The previous eleven chapters examined how past events have shaped the present business environment of Europe. The history of individual countries and Europe as a whole, as well as values and choices, helps to explain models of capitalism and European integration. The policies that the EU and national governments utilize to nurture, promote, and control business today are based on prior experiences, comparing best practices, and the global competitive environment as it presently exists. The previous chapter described the structure and dynamics of several industries in recent years. In this chapter, we discuss some of the issues that will have an important impact on Europe’s business environment in the future. The goal is not to try to predict what will happen. That is a near-impossible task. Rather, the objective is to inform the reader of broad trends that have become increasingly visible in recent years, and which almost certainly provide opportunities and challenges for companies, policymakers, and European citizens.

Europe today

Over a decade into the twenty-first century, Europe’s business environment faces numerous challenges. Media headlines in recent years suggest that European business may be past its highpoint. The economic crisis that originated in 2007 lingers, casting a pall on investment, employment, and business and consumer confidence. The debt crisis in Greece and other European countries raises questions about the capability of governments, the EU, and other institutions to address society’s most urgent problems. The increased economic competitiveness and global political influence of non-Western countries appears to confirm that the twenty-first century will not be dominated by the transatlantic region. And social issues like immigration and aging present challenges to the fabric of European societies. It is easy to succumb to the notion that Europe’s best days, and apex of business influence in the global economy, are in the past.

Chapter 4 described market capitalism and the features of this model in the UK. In this chapter, we examine managed capitalism. This is the most prevalent model in Europe and the most successful in terms of providing steady economic growth, high standards of living, and social stability. Despite its success, managed capitalism is perhaps the most difficult of the three models to be successfully implemented outside of central and northern Europe. The reasons are rooted in the historical experiences of this region, and the values and preferences of the citizens who live there.

Overview of managed capitalism model

Managed capitalism is a second main model of capitalism found in Europe. Unlike market capitalism, managed capitalism relies somewhat less on market forces and more on an enabling role for government. The countries of central Europe (Germany and Austria) and Scandinavia (Denmark, Finland, Norway, and Sweden), as well as the Netherlands, represent variations of the managed capitalism model. These countries are well known for their high levels of taxation and government spending, and gave rise to the notion of the “welfare state.” But these characteristics do not necessarily diminish their ability to compete successfully in the global economy. As shown in Table 4.1, four of the eight top countries (Finland, Germany, Sweden, and the Netherlands) in the World Economic Forum’s 2013–14 global competitiveness rankings typify the managed capitalism model. Four more countries (Norway, Denmark, Austria, and Belgium) are among the top twenty. The economies of these countries tend to be very open with respect to trade and investment. With the exception of Germany, they are too small in terms of population to rely on a domestic market for growth. Companies native to these countries have been forced to look beyond their borders for new markets. Consequently, managed capitalism countries are exposed to a high degree to the competitive pressures of the global economy. The implicit bargain between government, business, labor, and society is that high levels of social protection (in the forms of unemployment insurance, health care, retirement pensions, and other public policies) would be in place to cushion citizens from the vagaries of foreign competition.

Challenges to learning about the business environment of Europe

The business environment of Europe is dynamic and exciting for companies and their managers, and for students of business who learn about them. For scholars, the topic presents interesting areas of research with respect to the region’s strengths and weaknesses relative to other parts of the world. It is also of interest to European policymakers and government officials seeking to improve the economic welfare of their constituents. And of course, the subject is fascinating for the casual but curious observer trying to make sense of newspaper headlines, and tourists who notice different products, currencies, and shop opening hours. In short, there are many reasons why one might want to learn more about business in Europe.

This can be a difficult subject to present clearly and understand well, and so requires a multi-level perspective and interdisciplinary approach. There are several reasons for this. First, Europe is a region under pressure to be both homogeneous and heterogeneous – more similar while maintaining distinctive local characteristics. The tension between reducing differences across national business environments, while maintaining the variety that makes Europe unique, will be one of the region’s greatest challenges in the twenty-first century. In the 1950s, the founders of the European Union (EU) believed that economic integration could be the engine by which closer political cooperation would be achieved, thereby reducing the likelihood of another devastating continental war. Thus, one of the fundamental objectives of the EU is to bring together the region’s countries into a “common market” by, for example, “harmonizing” national policies and regulations and reducing national barriers to the free movement of goods, services, capital (money), and people. The rationale is that, if countries become more intertwined economically and socially, war becomes too costly and unpalatable. But this process is a double-edged sword for business. For competitive companies seeking new markets, the elimination of barriers to entry in neighboring countries is beneficial. It allows them to find new customers, diversify their production and operations base, and secure alternative sources of financing. For less competitive firms, the removal of national barriers will lead almost certainly to an intensification of competition – and perhaps even their own demise.

Most of the information presented in the ten previous chapters describes how economic policies, political systems, country histories, and the EU affect Europe’s business environment. The purpose of this chapter is to show: (1) how several industries in Europe are structured; (2) how specific companies and their strategies have fared in this region; and (3) some of the issues these industries are facing as a result of national government, EU, or international dynamics and decisions. The five industries described here are not necessarily the most important ones in Europe in terms of contribution to economic activity, employment, or exports. However, they are industries that receive significant attention in the media, academia, and policy circles. They also are sectors that have interesting stories to tell. Thus, the reader should get a sense of how “real world” companies navigate Europe’s business environment, and how the issues discussed earlier in this book relate to them.

