MARKET ENTRY/EXPANSION FOR ASIAN COMPANIES IN EUROPE:A CRITICAL REVIEW OF THE EUROPEANINSTITUTIONAL FRAMEWORKDr. Roger Mos...
Europe• Combined the largest economy in theworld• Largest economies:• Germany• France• United Kingdom• Italy• Spain• Europ...
Overview: From an institutional perspective, Europe is dividedinto three major areas [1/2].EU 17 – Euro area EU – Souverei...
Overview: From an institutional perspective, Europe is dividedinto three major areas [2/2].Non-EUDescription:Countries out...
Status Quo: When comparing the three groups the non-EUmembers are performing best from an institutional perspective[1/2].E...
#3 – EU-17Germany scores significantly better than France• France scores lowest in ease of doing business, aswell as gener...
Future developments in Europe: There is a lot of uncertaintyabout the further institutional developments in Europe [1/3].E...
#2 – EU-SouvereignDivide between countries• United Kingdom is facing increasing difficulties,wherin stimulting measures ar...
#3 – EU-17Non-effective government action• Budget pressures, due to EU regulation• Appropriate actions for all the Euro ec...
Comparison: Indicators for an analysis of the three institutional‘models’ in Europe.Type Measure Source measureWealth indi...
34,60%37,50%12,90%26,80%23,70%18,80%3400039000440004900054000590000%5%10%15%20%25%30%35%40%GDP per capita (PPP) 2012, $ Gr...
Country Wealth Government efficiency54600 55300367004170039100355002640143767186603172318571221071500020000250003000035000...
Best in classWorst in classType Measure Source measure Switzerland Norway UK Sweden Germany FranceWealth indicatorsFinanci...
Type Measure Switzerland Norway UK Sweden Germany FranceWealth indicatorsFinancial GDP per capita PPP (2012) 5 6 2 4 3 1Gr...
Getting started: Do not hesitate to contact the“Gateway-to-Europe Lab” of the ASIA CONNECTCenter for support for your mark...
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ASIA CONNECT Center-HSG: A performance review of European institutional frameworks

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This analysis provides a performance review of three different institutional frameworks in Europe: EU (Euro), EU (Sovereign), Non-EU. The results indicate that the EU has severe institutional disadvantages compared to the leading Non-EU frameworks.

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ASIA CONNECT Center-HSG: A performance review of European institutional frameworks

