The.Economist.2007-02-10 (966424), страница 27
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It is now taking market share from the Europeans.America's economic growth, averaging 2.5% a year since 2001, has reflected this dynamic businessculture, whereas Europe has managed an average growth rate of barely 1.5% over the same period,though the pace has picked up in the past year. Europe's sluggish performance is often put down to thepoor business climate. Rigid labour laws and strong unions make it difficult for firms to fire redundantworkers and unattractive to hire new ones.
Product markets are not as competitive as America's, and thesingle European market has yet to become a reality in areas such as banking and services.Corporate governance too is variable: transparent and world-class in Britain, but often inadequate incontinental Europe. In Germany workers sit on boards, and in France even small firms have to have anemployees' committee that can make life difficult for management. Minority shareholders do not alwaysget enough say.Moreover, European governments like to meddle.
France has drawn up a list of strategic industries,including casinos, that it thinks need special protection from foreign takeovers. Even Spain, with its newAnglo-Saxon business culture, tried to stop a German utility from taking over a Spanish power company.Telecom Italia's attempts to hive off its mobile-phone business became highly politicised.Many European politicians are fearful about the effects of globalisation and the rise of China and India.France's vote against the European constitution in 2005 was partly a protest against globalisation, whichis blamed for persistently high unemployment there.Certainly Asia has been making itself more strongly felt in Europe in recent years.
Japan now has carfactories in France and the Czech Republic as well as in Britain, and imports from South Korea'sresurgent car industry have been causing difficulties at Renault and PSA Peugeot Citroën. India's TataGroup too is planning to export cars to some southern and eastern European markets where they willprovide more competition for the traditional west European manufacturers.Europe's prideYet even though European business has to operate in a difficult political, social and economicenvironment, it has produced an impressive crop of world-class companies. An analysis by McKinsey, amanagement consultancy, shows that Europe has 29% of the world's leading 2,000 or so companies,broadly in line with its 30% share of world GDP. It punches its weight in most global industries except IT,where America is leagues ahead (see chart 1).British companies were pioneers of globalisation, perhaps because of Britain's open Anglo-Saxon businessculture and financial system.
More recently Britain's BP bought several American oil companies,triggering a wave of oil mergers in America and Europe. But then Britain is closer than its Europeancousins to the freewheeling American business model, which is why this special report will concentratemainly on continental Europe.Over the past few years those continental European countries have been gradually shedding their oldcorporatism and learning new tricks from the Anglo-Saxons. Jeff Immelt, who succeeded Jack Welch atthe helm of GE five years ago, is struck by the vast improvement in European top management in recentyears.
As he points out, most big European businesses are now successfully global. The figures bear outMr Immelt's impressions.Kevin Gardiner, head of global equity strategy at HSBC, an investment bank, who first spotted the CelticTiger miracle of the Irish economy a decade ago, has recently made another remarkable discovery:European businesses are making better profits than their American counterparts (see chart 2). He notesthat “currently European companies seem to be slightly more profitable even than their American peers.”This has been achieved even though revenues have been growing more slowly than in America, whichunderscores Europe's growing success in restructuring and consolidation. Corporate America andcorporate Europe are now neck and neck in the globalisation stakes.Dominic Casserley at McKinsey's London office also takes abullish view. “Write off Europe at your peril,” he says.
“In manysectors European companies are clearly in the premier league.We see a generation of strong European management teamsemerging who are aggressive, hungry and eager to expand.”Some of this revitalisation of European business is due to theimpetus from a more open trading system in a global economy.European companies, small as well as large, have quietly got onwith moving many of their operations abroad where it makeseconomic sense to do so.But two other powerful forces are also at work.
One is thestructural change now taking place in Germany. After years oflanguishing, Europe's biggest economy is beginning to feel thebenefit of reforms, particularly to its financial system.The other force is a gush of private-equity finance, much of itoriginating in America and landing in Europe. This started onlya few years ago, but already private-equity and venture capitalinvested in Europe totals €173 billion ($225 billion) and is growing by leaps and bounds.Donald Gogel, the boss of Clayton, Dubilier & Rice, an American private-equity firm, sums up thebenefits: better governance; a more stable shareholder base; upgraded management talent; higherexpectations; and a sense of urgency.
Private equity gives the owners of the business direct control overits performance. If managers succeed, they earn a lot of money. If they fail to perform, they arereplaced. Americans have known all this for a while, but Europeans are learning it fast.This special report will ask how European companies, large and small, are coping with global competition.It will examine the boom in cross-border mergers and takeovers in Europe and look at the fundamentalchanges in German business. And it will argue that European business is better than its reputation.Copyright © 2007 The Economist Newspaper and The Economist Group.
All rights reserved.About sponsorshipTomorrow the worldFeb 8th 2007From The Economist print editionEuropean companies face competition from new directionsHoward ReadUNTIL late last year Arcelor was Europe's largest steelmaker. It was aEuropean champion forged from the merger of France's Usinor,Luxembourg's Arbed and Spain's Aceralia in 2001. Today it is the coreof the world's largest steel company, with production of about 100mtonnes. It was taken over by Mittal, a Dutch-registered company runfrom London by its biggest single shareholder, Lakshmi Mittal, anIndian who started his first business in Indonesia. The takeover battleraged for six months before Arcelor's bosses finally listened toshareholders who wanted the board to accept Mittal's third offer.The story tells us two things about European business, both positive(though they may not seem so at first sight).
First, shareholderactivism is increasing in a continent where until recently it wasdepressingly rare. (Two other recent examples come from Germany,where shareholders of Deutsche Börse forced the board to scrap a bidfor the London Stock Exchange, and France, where long-sufferingEurotunnel shareholders resorted to activism to deal with thecompany's debt).Second, and more important, the Arcelor-Mittal deal demonstratesEurope's deepening integration into the global economy. A series of mergers and takeovers in the1990s—of which Arcelor itself was an example—was meant to convert national champions into widerEuropean champions. Now these continent-wide companies are going global, either by expanding on theirown or by being absorbed into new global businesses.The Arcelor-Mittal merger was followed barely three months later by a two-way takeover struggle foranother large European steel firm, Corus, between Tata Steel of India and Brazil's CSN.
On January 31stTata won with a bid of £6.7 billion to become the world's fifth-largest steel producer. Tata's first suchventure, six years earlier, had been to buy Britain's Tetley Tea. As new multinational companies emergefrom economies such as Brazil, Russia, India and China, such deals will become more common.
Russia isalready trying to align itself with European Aeronautic Defence and Space, in which its government has ashareholding. EADS, for its part, has bought into a leading Russian aerospace firm. A Dubai company hasbought Britain's biggest ports, and Sabic, a petrochemicals giant from Saudi Arabia, now owns the giantethylene crackers and plastics factories on Teesside that were once the pride of Britain's ImperialChemical Industries, now slimmed-down ICI.Europe has for many years played a large part in global business.
A table compiled by Fortune magazineshows that half the world's 30 leading companies by revenue are European (see table 3).But in two key sectors Europe trails badly: high-tech (whichmostly means IT) and life sciences. These are high-value-addedindustries that will weigh increasingly heavily in the worldeconomy, so if Europe does not do well in these areas it risksfalling behind.The McKinsey analysis also shows that many Europeancountries have a high proportion of big international companiesin relation to their population (see chart 4). Little Switzerland,home to many global firms such as Nestlé, UBS and CreditSuisse, tops even America.
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