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The EU environment
• Currently consists of 15 countries that are
closely linked both economically and
politically, 12 of whom have agreed to use the
euro as their basic currency.
• Ness in this bloc offers great opportunities,
and many MNEs are interested in tapping in
tapping this EU with crest a “greater Europe,”
comprising a trading area of some 550 million
people in 28 countries
• Same time, many eastern European countries
are seeking associate status with the EU or
have trade agreements with the bloc.

Emergence of a single European market

Rapid economic growth has led to high degree of
political and social integration.
The objectives of the EU are:
1. Elimination of customs duties among
member states.
2. Elimination of obstacles to the free flow of
import and/or export of goods and services
among member states.
3. Establishment of common customs duties
and unified industrial/commercial policies
regarding countries outside the community.
4. Free movement of persons and capital within
the bloc.
5. Acceptance of common agricultural policies,
transport policies, technical standards,
health and safety regulations, and
educational degrees.
6. Common measures for consumer protection.
7. Common laws to maintain competition
throughout the community and to fight
monopolies or illegal cartels.
8. Regional funds to encourage the economic
development of certain countries regions.
9. Greater monetary and fiscal coordination
among member states and certain common
monetary/fiscal policies.
• One of the most important Paris of the
SEA was the EU council of ministers,
one of the four major institutions of the
EU.

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• This opened the door for much faster

progress toward political, as economic,
integration among member countries.
• The EU has now adopted a single
European currency.

• Single European act (SEA) an act

passed by the EU which contains many
measures to further integrate the
member states, along economic and
political
• Dimensions, and which allows the
council of ministers to pass most
proposals by a majority vote, in
contrast to the unanimous vote that
was need previously
• Council of ministers the major policy
decision-making body of the EU; it
consists of one minister from each of
the 12 member states and is one of
four major institutions of the EU

Single European market (SEM): a market consisting

of 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

Free movement of goods

• Customs duties between most EU members
since March 1, 1986.
• Free movement of goods has been hampered
by a host of non-tariff barriers
• Barriers have included technical standards,
for example, goods can be shipped to
another EU country but they might not be
sold if they fail to conform to technical,
safety, or other standards and regulations of
the importing country.
• Administrative barriers include such things
as refusal to admit food products that contain
additives or substitutes that are judged
detrimental to the consumer’s health.
• Fragmented local markets have been created
by exploiting language differences between

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countries and by setting artificially high

prices for goods.
• With the growth of discount stores, mail
order houses, cross-border buying deals, and
e-commerce, these differentials are also
being gradually eliminated.

Changes in financial and banking services

• Free capital movement among members.
• Resulted in the emergence of more Europe-
wide financial service corporations.
• Single currency, the euro, which some
believe will challenge the US dollar’s
dominance of international trade and finance.
• This helped generate new opportunities for
both EU businesses as will as for foreign
MNEs doing business in the EU.

Practice of government procurement

• The past it has been common to the find
governments awarding contracts to national
firms.
• However, with the emergence of the SEM and
the government procurement agreement
(gdp), this diminishing. The result will be
greater efficiency, lower cost and an
economically stronger common market.

The competitive status of the EU

• Emergence of an integrated EU will help
greater Europe to compete more effectively
with the other triad members.

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 one they
have been employed for a year.
• US companies have much greater freedom
and flexibility in hiring and firing their
workers on Japanese firm to treat their

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workers as a fixed cost and so find the

practice to be unnecessary’;
• Employees are grateful to their employers
and are willing to work hard to upgrade their
skills and to increase the economic
performance of their companies.

Investment spending
• Investment spending traditionally behind.
• Explained by rapid increases in wages and
benefits during the 1980s which were not
offset by increases in productivity.
• As, a result, demands for loans resulted in
higher interest rates, late 1980s EU
government spending had risen to
approximately 50 per cent of GDP (in contrast
to abut 30 per cent for the US and

Education
• Another area Failed to maintain a competitive
edge is education.
• Less interaction between European
educational institutions and industry than in
the US and Japan.
• As a result, many European students receive
training that is inappropriate for the
employment needs of European business
and industry.
• Explains the extremely high unemployment
rates in the age group under 25 in many
regions of Europe.
• Major challenge for European is to modify
their education systems make them more
flexible, more practical, and better able to
adapt to the changing demands of industry.

