Interlocking Global Business Systems: The Restructuring of Industries, Economies and Capital Markets

By Edward B. Flowers; Thomas P. Chen et al. | Go to book overview

marketed within the Union. Therefore, member states must accept each others's standards and allow the free circulation of goods and services throughout the Union. Consequently, a product that is manufactured in, say, France and certified to be safe by French regulators can be sold anywhere in the Union.

A wide variety of industries, ranging from chemicals to transportation, are affected. For example, one directive requires compatible auto emissions standards for cars, while another dictates common radio wavelengths for mobile telephones. Similarly, another directive permits banks to operate anywhere in the Union without facing prohibitive operational barriers, such as 50% capital reserve requirements. Finally, common trademark and copyright laws have been established. It is estimated that, when fully implemented, these new standards will reduce overall costs in the affected industries by approximately ten percent.

The elimination of border controls abolishes expensive and time-consuming customs formalities such as vehicle safety checks, reports for tax authorities and duplicative customs documents for goods shipped to and within the European Union. Until recently, truck drivers spent on average 30% of their time at border crossings just waiting or filling out as many as 200 forms [1]. The removal of such barriers is expected to further reduce prices by approximately 2.5% of the value of trade between the 15 countries.

Finally, the plan seeks to improve procedures for government procurement. These purchases account for 15% of the Union's gross domestic product, in excess of $600 billion annually [14]. The new regulations mandate explicitly stated and open bidding procedure in awarding public contracts. Prior to the enactment of these procedures, important industries such as telecommunications and transportation were restricted from open bidding.


CHALLENGES AND OPPORTUNITIES

Clearly, the 1992 program--which creates a $4 trillion market of 340 million consumers--has significantly altered the competitive conditions of Asian companies doing business in Europe. The removal of all trade barriers and the enactment of Union-wide regulations will continue to increase economic growth and employment for the member countries. Not surprisingly, within the 15-nation Union, the inflation-adjusted gross domestic product was expected to average 3% in 1998, an increase of almost half a percentage point from 2.6% in 1997 [15]. This will inevitably lead to greater consumption and a growth in imports thus expanding demand for Asian products. The EU Commission anticipates that, during the next several years, demand for goods and services will increase by $260 billion [13]. Furthermore, Europe is one of Asia's major commercial partners. Therefore, it is essential that Asian corporate executives understand the strategic implications of these changes.

What specific strategic actions should Asian companies undertake to position themselves for these new conditions and ensure their products and services have access to this huge newly created market? Several important aspects and implications of the plan are discussed below, along with the

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