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C H A P T E R 1 7
European Union
Chapter objectives
2. Discuss how firms carry out an overall strategic analysis of the EU market in terms of
competitive intelligence and evaluation of location.
3. Relate some of the major strategy issues that must be considered when doing business in the
Chapter summary
1. The overall objective of the European Union (EU) is to create a market in which there are
no economic barriers to trade between the member countries. When this is achieved, the EU
2. The current competitive status of the EU lags behind that of the United States and Japan in a
3. In preparing to do business in the EU, multinational enterprises (MNEs) should focus on the
competitive nature of the targeted industry and the evaluation of location. Competitive
4. Many aspects of strategy need to be considered when doing business in the EU, including
(a) an overall analysis of the environment; (b) the feasibility of exporting; (c) the value of
5. The EU has a large internal market. Firms located in the EU can use a new type of nontariff
barrier (NTR) to entry to keep out rival firms, namely, trade remedy legislation such as
countervailing duty laws (CVD) and antidumping (AD) laws. Recent research has found
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that the use of both CVD and AD is a shelter strategy designed to protect uncompetitive
domestic firms. However, the more successful EU firms concentrate on the development of
sustainable firm-specific advantages rather than on the use of CVD and AD laws.
Chapter outline
The EU Environment
Emergence of a Single European Market
The competitive status of the EU
Conducting a Strategic Analysis
Strategy Issues
Overall strategic analysis for the EU
Exporting
Strategic acquisitions and alliances
Marketing considerations
Manufacturing considerations
Management considerations
Barriers to EU market access
Lecture outline
A. The EU environment
1. The EU currently consists of 27 countries. This includes the pre-2004 EU15, 10 other
European countries that joined in 2004 and Bulgaria and Romania which joined in
2007. The EU15 are closely linked both economically and politically and this group is
2. The origins of the EU go back to the formation of the European Economic Community
3. The objectives of the EU include (a) elimination of customs duties among member
4. The success of the EU in bringing about a Single European Market (SEM) will depend
5. There have been no customs duties between most EU members since March 1, 1986.
Most technical, safety and other standards and regulations for trade, have now been
6. EU government procurements account for 16 percent of the unions gross domestic
7. With the exception of the war on Iraq, the EU15 had been able to maintain a relatively
common front in regard to foreign policy. The inclusion of new, mostly Central
European nations, into the union has added a new factor that further complicates
8. High wages, salaries and fringe benefits put EU15 firms at a disadvantage in competing
9. Investment spending in EU countries has been poor in recent years. Part of this can be
explained by rapid increases in wages and benefits that were not offset by increases in
productivity. Another area where EU countries have failed to maintain a competitive
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B. Conducting a strategic analysis
1. Competition in the EU has increased over the past few years. Some of the specific
strategies that have been employed include careful market segmentation, increased
2. The external information that is critical for competitor analysis is typically located in a
variety of sources. For example, in the United Kingdom, Denmark and Ireland,
centralized government-controlled company registration offices provide financial
3. The second step that MNEs take is an analysis of how to manage their infrastructure.
Prescott and Gibbons have described four types of infrastructures that can be used to
compete effectively: coordinated, market coordination, resource point sharing and
4. Many companies are finding that they need to expand globally if they are to remain
competitive. One reason is to be near customers, who are also expanding
5. A recent survey conducted among 1,000 European companies that were not seeking
financial assistance revealed that the most important location factors, in order of
C. Strategy issues
1. In formulating a strategy for doing business in the EU, it is useful to look at the process
of globalization through economic integration as well as the need for a firm to be
nationally responsive. This is illustrated in the matrix in Figure 17.2. The horizontal
2. Those firms that continue to export to the EU will have to address a number of
legal/financial matters. These include customs duties and taxes, product standards and
the organization of operations. In terms of the latter, five steps are critical: (a) examine
the legal and business considerations involved in appointing foreign intermediaries and
3. Two of the most popular ways of gaining a foothold in the EU are through strategic
acquisitions or alliances. A recent Harvard Business Review study analyzed 49 strategic
alliances and concluded that the chances of success are improved if the parties keep five
4. As the EU becomes a true economic union, internal barriers to entry and mobility
5. As individual country regulations are eliminated and EU members continue to
standardize rules and regulations, it will be possible to manufacture uniform goods for
6. As more firms enter the EU, there is growing concern regarding their ability to cater to
European markets effectively. The primary focus must be on adjusting to cultural
differences. There are a number of differences between US and European workers. For
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7. Unfortunately, while the EU has become the worlds largest market, some EU-based
MNEs have sought to restrict access to this area. The two most common trade law entry
Answers to review and discussion questions
1. What are the ultimate objectives of the EU? Identify and describe them.
The ultimate objectives of the EU include (a) elimination of customs duties among member
2. Will the EU bring about the Single European Market? What type of changes will have
to take place for this to happen? Identify and describe three of them.
3. What is the competitive status of the main EU economies in terms of labor
productivity and investment spending? Based on your answer, what is your overall
evaluation of this status?
4. How can firms doing business in the EU use competitive intelligence? Identify and
describe two major steps that can be used in this process.
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5. What types of regional incentives do countries offer MNEs willing to set up operations
in their locales? Identify and describe two of them.
6. In addition to regional incentives, what other evaluation criteria should MNEs employ
when deciding where in the EU to establish operations? Identify and describe three of
7. In formulating a strategy for doing business in the EU, there are two primary areas of
initial consideration: national responsiveness and economic integration. What does
this statement mean? Be sure to include a discussion of Figure 17.2 in your answer.
This statement means that the firm must be responsive to local conditions and cultures, on the
8. What do companies that want to export to the EU need to know about doing business
there? Discuss five facts or strategies that would be of value to them.
Five facts or strategies that are of value to firms wanting to export to the EU include
9. In gaining a foothold in the EU, when is it most effective to opt for an acquisition over
an alliance? When is a strategic alliance a better choice? In each case, provide an
example.
10. Why will marketing strategies in the EU have to reflect a concern for pricing? A
concern for positioning? Give an example of when each would be the most important
consideration.
Pricing is important because as internal barriers and restrictions between countries are lowered,
11. What is the likely future of direct marketing in the EU? Defend your answer.
12. What are three major manufacturing considerations for companies doing business in
the EU? Identify and describe each.
One manufacturing consideration is reducing costs through the use of standardized components
and large production runs. This allows for lower cost per unit. A second is the use of
13. How important is it for EU managers to have a global perspective?
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14. How can trade laws be used by EU firms to keep out global competitors?
15. What evidence is there that EU firms use antidumping laws?
16. The EU accepted 10 new members into the union in 2004 and another 2 in 2007. Are
these members fully integrated?
17. How are the 12 new entrants into the union likely to affect employment in the EU15?
Answers to real cases
Accor budget hotels
1. Why did Accor concentrate on the French and European markets before expanding
into other regions?
2. How are acquisitions an important part of Accors expansion strategy?
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3. What are the advantages of increasingly relying on the Internet for B2B and B2C?
Carrefour
1. How can Carrefour compete with local retailers in North America?
2. How can Carrefour compete with local retailers in Asia?
3. What strategy does Carrefour need to succeed in Europe?
4. What is Carrefours basic strategy and structure?
Carrefour follows a strategy of low economic integration and high national responsiveness in its
international operations. Its hypermarkets rely on local suppliers that can offer competitively
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5. Should Carrefour and other large retailers even attempt to expand internationally?
There are many factors driving large retailers (including Carrefour) to expand internationally,
such as saturated markets in their home countries, growing economies in Asia and Eastern