The European Business Environment

The context, or the environment, in which business is conducted is subject to rapid change in modem industrial societies. However, the nature and the depth of the change which has occurred in Europe in recent years has been particularly dramatic, with political, economic, legal, social, technological and other forms of change combining to bring about what amounts to a transformation of the business environment.

The political environment of business in Europe varies between countries and within countries varies over time. There are, in broad terms, two main aspects of this environment.

In day-to-day economic commentary and discussion it is common to hear reference to a good or a bad ‘economic environment’ for business. This generally refers to the buoyancy of overall demand or, perhaps, the level of nominal interest rates. While these are, indeed, important elements of the economic environment, it is necessary to think more systematically about the economic environment for business activity in Europe. As was noted in the Introduction to this book, the conduct of business generally involves three elements or stages: the acquisition of resources; the production of a good or service; and distribution and sale. This suggests that many aspects of the economic environment beyond the buoyancy of aggregate demand and the level of interest rates affect the business environment. So, other macroeconomic factors, such as exchange rates, influence business decisions. The environment in which labour is hired is shaped by structural factors, such as skill levels and demography, and the use of labour is influenced by the social and legal norms which prevail. Technological capacity influences the availability and use of numerous assets which affect business activity. Patterns of consumer demand, which reflect cultural and demographic differences, can be seen as part of the economic environment. Finance is a key requirement of business and, consequently, the availability of financial services and the structure of the financial sector are also important aspects of the economic environment. Likewise, the existing structure of firms and industries shapes the opportunities for business. The geographical distribution of population and economic activity defines both opportunities for, and constraints on, business activity. Business is conducted in legal and social contexts which, taking a broad view, could also be seen as part of the economic environment.

Since the original six member states of the European Community (EC) had very similar legal systems based on the codified law model, it is this system which dominates European Union (EU) law. However, the enlargements of the EC in the 1970s and 1980s made it necessary to assimilate new legal concepts, particularly those on which the Anglo-Saxon systems are based.

Although the labour market and labour relations have been marginal to the process of European integration, present developments, both within member states and at the European Union (EU) level, have major implications for the European business environment. The last thirty years have witnessed profound changes in the nature of European employment, with important implications for both employers and trade unions. In the 1960s, the traditional image of the worker as a full-time, securely employed male in manufacturing was still fairly close to the norm. In the 1990s, the number of workers fitting that description has declined: the growth in the proportion of women in the workforce, the expansion of service sector employment, and the proliferation of part-time and temporary work — not to mention the persistence of high levels of unemployment (especially among younger workers) — have all transformed the character of labour markets and the nature of industrial relations. At the same time, a major new force in labour market regulation has appeared in the form of supranational government, initially in the area of the freedom of movement of labour but more recently in the progressive development of new rules regarding health and safety and the harmonisation of social protection and workers rights across the EU.

Capital is fundamental to economic activity and its provision directly affects the performance of businesses. The cost of capital, its availability and the regulations affecting it are all of immediate concern to business. Recognising this fact, the European Union (EU) continues to lay great stress on creating a propitious financial environment for all firms within the internal market.

Europe has long been a huge economic force, accounting for more than 40 per cent of world trade. However, its own market remained a complex web of internal non-tariff barriers until the Single European Market (SEM) project took shape in the mid-1980s. The effects of the SEM will take time to make their full impact, but it is clear that for many industries the new structure is having radical implications. Industries that were built on nationally regulated frameworks, such as financial services, or those that lived on contracts from their own governments, such as telecommunication, are experiencing enormous change. The national markets for public procurement contracts have, or soon will have, become open competitive markets on a European scale. Companies with strategies based on serving local markets protected by physical and regulatory barriers to trade now have to deal with direct international competition. Start up companies and those with growth objectives can aim for an EU market of almost 350 million people to support marketing strategies based on low-cost and ‘world class’ product quality. European consumers increasingly view the same media, listen to the same music, respond to similar fashion trends and are ever more aware of each others’ consumption behaviour. Europe is in transition — as perhaps it has always been - but especially now with the added pace and urgency of the SEM programme and with the changes in political and social values that lie behind it. In so far as business success relies on well-judged adaptation to a changing environment, the 1990s is a decade in which environmental responsiveness will be vital. In so far as marketing is the mana?gerial function with special responsibility for reading and interpreting the environment, it is also a critical decade for marketing practitioners.

The business environment in which European firms operate is shaped by the technology and the infrastructure that are available to them. These two dimensions will be examined in this chapter. Following a brief introduction, the chapter is divided into four main sections, three on technology and one on infrastructure.