Trading Places: Europe 1992

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Trading Places: Europe 1992 By the end of 1992, 12 diverse European countries will unite as one economic power--the European community (EC). The result will be a market that provides both opportunities and challenges to member countries and their trading partners. Those who plan strategically now may find success in this new, integrated market.

The European Community's move to a single market in 1992 is affecting global corporate growth at an accelerating pace. Corporate restructuring, mergers and acquisitions, joint ventures, and other alliances are creating changes in the corporate landscapes of Europe and the United States. In 1988 alone, there were 500 mergers and acquisitions within Europe. The value of intra-European deals soared to $81.5 billion, up from $11.1 billion in 1985.

Over 2,000 European alliances have been made by U.S. corporations in the 1980s. While European companies spent $38 billion last year to acquire American companies, Americans dole out just $8 billion to purchase European operations. The EC economy is strong. The gross national product rose 3.7 percent last year, a 13-year high. This strength is creating 1.5 million jobs a year, the most since the 1960s, according to EC economists.

As the 1990s approach, it is apparent that the velocity and magnitude of change is increasing dramatically at home and abroad. Whiel the EC change to a single market greatly increases competition, it also creates opportunities for corporate growth and associated services.

Yet, a recent survey found that one-third of top executives from Fortune 500 service companies do not have much understanding of the implication of the single market in Europe for their company. Media coverage in the past year has greatly heightened awareness, but the significance of the single market event is so great that continued evaluation and discussion are merited.

What exactly is the European Community? What affect might its formation have on future business opportunities? What countries lead in the expansion? What should American businesses be doing to prepare?

Framework for unity

The European Community is an institutional framework for the formation of a United States of Europe. When it is fully implemented, it will be the world's largest trading body and economic power, uniting more than 323 million citizens in 12 member nations: France, West GermanyM United Kingdom, Italy, Spain, Portugal, Denmark, Ireland, Belgium, Luxembourg, Netherlands, and Greece.

The EC has a centrally elected and appointed government based in Brussels, Belgium. According to EC President Jacques, DeLors, 80 percent of member nations' political and economic decisions will be made by this government within 10 years. The EC also has a national flag and an anthem, Beethoven's "Ode to Joy." A common currency, the Ecu, and a European central bank are anticipated. The first phase of monetary union has already been approved by the 12 EC members and is to begin July 1, 1990. It calls for closer coordination of economic and monetary policy.

Physical, technical, and fiscal barriers are falling as members prepare for unification. Obstacles that are being overcome include varying immigration controls and product standards, conflicting business laws, and differing value-added tax (VAT) rates and excise duties.

Though some member nations are anxious over losing political and economic sovereignty to the EC's centralized government, the general consensus is that the momentum is too strong to stop now.

Emerging opportunities in the EC

A recent survey by a major accounting firm of 10,000 U.S. executives was conducted to assess corporate attitudes about the formation of the EC single market. Of 872 senior executive respondents, 41 percent expected a negative impact on U.S. business because of greater global competition. Some feared that corporate resources earmarked for expansion in the U. …