Strategic Management — New Rules for Old Europe

Unemployment has always been a topic of economic concern. It became of particular interest from the late 1980s on, when most OECD countries were hit by high and growing unemployment rates, which, in addition, turned out to be persistent. Part of the decline in employment was due to changing economic structures, i.e. the transition from traditional manufacturing industries to services (see e.g. Blanchard 2004). Increasingly globalisation, understood as the international integration of the goods and capital markets, is claimed to be one source of the evil, with the primary losers the low and unskilled workers. They may either lose their jobs more easily due to foreign competition, or their jobs may be exported with greater ease. Over the past decades, the worldwide integration of markets has indeed proceeded at a great pace, bringing about a wellknown range of economic advantages and disadvantages. Empirical studies document that the real-wage gap between low-skilled and high-skilled workers has widened over the past decades and keeps on widening. There is a skill premium that comes along with a substitution process between skilled and unskilled workers. But what if the skill premium no longer pays? A recent phenomenon is that white-collar employees, too, increasingly fear losing their jobs in an internationally integrated world.

The Council acts in its capacity as legislator when it adopts, on the basis of the relevant provisions of the Treaties, legally binding standards in or for Member States by means of regulations, directives, framework decisions or decisions. Internal measures, administrative or budgetary acts, acts concerning interinstitutional or international relations and non-binding acts such as conclusions, recommendations or resolutions are not regarded as legislative acts. As regards definitive legislative acts adopted by the Council, the summaries contain, where appropriate, the result of the votes and the statements for the minutes by the Council, the Commission or the Member States.

An ever growing body of literature has discussed various aspects of the entry of ten new Member States into the European Union (EU) as of May 1, 2004. Eight out often new members are situated in continental Eastern Europe, which is where we find two more candidates for EU membership willing to enter as of January 1, 2007. Both Romania and Bulgaria are trying to meet the various requirements of EU membership with great efforts. Scholars in the fields of economics and business administration have begun to analyse the emerging markets in Eastern Europe very early on. Their focus lies on broader macroeconomic analyses and on strategic management issues. With few exceptions, the dynamic legal framework of business activity in Eastern Europe in general and that of financial accounting in particular have been neglected in the literary discussion so far.

Since the beginning of the 80s the Basel Committee on Banking Supervision (the Committee) has been dealing with the creation of a framework to measure capital adequacy on a multinational scale as a guideline for an appropriate capital level of internationally active banks. It was initiated because of an alarmingly low level of capital which was held by the most important banks worldwide. The aim of the Committee was not only to guarantee an appropriate capital level for the banking industry as a contribution to improve the safety and soundness of national and international banking and finance systems. At the same time the framework aimed at eliminating the disadvantages in competition between banks, which resulted from the different capital requirements of different states (see Basel Committee on Banking Supervision 1988, par. 3). The results of the Committee’s work were summarised by the so-called “International Convergence of Capital Measurement and Capital Standards” (also known as “Basel Capital Accord”, “Basel Capital Adequacy Framework”, “Basel Accord”, “1988 Accord”, or in short “Basel I”) in 1988. Basel I became effective as of year-end 1992 and has had a substantial influence on the corresponding European Union’s Directives ever since. This is the reason why the Basel Accord may be seen as a basis for German banking supervisory regulations e.g. principle 1 concerning the capital of institutions.

The EU goal for 2010 is set, the vision seems clear, and European heads of states seem committed to making their region the most innovative and dynamic in the world.

During the recent past, the idea of relationship marketing has gained more and more recognition in both scientific and professional literature (Berry 1983, 2002; Gordon 1998; Bruhn 2001; Gummesson 2002). When utilising relationship marketing, firms seek to build, develop and nurture relationships with interest groups (e.g. consumers, suppliers, financial sources), with an aim to making these relationships profitable. The majority of the resulting relationships, although exceptions do exist, tend to be long-lasting.

The opening of borders between national markets and the rapid development of a global economic space has resulted in a homogenisation of the supply and demand for goods and services. The gradual lowering of trade barriers and increased competition have obliged companies to rethink the principles that govern the strategic management of their brand portfolios. In view of this context, it is essential to take into account the degree to which a brand can be included in a global strategy where consistent principles of brand management are applied to a full range of geographical zones.

Internationalisation is one of the key factors of European economic development. As WTO-statistics show, world foreign trade volumes grew from US-$ 280 billion in 1970 to US-$ 8,900 in 2004 and the direct investment volumes grew from US-$ 520 billion in 1980 to 8,200 in 2003 (UNCTAD estimates a slight but steady increase for 2004; UNCTAD 2005; WTO 2005). As generally known, they are both dependent on each other: Direct investments involve trade activities and vice versa. This fact can be observed in the last decade in Japan. The former world champion in exporting is today ranked fourth among the leading exporting countries behind the USA, Germany and China.

Statistics on intra-EU trade show that the intra-European interpenetration of national economies continues (Cristallo 2003, p. 2). In a situation of an ongoing process of integration and interconnection of countries, markets, and technologies (Roberts/Kossek/Ozeki 1998; Barkema/Baum/Mannix 2002), companies face increasing competition with respect to costs and prices, product quality, and time-to-market.

In the process of internationalisation, companies are faced with the challenge of harmonising corporate culture. The widely held idea is that a strong global corporate culture will strengthen the company’s identity and image, and reduce costs. This frequently means that the corporate culture of the parent company is transferred to the subsidiary. An overly ethnocentric approach by the company’s headquarters often complicates the reception of the new corporate culture in the subsidiaries, and creates misunderstandings and conflicts.

The already high and still growing importance of international strategic procurement in the sense of global sourcing means that firms are concentrating on supply concepts with a more international orientation. International procurement relationships when compared to national procurement relationships are characterised by more complex buying markets, a larger number and more heterogeneous buying markets, higher risk and greater uncertainty in the buying relationship and buying terms. It is more difficult to forge an international relationship since there are often the hurdles of greater geographical distance, language and cultural disparities between the actors and less frequent personal contact to overcome. The likelihood of conflict between the parties is greater and a breakdown in the supplier relationship more likely in the international context than in the national context (Dominguez/Zinn 1994, pp. 65–66).

Europe viewed from the outside — a complete mystery? It certainly seems difficult and cumbersome to obtain a differentiated image of Europe. The evaluation of American Minister of Defence, Donald Rumsfeld, in early 2003 is legendary: “Now, you’re thinking of Europe as Germany and France. I don’t. I think that’s old Europe.” This perspective that associates Europe with being backward is particularly prevalent in the economic context. Writing in the Financial Times, Wolf (2005) stressed this negative vision with the following headline: “Outpaced: why are the big eurozone countries and Japan doing worse than English-speaking nations?”