EUROPEAN COMMUNITY GIVING EUROPE THE BUSINESS By Eileen Schreiber Eileen Schreiber is a freelance writer living in Washington, D.C. OPTIMISTS see it this way: By the year 2000, twelve European national markets will meld into one. U.S. firms operating in any European Community (EC) country will be able to market products to 320 million of the world's most affluent consumers with no import tariffs imposed at any border. Exporters to the EC will need only to comply with product standards for one member country in order to distribute throughout the remaining eleven. As products reach new markets, U.S. businesses operating in Europe will steadily grow. Corporations will capitalize on cross-border mobility to rationalize operations into new heights of competitive efficiency. Consumers, they say, will be showered with cut-throat-priced, transnational goods and services. Everybody who competes well will win. But some observers of international business believe this rosy scenario will come to pass not for all U.S. companies, but only for the largest multinational corporations, which increasingly operate without national allegiance. Lord Cockfield's "White Paper" of 1985 began the move toward commercial unity, known as EC 92. The ratification of the Single European Act in 1987 made it a reality. With three quarters of the 300 Directives needed to legalize the Single Market passed, European companies now are positioning themselves for success through mergers, acquisitions, joint ventures and buyouts. U.S. businesses have received strong encouragement to participate. The business media have feverishly pitched EC 92 as essential to any company's profit strategy. The U.S. Chamber of Commerce has urged U.S. companies to enter into the common market as well, promoting programs that link U.S. exports to European distributors. The message is clear: to pass up Europe now is suicide. But the influx of U.S. firms has not fulfilled expectations. A March 1990 study of U.S. investment patterns in Europe, published by the Cambridge, Mass.-based National Bureau of Economic Research (NBER), finds that no "stampede to build new or improved capacity in the EC on the part of American firms as a group" has occurred. Media reports of an explosion of U.S. investment in Europe, the paper warns, fail to take exchange rate effects into account. The NBER study concludes that new U.S. investment in Europe in 1988 was actually lower in real terms than it was at the beginning of the decade. Surveys of U.S. executives conducted by international accounting firms show that U.S. corporate strategies for Europe 92 vary with the size of the firm, its product, and its previous EC activities. Large U.S. high-tech and manufacturing multinationals with European subsidiaries, for example, are well positioned to take advantage of the single market, and have specific plans to do so. A KPMG Peat Marwick survey of 870 executives labels this group "the movers." They are multi- million and multi-billion dollar corporations in the high growth markets of high-tech goods and services, automobiles, electronics, pharmaceuticals and food. Many of them are household names in the United States: IBM, AT&T, ITT, Ford, GM, Coca-Cola, Dow, Texas Instruments and Black and Decker, among others. A look at U.S. business activity in pre-92 Europe gives a fair indication of how post-92 relations might develop. According to Gary Clyde Hufbauer, Marcus Wallenberg Professor of International Financial Diplomacy at Georgetown University and editor of Europe 1992: An American Perspective, one of every four dollars spent on U.S. exports in 1988 came from the EC. Of the $76 billion in goods sold to EC customers, 45 percent were classified as high-tech. Sales by U.S.-owned affiliates in EC countries constitute a far larger share of U.S. business in Europe, reaching $620 billion in 1988. And U.S. investors invested $326.9 billion, or 38.7 percent of all U.S. foreign direct investments, in EC countries, making the EC the highest regional recipient of U.S. direct foreign investment. Even before the most recent drive for EC 92, Europe was the United States' most important regional customer and market. Thus, "most of the companies who want to do business with Western Europe already do," says Jim Kelly, vice president of European operations for Valmont, a Fortune 500 corporation. While no merger and acquisition stampede from new companies has occurred, U.S. multinationals in Europe are quietly and deliberately repositioning. A May 1989 Business International survey of senior executives found that, on the whole, the strategies most favored by U.S. multinationals in Europe are "expansion through local production, acquisitions and alliances." Corning is a good example of a U.S. firm responding aggressively to the single market. Building on its historical emphasis on joint ventures, Corning has allied itself with a number of European firms. "In the telecommunications area, [the company has] several joint ventures with local partners who help [it] gain access to the European ... market," according to Van C. Campbell, vice chairman of Corning Inc. The company also recently bought a German maker of microwave cookware and acquired a share of an Italian glassware manufacturer. Those who are not leaping into the new market are the U.S. firms with no previous European connections. These businesses comprise a wide range of small to medium-sized producers, merchandisers and transportation and service firms. A 1989 survey of 2,000 international CEOs conducted by Ernst and Whinney and Fortune magazine found that nearly 50 percent of smaller U.S. service firms and one third of Fortune 500 service firms were unconcerned about EC 92. The Peat Marwick survey shows that not only smaller firms, but many companies with gross revenues ranging from $10 to $100 million are unaffected by the prospects of 92. Thus, only 37 percent of all respondents to Peat Marwick are "actively developing strategies" for 92; 58 percent do not consider the EC, with its 320 million consumers, significant to their business. Explanations of U.S. business indifference to 1992 vary. One view is that fears of a "Fortress Europe" are keeping U.S. companies from investing in strategies for a unified Europe. In this pessimistic view, the Single Market is seen as a members- only club, created by Europeans to benefit Europeans. These fears are fuelled by debates within the EC Commission on local content rules, public procurement laws and reciprocity agreements, and many business leaders have predicted that tariff and non-tariff barriers will keep U.S. companies out. Two thirds of the respondents to the Peat Marwick survey, for example, "forecast the EC will create significant trade barriers for non- EC countries." But while fears of the Fortress may have thwarted U.S. business activity in the earlier stages of negotiations, they have little basis now. Unrelenting U.S. pressure in the General Agreement on Tariffs and Trade (GATT) and on the EC Commission have resulted in directives which favor outsider access to the Single Market. According to a trade specialist at one Washington, D.C. accounting firm, the laws governing the EC are "as pro- competitive as those of the U.S." In fact, there is widespread agreement that the 1988 U.S. Omnibus Trade Bill gives more basis for the description "Fortress America" than the EC structure does for Fortress Europe. Other international business people, however, say the obstacles that discouraged mid-sized and small U.S. businesses from expanding into Europe before the creation of the Single Market are still an impediment in the new economic climate. Kelly says, "There is a lot of hype for businesses to invest in Europe now. But companies considering the move quickly find that the cost, language, or cultural barriers to doing business here are still enormous. The old problems don't just disappear with this new concept." (balance of this article omitted here; unscannable)