European business background

Capitalism originated in Europe. It was the growth of the merchant class in Europe during the late Middle Ages and Renaissance period that gave rise to the industrial revolution of the late eighteenth and nineteenth centuries and the loss of influence among the land-owning aristocracy. It was from Europe where much of the early intellectual writing about capitalism, from the likes of Adam Smith and David Ricardo, originated and shaped trade and investment patterns. It was Europeans who began to search for global markets in the fifteenth century by sending ships on the high seas to all corners of the earth. Thomas Friedman, in his best-selling book The World is Flat: A Brief History of the Twenty-first Century, refers to this period as “Globalization 1.0” – a period when kings and queens sought global markets for the greater glory of their countries (Friedman, 2005). Not long afterwards, the early multinationals began to take shape, including the Dutch East India Company (the first stock-issuing company) and similarly named companies from Britain, Denmark, France, and Sweden. Hudson’s Bay Company, English East India Company, British South Africa Company, Massachusetts Bay Company, Mississippi Company, and dozens of other early multinationals played key economic and political roles (some positive, others less so) in far-flung regions around the world.

Many readers on other continents may be wondering how developments in their own country fit in with Europe’s business environment. The world is far more connected in terms of economic, technological, and cultural linkages than was the case when European integration began in the 1950s. It, therefore, would be mistaken to think that Europe’s economy and companies, and the EU-level and national policies that shape them, are impervious to the forces of the global economy. Since the end of the Cold War, numerous changes in global economics and politics have reshaped the competitive landscape – not just for Europe, but for traditional economic leaders like the US and Japan. In this chapter, we examine some of the countries and companies that are placing new competitive pressures on Europe. We also look at the impact that other actors are playing, particularly intergovernmental organizations like the World Trade Organization (WTO) and G20, as well as non-governmental organizations (NGOs). European companies and policymakers must respond to a complex global environment that includes an array of state and non-state actors. As we shall see, it is far from clear how European managers and policymakers should maneuver through this global minefield.

International context

The business environment of Europe must be understood within the context of the global economy. Many European companies do business not only in Europe, but around the world. Likewise, many non-European firms trade with or invest in Europe (or both), and must consider the relative importance of a European presence in their global strategy. With a population of over 500 million people and gross domestic product (GDP) of €13 trillion, the European Union (EU) is the world’s most lucrative market. China and India have more than twice as many people each, but these two countries have nowhere near the average wealth and spending power of Europeans, and are unlikely to for decades. Only the US is comparable, with about 315 million citizens and a GDP of about €1 trillion less than the EU.

In this chapter and Chapter 9, the multi-level governance structure described in Chapter 1 is applied to the promotion and regulation of business in Europe. In this chapter, we see that both the EU and national governments play key roles in supporting a vibrant and competitive economy. Policies administered by the EU aim to ensure that companies from all member states, as well as non-European companies, are treated fairly and in accordance with EU laws. EU-level policies also seek to support Europe’s economy from a broad, macroeconomic perspective that emphasizes stability and global competitiveness. National policies, on the other hand, are implemented by governments to help their companies and workers, even if they come at the expense of firms and citizens of fellow EU member states. While this tension seems contradictory, it is a feature of Europe’s business environment that places some – but not all – power and responsibility over policymaking within the EU, but reserves other tools for national governments.

How and why do governments make policies?

Governments and regulatory bodies impact business in any number of ways – sometimes supportive and sometimes obstructive. In democracies, governments must respond to citizens who, at various times and places, may demand policies friendly toward business and the economy more broadly, or that take into account other preferences such as environmental protection or better working conditions. In the early 2000s, in the wake of the Enron, WorldCom, Parmalat, and other notable corporate scandals, the US passed the Sarbanes-Oxley Act which set new standards on openness in corporate financial reports, and the EU enacted tougher auditing and corporate governance regulations. In the months following the 2008 financial crisis, electorates across the industrialized democracies clamored for policies that punished the bankers blamed for causing the crisis. In response, the Dodd-Frank Wall Street Reform and Consumer Protection Act became law in the US in 2010, and the EU produced a series of directives intended to harmonize financial services regulations among its member countries. On the other hand, as described in Chapter 4, the Thatcher government in the UK implemented policies in the other direction in the 1980s, in an effort to inject more dynamism into the flagging British economy. Chancellor Schroeder of Germany sought a similar goal with the labor market reforms of Agenda 2010 (Chapter 5), as did President Sarkozy’s more moderate measures in France in the mid-2000s (Chapter 6).

The previous two chapters discussed the European Union (EU) – its origins, historical milestones, institutional structure, and relationships with business in the past and present – as well as theoretical approaches to understanding how all of these are interrelated. In this chapter and the three that follow, we move the analysis of Europe’s business environment from the level of regional integration to the national level. The reason, as discussed in Chapter 1, is that there are important differences in Europe’s business environment across countries. While the EU is an important actor (probably the most important actor) in shaping the region’s business environment, it is by no means the only one. National differences still matter. Students who have lived in or traveled to two or more European countries know this, and business executives are keenly aware of them, too. In fact, these national differences are critical factors in a company’s decision-making on, for example, where to open or close factories, site their European headquarters, obtain financing, sell products, and a host of other decisions. So it is important to understand the principle features that distinguish national business environments across Europe.

Why models of capitalism matter

As discussed briefly in Chapter 1, Europe is both a regional economy and a collection of national economies. Business executives who overlook this important point do so at their peril. Chapter 2 described the evolution of the EU and, as we shall see in later chapters, the EU plays an increasingly prominent role in shaping the business environment of Europe. But national governments have proven reluctant, often for good reason, to cede all influence over their national economies to the EU. Consequently, the next four chapters compare Europe’s national economies. Space constraints make it impossible to describe in detail the differences among the twenty-eight member countries of the EU, as well as European countries such as Switzerland and Norway that are not members. Besides, such an analysis on the many individual “trees” risks losing sight of the broader “forest.” A better approach is to group countries into categories. This has the benefits of simplifying our analysis of differences within Europe, and tuning in to the scholarly work on “varieties” or “models” of capitalism. But this approach is not perfect.