Europe Has Untapped Potential to Drive Expansion
European businesses and economies have important strengths and untapped potential that can be converted into superior corporate and overall economic performance.
ANN ARBOR, Mich. Although the United States currently has the most dynamic, developed economy among the large industrialized countries, further progress is difficult because the U.S. economy already operates close to its potential, says economist Jan Svejnar of the University of Michigan Business School.
Future growth, he says, cannot come from eliminating sizable inefficiencies, which by and large do not exist, but rather must flow from new inventions and innovations.
Europe, on the other hand, has considerable untapped possibilities that can propel it rapidly forward, according to Svejnar, whose article, "Europe Poised to Move up a Gear," appeared in the Spring 2004 issue of European Business Forum.
"With the introduction of the euro, enlargement and structural reforms, the European Union increasingly should be able to act as a unified economic power that provides favorable conditions for business and economic development in general," says Svejnar, professor of corporate strategy and international business and business economics.
In his article, Svejnar examines the strengths and weaknesses of the EU and identifies important global developments where changes in European business strategy and public policy would be most advantageous. For example, in the area of entrepreneurship and venture capital, where American companies excelled during the 1990s, he advises business leaders in Europe to recognize and exploit new entrepreneurial opportunities.
Similarly, in regulatory matters, Svejnar says that more needs to be done by Europeans to further the development of financial markets, reduce and re-orient government intervention, improve the functioning of labor markets and generally reduce the cost of doing business.
Research and development is another area where European investment levels, commercialization efforts and production capabilities have trailed those of the United States.
"The evidence indicates that European businesses and governments need to increase R&D investment in key areas, such as information and communication technology," Svejnar says. "They also must integrate more coherently academic and business research facilities and exploit EU-wide economies of scale and scope."
The European community also must address problems associated with human capital and population. In addition to having lower worker productivity than the United States and a net brain drain of talent, European businesses are handicapped by cumbersome pension systems, which are becoming more strained by the region's aging population.
One bright spot on the European horizon is the expansion of the EU, which presents a major opportunity to enhance the competitiveness of companies operating in Europe. The challenge, however, lies in integrating new members rapidly into the EU's business, legal and economic network.
Finally, Svejnar says, Europe can provide much more business and policy leadership than it has done to date.
"The successful introduction of the euro, key acquisitions such as that of Chrysler by DaimlerBenz, the transatlantic projection of regulatory power from Brussels and the concrete prospect of a European constitution are steps that reflect a change in behavior," he says. "Gradually, they should change perceptions as well."
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