Europe Incorporated: the new challenge

Gianni Montezemolo

Reviewed by Martyn Bond

The M&A mania sweeping Europe is more rational than you might think. That is the conclusion to draw from Gianni Montezemelo's strategic book, which argues that multinationals must take a dominant position in their sector of the new European market to survive.

He makes a clear case for the European economy dominating the next twenty or thirty years. Companies with a secure position there, like companies which enjoyed a secure position in the US market during the preceding twenty to thirty years, will be fit to grow into the rest of the world. Europe is now the developed world's largest market, in population and GNP a successor to the USA.

What has tilted the balance is the Euro. With a single currency - and the author confidently predicts that the UK will join soon - the single market is now irresistible. There are differences and difficulties which he does not minimise, but for corporate strategic planning the Euro means simplification, concentration, greater efficiency: in a word consolidation. Instead of seeing it as a dozen or more national segments, a corporation must work in Europe as one market.

As Europe enlarges, that approach is all the more necessary. A corporation that tries to deal with over forty European states as if they were still separate markets is doomed to inefficiency.

The southern gazelles are not so easily dominated by one country as the northern bees. Together this cluster of a dozen or so states - France, Belgium, Italy, Spain, Portugal, Greece, Turkey, Bulgaria, Romania and the Balkans account for 300 million people, but with a GDP per head of less than half that of the bees, a material disadvantage which the lifestyle of the gazelles goes only some way to compensate.

Out on the northwestern fringe stand the Atlantic storks - the UK and Ireland - the smallest cluster with little over 60 million people. Psychologically and physically isolated from the rest of Europe by history and geography, they enjoy a GDP close to the northern bees but they are closer to the USA in many ways than any continental cluster, as witness the telecoms traffic with the USA which, despite their small population, is 60% higher than the bees.

The fourth cluster that any self-respecting CEO of a forward looking corporation should take note of are the Eastern bears - Russia, Ukraine and Belarus. They will become "a very important and powerful part of the European economy" , based essentially on their population, education, training, and reserves of natural resources. Despite the legacy of economic absurdities to be found in these societies, they are on the road to normalisation, and with intelligent management by established corporations, will sooner rather than later emerge with stable economies on a capitalist basis.

Beyond this theoretical topography, the book presses on CEOs the need quickly to adopt strategic principles - some obvious, some less so - in order to position their corporation advantageously in the new Europe. Time, he insists, is running out as the price differential from country to country is eliminated by the Euro. His advice is aimed as much at manufacturing as at retailing, at services as well as wholesale, at the back office as well as the head office.

He concludes that there are two aspects to the European challenge: the first, for Americans, coming to terms with their impending loss of economic dominance; the second, the challenge of getting it right for those firms prepared to operate throughout the new European market. More directly however it invites comparison with Jean-Jacques Servan-Schreiber's "Le Defi Americain" of 1968. If the world, and in particular Western Europe, then learned to come to terms with the commercial and economic strengths of US companies at home in a unified continent-wide market, now it is the turn of outsiders to tremble at the immense power of those based in that growing market.