bore holes greater than 3 mm across, or
have been kiln-dried to below 20% moisture content.
For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects
intended to be in contact with the skin, such as watches and jeweler. As effective from January
2007 the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and
childcare articles permanently. In addition, the EU has adopted a Directive to prohibit from
September 2003 the trading of clothing, footwear and other textile and leather articles containing
azo dyes, from which aromatic amines may be derived.
4.Product Safety
The EU has a wide range of legislations governing the safety of consumer products in the
Community. Suppliers should be aware of the general safety requirements, and to inform consumers
of the risks that the product might pose and of the precautions they should take, and to notify the
relevant authorities if they discover that a product is dangerous so that action can be taken to avoid
the risks for consumers. Market surveillance and enforcement are carried out by competent
authorities appointed at the EU level. Sectors with specific EU provisions are toys, chemicals, electric
equipment, cosmetics, pharmaceuticals, recreational craft etc.

5.Labelling and Marking Requirements


Wide ranging EU directives provide framework for EU laws on labelling and marking requirements to
enhance consumer protection, with major sectors being the labelling and presentation and advertising
of foodstuffs, labelling and standard product information of the consumption of energy and other
resources of household appliance.

Case Study
REGION

FRENCH TELECOM BUSINESS

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