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 / Autumn 2012 / Issue 68(originally published by Booz & Company)


The Business Case for the European Union

Another reason for optimism is the fact that Europe is still the world’s most innovative and competitive region. Each year, the business school INSEAD and the World Intellectual Property Organization (WIPO) publish a global innovation index, ranking countries by their capacity for innovation (as indicated by infrastructure, human capital, market sophistication, education institutions, and so on), and by their output of scientific knowledge and creative products and services. (See “The Innovativeness of Nations,” by Rob Norton, s+b, Spring 2012.) In 2012, the top 10 countries — Switzerland, Sweden, Singapore, Hong Kong, Finland, Denmark, the U.S., Canada, the Netherlands, and the U.K. — included six within Europe, and five in the European Union. Europe possesses some of the world’s best education institutions, which are fostering some of the world’s greatest basic and applied research. Investors remain very enthusiastic about the technological opportunities that Europe presents.

Our survey also found that business leaders recognize the potential of Europe’s consumer market. It may have a reputation for having barriers to foreign products and services, but in fact, Europe’s 550 million citizens are as open and cosmopolitan as the people in any other region. Particularly in recent years, Europeans have demonstrated a huge willingness to buy from other countries, with imports including hamburgers, digital technology, theme park concepts, airplanes, pharmaceuticals, and movies. Even France, which is often regarded as a “closed” country, is open for foreign acquisitions, albeit with a bit of noise from the government and unions. In the end, the barriers are reasonably low for countries wishing to sell to the European market.

Some see the diversity of European culture, and its multiple languages, as an inherent problem. But it is also the source of a core competence in the region: the ability to adapt offerings to the particular tastes and needs of local markets. McDonald’s learned to manage diversity in France. Airbus and SAP both built businesses as more adaptable, locally relevant counterparts to their U.S. rivals. Further, because of its long experience with democracy and representative government, Europe offers a comparatively stable legal environment for doing business. That is also one of the key reasons that Europe leads on environmental issues, sustainability, human rights, and other farsighted causes. Europe’s social consciousness is shared by its businesses, which supported, for example, the United Kingdom’s Bribery Act, now beginning to supplant the U.S. Foreign Corrupt Practices Act as the standard for this type of legislation. Europe is also actively promoting gender diversity for corporate boards, a reform that has been shown to lead to higher levels of performance, and that is expected to ripple out globally.

The final reason we believe Europe will remain attractive to business is the next generation. European youth, despite the unemployment and economic hardship many are facing, remain committed to the European dream. It is not the same dream that their grandparents held, of a unified Europe as an insurance policy for peace. For today’s young people, the dream means mobility, equality, diversity, and prosperity. Many already have studied in several European countries (thanks to the Erasmus Programme), have received master’s degrees in other parts of Europe (thanks to the Bologna system of equivalences), and unashamedly profess more loyalty to Europe than to their national governments.

What Business Leaders Want

The business leaders at the conference were not naive about the challenges facing Europe. They recognized how much time and work it would take for national European governments to agree to transfer power to a federal government in Brussels. After all, it took more than 75 years (and a civil war) for the United States to form itself into a federal nation, and several centuries for Switzerland. By those standards, change in Europe, even if it takes a decade or two, will be rapid. Some difficult hurdles would have to be overcome, including undoing rules and practices that make business difficult in Europe — for example, the lack of flexibility in the workforce.

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