SHORT VIEW

The United States of Europe (or why we’re better together)

A new study suggests that the EU is realising increasing competitive advantages from greater integration between east and west. So is Team Europe finally set for lift-off?

By Ben Thompson, editor, MeetTheBoss TV

It’s been the story of the last few Ryder Cups: a European golfer sinks the winning putt, and is instantly showered in champagne by euphoric teammates of multiple nationalities as they race across the green. As a symbol of European unity, it remains a defining public image: evidence that the bloc can come together to overcome its differences, take on the world (well, the USA at least), and win. As the last decade of Cup dominance has proved, Europe can be a formidable opponent when working as a team.

And we’re beginning to see something similar in the business environment, too.

Closer integration between West and East has made Europe a stronger, better-connected, and more competitive trade and manufacturing region.

A growing body of research suggests that, far from being weakened by its inherent differences, Europe is actually working together - just like its golfers - to develop a more collaborative environment. According to a recent report from the Economics Department of ING, closer integration between West and East has made Europe a stronger, better-connected, and more competitive trade and manufacturing region.

The study reveals greater cooperation has raised prosperity in both regions since the mid-1990s. Overall job numbers have increased as a result of further integration, with growing demand from CEE creating 2.7 million new jobs in Western Europe between 1995 and 2008. And manufacturers in both regions have gained access to each other’s markets, boosting trade.

Indeed, as Herman van Rompuy, president of the European Council, pointed out recently, despite making up just 7% of the global population, Europeans produce 20% of global wealth - more than the US, and the same as China and India put together.

“Eastern Europe has caught up in terms of education,” explained Robert O’Donoghue, ING’s global head of Working Capital Solutions on a recent MeetTheBoss TV roundtable convened to discuss Europe’s growing connectedness. “They've got a very engaged smart workforce available at a cheaper cost. And what I think that does for the rest of Europe is it keeps us sharp. We need to stay ahead of the pack. We need to have our own advantages.”

O’Donoghue believes it is the complementary nature of the different skillsets offered by Eastern and Western Europe that is contributing to success, citing the automotive industry as a prime example. “In terms of component manufacturing, it's very specialised work, and Eastern Europe is clearly fantastic at that. You see it in Skoda in Kiev, in Slovakia, in the Czech Republic. But Germany remains ahead when it comes to the finished product. BMW, Mercedes, Daimler - they are very strong in terms of creating a finished product that is in demand across the globe.”

Folkert Bouwe Bölger, vice president at Bang & Olufsen, agrees. “The environment, transport and logistics, flexibility - all require that we have a strong industrial base in Europe. Being close to the consumer will be important. And, yes, Central Europe may become the base for more of the assembly part, with the Western European part more focused on innovation, service and capabilities. We have to play to our strengths.”

Yet while this is undoubtedly contributing to success in the short-to-medium term, it is an approach that does pose a question for Europe going forward. At the moment, those strengths rely to a large extent on the lower-cost wage environments of CEE - and as that cost gap narrows over the coming years and as CEE develops as a hub for innovation and skills, that model is set to shift.

Tim Becker, director of Global Innovation at Arla Foods, a global dairy cooperative owned by 13,500 European dairy farmers, feels that Europe is at something of a crossroad. “Do we want to have consumers in our 500 million consumer universe with purchasing power who can come and visit West European countries, buy West European goods, do things like this? Or is it more important that we look at Eastern Europe as a cost opportunity?”

Bölger agrees that a change in mindset is inevitable. “I think it’s more the Western European countries that need to think about how to get the cost of doing business down. It’s more a matter of Western Europe adapting to the reality that Central Europe will eat part of their bread.”

For Elizabeth Brownhill, CFO for Southern Europe, France and Benelux at TNS, part of WPP, the world’s largest advertising company, the future lies in creating more of a ‘Brand Europe’. “There’s a movement which is global. And then on the other hand, there's a big movement towards becoming more independent, and more unique - commercialising products that are very local, using the culture and the history that we have which makes us so strong and so diversified across Europe. Perhaps we need to use that as a branding exercise, to say: look, we're different.”

Celebrating differences, but working together. It worked for the golfers. Sounds like a pretty good basis for moving forward.

Would you like to know more?

The View is the online magazine of ING Wholesale Banking