European Corporate Context

Question 1

CONCEPT 7: WESTERN EUROPEAN COUNTRIES CHARACTERISTICS

Accepted Answer

- Free market => less than U.S. but still - 36,3% share of total trade - Low workers mobility rate within the EU and language barriers - High salary with a lot of unemployment + lower economic growth rate than most of the emerging economies - Slow population growth rate but a higher population density as in US - High personal tax rates and extensive public service - Extensive social welfare and retirement system - Health care l Public system, not Private (USA) - Social class traditions and aristocratic families => Many Family business like BMW, InBev, Ericsson and Family networks of shareholders - Democracies with multiparty systems => rule of law - Density of knowledge, know-how => Many big cities that are not far away from each other - Risk-Averseness and Fear of Failure (compared to U.S.) - EU 27 member states - 506 Million People

Question 2

CONCEPT 13: A EUROPEAN BUSINESS SWOT (Internal + External Analysis)

Accepted Answer

STRENGTHS • Long-term view • Openness to local cultures • Personal relationships OPPORTUNITIES • Public support • European integration • Climate policies THREATS • Fragmented markets • Regulations WEAKNESSES • Conflicting objectives • Failure management

Question 3

CONCEPT 11: POLICY PRIORITIES OF THE EU l Juncker focuses on:

Accepted Answer

1.The investment plan: a new boost for jobs, growth and investment2.A connected digital single market3.A resilient energy union with a forward-looking climate change policy4.A deeper and fairer internal market with stronger industries 5.A deeper and fairer economic and monetary union6.A reasonable and balanced free trade agreement with the United States7.An area of justice and fundamental rights based on mutual trust8.A new policy on migration9.Europe as a stronger global actor10.A European Union of democratic change

Question 4

CONCEPT 9: RATIONALE FOR PUBLIC INTERVENTION

Accepted Answer

Market failures VUCA, Risk Aversion (start-up financing) Knowledge as a public good Transaction Costs of tacit knowledge over distance (lack of networks) Information asymmetries (latent value, search costs) Inflexibility (switching costs) Barriers to entry Non-solvent markets => lack of access to business services Positive externalities Shaping markets (monetary policy) Welfare (jobs, value-added, ...) Economies of scope Network effects Innovation and Information spill-over + complementary assets Technological path dependencies + indivisibilities (based on historical decisions) → Public support to entrepreneurship and innovation at local, regional, national and European level “Every technology that makes the iPhone smart was government-funded"

Question 5

CONCEPT 10: INNOVATION SYSTEMS l Innovation Infrastructure

Accepted Answer

Knowledge Competitiveness Wealth (jobs + growth) Human capacity: Pool of competent, Human resources, Social structures Institution and policies: Governance and legitimation Infrastructure: Technological standards, Market investments Resource endowment: capital, labor, knowledge Markets and capital: Financing mechanics, Local tastes, Local resources, Input prices The concept of the innovation system stresses that the flow of technology and information among people, enterprises and institutions is key to an innovative process. It contains the interaction between the actors who are needed in order to turn an idea into a process, product or service on the market.

Question 6

CONCEPT 11: EUROPEAN ECONOMIC POLICY

Accepted Answer

1. Peace l Integration of political and economic systems l Interdependence, common interest, rule of law 2. Competitiveness and efficiency (more global and less local) l Creation of a single economic market (integration vs. economic and cultural barriers, scale and scope economies vs. niche strategies, economic development and welfare state) 3. Objectives for business Create a “common market” (trade; competition; agriculture; energy, industry, technology, transport, environment and transports policies; regional and social policies) More competitive and open knowledge economy (structural reforms, better regulations) Promote growth and stability (monetary policy; economic policy coordination, Maastricht criteria) Common Market & free movement Goods Services Capital People (Schengn, Bologna process) Synthesis: • Proactive European economic policies• More market-oriented (“global”) competitive environment• Increasing European-level competition• Lack of European-level economic oversight (free riding)

Question 7

CONCEPT 12: EUROPEAN HARMONIZATION

Accepted Answer

Harmonization issues: Intellectual property and contracts Product and environmental regulation (recycling, ...) Corporate governance and business ethics Employment regulations (working hours, social charges, ...) Tax (energy, VAT, ...) Human rights, security and terrorism Examples for harmonized policies European company status (Societas Europae) - Shareholders rights and responsibilities - Company types and requirements (parmalat) Harmonization of IP and copyright regulations - European patent delivery and protection (gsk) European-wide standardization of product regulations - Safety and environmental protection, labelling (MONSANTO) Harmonization of taxation - VAT, excise duties, ... (Marlboro, Shell)

Question 8

CONCEPT 13: KEY ISSUES OF GROWTH

Accepted Answer

1. More integrated energy, telecoms and transport markets: TGV2. Infrastructure Investments: EU global navigation satellite system GALILEO3. Broadband communications: High-speed internet services 4G4. Investments in research, development and innovation (3% of GDP)

Question 9

CONCEPT 13: CORPORATE ENVIRONMENT + PORTER + Potential impact on industry structure

Accepted Answer

Bargaining power of suppliers ↓ Diversified suppliers ↑ Fragmented infrastructures ↑ Consolidation Threat of new entrants ↑ International competitors ↑ Deregulation ↑ Product regulations ↓ Consolidation Bargaining Power of Customers ↑ Harmonization ↑ Deregulation ↑ Price transparency ↓ Diversified markets Threat of Substitutes ↑ Deregulation ↑ Innovation ↓ Harmonization ↓ Regulation Market threat ↑ Price transparency ↑ Cost efficiency ↓ Government support

Question 10

CONCEPT 12: MACROECONOMIC CONSEQUENCES €

Accepted Answer

Fixed exchange-rate Common currency Common monetary policy LEADS TO • Exchange-rate stability (?) • Lower transaction costs • Lower information costs • Increased competition • Low inflation & interest rates ? But... • Asymmetric shocks • Local reactions to monetary policies • Focus on low inflation only • Wage rigidity and limited labor mobility

Question 11

CONCEPT 7: Eu-Area government gross debt

Accepted Answer

Greece (over 125% of GDP) Ireland (100-125% of GDP) Portugal Italy France Belgium Germany (> 75%) Spain 4/ TOP 10 In Europe RoyalDutch/ShellGroup Europe BP Europe Volkswagen Europe Glencore Europe

Question 12

CONCEPT 12: MICROECONOMIC CONSEQUENCES OF €

Accepted Answer

1. Intensification of competition Transaction costs and uncertainty Investments (reduced interest rate) Information costs (price transparency) 2. Single market Increase trade within 300 million people market Alignment of product positioning Economies of scale 3. Labor relations Coordinated wage bargaining vs. flexibility Wage transparency

Question 13

CONCEPT 12: OBSTACLES TO PRICE CONVERGENCE

Accepted Answer

￼Distribution channels structure and margins Taxes and priceregulations Competitive environments Competitive positioning e.g. car prices very cheap in Finland(VW, Focus) than in Germany, Banking in Irand (Oligopoly and higher fees), MAC vs. QUICK, Arbitrage possibilities as not the same pricing (BIGMAC Index), • Asymmetric shocks • Local reactions to monetary policies • Focus on low inflation only • Wage rigidity and limited labor mobility

Corporate Strategy in Europe (Fach) / European Corporate Context (Lektion)