EUROPEAN UNION
Optimum Flexibility
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| KIA'S NEW EUROPEAN HQ INCLUDES DESIGN CENTER: Kia Motors is building a new European headquarters in Frankfurt, home of one of the world's biggest bi-annual international motor shows. The facility will include a design center, which will be independent from Kia's sister company, Hyundai Motors, marking a change in strategy as other design centers are jointly operated. Kia expects to begin operations in the new building by March 2007. It will be home to 350 Kia personnel. |
The annual Ernst & Young European Attractiveness Survey (of 650 senior international executives), published in June 2005, shows that CEE is viewed as a viable alternative to China for the automotive, consumer goods and heavy industry sectors. Furthermore, with 31 percent of international investment directed towards CEE — more than France, Germany, Spain and Belgium combined — many Western European countries continue to face transformation challenges.
The U.K. remains the leader for attracting and retaining foreign investment and, as such, finds itself in a unique situation. Lhermitte sees major challenges for the U.K. in balancing its very attractive business-orientated fiscal policies with an ability to deliver quality services and infrastructure as it continues its transformation from a manufacturing to a high-tech and services economy. Having adopted the U.K. investment model, Ireland and the Netherlands are also facing many of the same issues.
The majority of the rest of Europe — the Nordic countries, Germany, France, Belgium and Spain — are facing challenges of reform in terms of transformation that the U.K. has already undergone. Lhermitte says that their more social model will necessitate the need for more regulatory changes to help them become more flexible.
"France and Germany have followed a very narrow path," he says. "They will face real regulatory challenges, and they need to make the right overtures to investors and the banking community that they are more pro-business than they appear to be. They face the challenge of becoming more flexible — a delicate situation within a complex social system."
For the mature CEE countries, namely Poland, the Czech Republic, Hungary and Slovakia, Lhermitte believes that the growing challenge is for them to enjoy the same high job creation in services as they do in manufacturing. To do this they will have to make sure that education, infrastructure, housing and banking can meet these needs. "They need to be very efficient and selective in their use of capital and finance," he adds.
Outside the EU, Romania, Russia, the Ukraine and Turkey are all emerging as locations that will challenge CEE, although some are five to seven years away from being stable and having "normal economies" while others are 20 to 25 years away. Lhermitte believes that they can only be developed using European platforms, as FDI is increasingly driven by European cross-border investment.
Russia is seen as a future spur of Europe's attractiveness in five to 15 years, and this is confirmed by the "very, very active investor and consultant interest in Russia." The Mediterranean basin region, meanwhile, will benefit from French, Italian and English influence.
The challenge for Europe as a whole involves harmonization versus diversity. This is both a political and strategic debate — should Europe be one big country with a flat corporation tax or maintain its diversity?
| EC Forges New Industrial Policy |
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The European Commission launched a new industrial policy in October aimed at developing better framework conditions for manufacturing, a sector that employs more than 34 million in the EU. The new policy will complement work at member state level to support a strong industrial base. It includes initiatives on competitiveness, energy and the environment, intellectual property rights, better regulation, industrial research and innovation, market access, skills and managing structural change. The Commission is targeting specific sectors such as pharmaceuticals, defense and information and communication technologies. "Manufacturing has a vital role to play in securing Europe's future prosperity," said Gunter Verheugen, Commission vice president responsible for enterprise and industry policy. "There is no way back to the old days of protectionism and subsidies. Politicians don't create jobs. But we can create the right framework for industry to thrive. The strategy includes a range of new, tailor-made initiatives to make our industries attractive for investment and job creation." The Commission says its new approach will provide increased coherence and integration between policies to develop a more powerful effect on competitiveness. It says that while the majority of EU manufacturing sectors have performed well in comparison with their counterparts in other industrialized economies, the industrial structure of the EU economy as a whole "makes it less than ideally positioned to face the ongoing globalization process." Of particular concern to the Commission is EU trade's concentration in sectors with medium-high technologies and low to intermediate labor skills. The Commission believes this exposes the EU to competition from producers in emerging economies. The Commission's initiative groups industry sectors into four broad categories with these assessments:
U.S. Chamber of Commerce officials have threatened to sue over the proposed regulations. While final legislation will not be produced until the end of the year, initial drafts include some 30,000 chemicals. The EU's own low-end projection of the cost of compliance over the next dozen or so years is US$3.4 billion. - John McCurry and Adam Bruns
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