Overall evaluation
• What changes are likely to occur in the
future? One is an increase in acquisition and
mergers among EU firms and between them
and companies from outside the bloc.
• A second change is the emergence of new
technologies that will be developed in EU
laboratories.
• A third is additional free trade agreements
and other economic arrangements among
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European countries that art designed to make

the EU a stronger, more competitive market.

Conducting a strategic analysis

• This analysis should focus on the competitive
nature of the industry that is being targeted.
• Assuming that the enterprise intends to set up
operations by FDI or alternative investment
rather than merely export to the market, the
analysis must also evaluate location.

Using competitive intelligence

• Specific strategies that have been employed
include careful market segmentation,
increased research and the use of mergers,
acquisitions, and alliances to help build
market share and to improve competitive
strength.
• Competitor intelligence had been an essential
part of these developments.
• This approach employs two complementary
paths: external information gathering and
internal infrastructural analysis.

External information gathering

• The information that is critical for competitor
analysis is typically located in a variety of
sources.
• Useful sources of competitive information
include the department of trade and industry
(DTI), trade associations, business
information services, and regional and local
publications.
• Chambers of commerce is also excellent
sources of information since these
organizations work much more closely with
business firms than do their counterparts in
the US.
• Central databases created by the EU
commission can be used to keep abreast of
changes in motional legislation, thus helping
companies to remain aware of new laws and
regulations.

Internal infrastructural analysis

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• second step that MNEs is an analysis of how

to manage their infrastructure

Coordinated infrastructure: an infrastructure when

there is a high degree of imitational among national
markets and business units share resources in an
effort to increase overall sales
Market coordination infrastructure: an
infrastructure used by firms that compete in similar
national markets but do little resource sharing
among their businesses

Resource-sharing infrastructure: an infrastructure

used by firms that compete in dissimilar national
markets but shade resources such as R&D efforts
and manufacturing information
Autonomous infrastructure: an infrastructure used
by multinationals that compete in dissimilar
national markets ad do not share resources
Evaluating locations
Companies are finding that they need to expand
globally if they are to remain competitive.

Regional incentives
Investment incentives take a number of forms,
including grants, low interest loans, reduced land
prices, and training support for personnel.
Typically, incentives will be higher when
1. the region is economically depressed,
2. many jobs are being created,
3. the company is making a large investment,
and/or
4. The investment is likely to attract other
investors.
Before agreeing to any contract, however, it is
important that the deal be “locked in” and that any
repayment of subsides be made clear up front.

Other evolution criteria

• Subsides can be important incentive, most
MNEs doing business in the EU consider
them as just one element in the evaluation
process.
• Other conditions and costs include
operational costs such as labor, utilities,

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transportation, and distance from major

markets.
• The most important location factors, in order
of importance, were
1. access to customers,
2. quality of labor,
3. expansion prospects,
4. level of wage cost,
5. attractive environment,
6. access to suppliers,
7. non0financial regional assistance,
8. absence of restrictions for expansion,
9. infrastructure,
10. level of rents, and
11. Public transportation.
Another factor that is often mentioned is the ease
with which a company that is not doing well can
withdraw.
This includes laying off workers and selling
facilities, and

Strategy issues

Overall strategic analysis for the EU

national responsiveness: the ability of MNEs to
understand different consumer tastes in segmented
regional respond to different national standards
and regulations imposed by autonomous
governments and agencies

Exporting

Customs duties and taxes

Product standards

Strategic acquisitions and alliances

Kingfisher as a European retailer

Making strategic alliances work

Marketing considerations
Pricing
Positioning
Direct marketing

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Manufacturing considerations
Reducing costs
delayed differentiation: a strategy in which all
produced are manufactured in the same way for
countries or regions until as late in the assembly
process as possible, at which time differentiation is
used to introduce particular features or special
components

Factory networks

Research and development alliances

European research cooperation agency a research
and development alliance which emphasizes
projects in the fields of energy, medicine,
biotechnology, communications, information
technology, transport, new materials, robotics,
production
Automation, lasers, and the environment

Management considerations

Adjusting to cultural differences

Barriers to EU market access

Countervailing duties (CVD)
Import tariffs intended to protect domestic
producers from
Harmful subsidization by foreign
Movements
Antidumping duties (AD)
Import tariffs intended to protect domestic
producers from foreign products sold at less than
their cost of production or in their home market

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