  1. 1. MARKET ENTRY/EXPANSION FOR ASIAN COMPANIES IN EUROPE:A CRITICAL REVIEW OF THE EUROPEANINSTITUTIONAL FRAMEWORKDr. Roger MoserDirector, Asia Connect Center, University of St.Gallen (HSG)Adjunct Professor, IIM Udaipur,Visiting Faculty, IIM Bangalorewww.acc.unisg.chRoger.Moser@unisg.ch / Roger.Moser@iimb.ernet.in / Roger.Moser@iimu.ac.inSwitzerland/India, 2013
  2. 2. Europe• Combined the largest economy in theworld• Largest economies:• Germany• France• United Kingdom• Italy• Spain• Europe is marked by a large divide;• Culture• Wealth• InstitutionsStarting Point: Europe is still one of the most relevant andinteresting markets in the world: Wealth, Innovation, Infrastructure,Consumer Markets…
  3. 3. Overview: From an institutional perspective, Europe is dividedinto three major areas [1/2].EU 17 – Euro area EU – SouvereignDescription:Countries using the single Euro currency. Countriesinclude: Austria, Belgium, Cyprus, Estonia, Finland,France, Germany, Greece, Ireland, Italy, Luxembourg,Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain.Description:Countries in the European Union, not using the Eurocurrency. Countries include: Bulgaria, Czech Republic,Denmark, Hungary, Latvia, Lithuania, Poland, Romania,Sweden, United Kingdom.
  4. 4. Overview: From an institutional perspective, Europe is dividedinto three major areas [2/2].Non-EUDescription:Countries outside the European Union. Countriesinclude: Albania, Belarus, Bosnia, Croatia, Iceland,Kosovo, Macedonia, Moldova, Montenegro, Norway,Serbia, Switzerland, Ukraine.ComparisonCritical analysis is done through the comparison of six“exemplar” countries within the three separateregions. Seleted comparison variables (28 in total) arecategorized according to personal wealth, countrywealth and ease of doing business (see appendix forfull details).EU-17: France and GermanyThe two largest economies in the Eurozone. Onmonetary level, very intertwined due to its commoncurrency, the Euro.EU-Souvereign: Sweden and the UKTwo strong economies of the Eurogroup, not using thesingle currency. Able to set (largerly) their ownmonetary policy concerning currency. Highlydependent upon Eurogroup however.Non-EU: Norway and SwitzerlandComplete souvereign economies. Full-control overpolicy setting.
  5. 5. Status Quo: When comparing the three groups the non-EUmembers are performing best from an institutional perspective[1/2].EU-17EU-SouvereignNon-EUNon-EU performing bestHighest wealth, personal & finance• Highest GDP per capita• Highest national savings rate (to national GDP)• Lowest inflation rates• Switzerland shows highest quality of living• Norway ranks #1 in personal developmentHigh security• Lowest national unemployment rates• Lowest crime ratesEfficient government• High government spending per capita• Government budget surplusesBusiness friendly environment• Switzerland ranks #1 in 5 out of 7 criteria• Highest business investment rates (to national GDP)Broad outperformance
  6. 6. #3 – EU-17Germany scores significantly better than France• France scores lowest in ease of doing business, aswell as general country wealth indicators• Germany competitive in government efficiency andcosts of doing businessHigh equality• France, on the other hand, has the least number ofhouseholds living below the poverty line, thishowever goes at the cost of government efficieny(high government spending per capita, as well as alarge budget deficit)Business unfriendly environment• France has an excessive business-unfriendlyenvironment, scoring lowest on all 7 measures• Germany scores averageSignificant within-groupdifferences#2 – EU-SouvereignLarge differences within group• Sweden performing significantly better than UK• Difference large in personal wealth indicators;personal freedom, quality of living and inequality• GDP per capital, savings as well as inflation showlarge differences, attributed to differing monetarystrategies, and effect of crisis on important sectorsCountry wealth indicators similar• Country governance, in institutional framework aswell as efficiency of legal framework, outperformsEU-17• Infrastructure and government efficiency within thegroup score average overallBusiness friendly environment• Competitive corporate income tax and socialsecurity system• Burden of regulation is lower than the EU-17 groupEurocrisis significantlyimpeding EU-17Status Quo: When comparing the three groups the non-EUmembers are performing best from an institutional perspective[2/2].
  7. 7. Future developments in Europe: There is a lot of uncertaintyabout the further institutional developments in Europe [1/3].Economical - crisisLow growth• Growth rates low, or even negative, for a sustainedperiod. Looking for growth in far-away countries• Inability to stimulate economyUncompetitiveness• Large economies uncompetitive, due to high labourcosts, uncooperative institutionsAccess to financing• Investment is halted, due to banking crisis• Failure to create a platform for future growthDebt - crisis“Currency war”Unsustainable debt levels• Due to shrinking GDP and government stimulants,Government households becoming unsustainableTrade-off between stimulus and sustainability• Governments have to choose between stimulatingtheir economies and reducing unemployment, atthe risk of going bankrupt (due to high debt yields)Ineffective governments• Governments unwilling to make tough decisions,due to fear of losing electionsStimulus packages• Extensive stimulus packages introduced by variousnational banks (US, Japan, UK)• Result in weaker currencies in countries that receivestimulus (Dollar, Yen and Pound)Adverse affects• “Stronger” countries see stronger currencies (due tolower inflation expectations)• Puts a halt on export growth• Countries with competitive, export driven,economies are to benefit• Governments and national banks need thepower to decisively act, to, e.g., stimulate theeconomy or reform their economies• Access to financing and human developmentis crucial for long-term development
  8. 8. #2 – EU-SouvereignDivide between countries• United Kingdom is facing increasing difficulties,wherin stimulting measures are not taking thedesired effect• Sweden is stimulating the economy, still the budgetdeficit remains very small, and the economy isgrowingFavourable business environment• Both countries show business friendlyenvironments, although Sweden’s costs of socialsecurity is significantly higherPersonal wealth• Sweden’s population has high wealth, savings levelsand social security, combined with lower inflationresults in a confident economy• UK has low wealth, social security and employmentwherin confidence in the economy is lowSustainable leading position#1 – Non-EUEffective action by governments• Both Switzerland and Norway have been actingdecisively during the crisis, protecting andstimulating their economies to good effect• More power to act by governments, due to budgetsurpluses and strong economiesInvestment in the future• Education and human development are importantfactors within these countries, providing fertileground for future development• Leading business investment ratesBusiness friendly environment• Economies prove attractive to companies, given theease of doing business as well as the superior livingconditions within these countries• Low inflation environments supporting furtherinvestmentsDivide, Sweden model superiorFuture developments in Europe: There is a lot of uncertaintyabout the further institutional developments in Europe [2/3].
  9. 9. #3 – EU-17Non-effective government action• Budget pressures, due to EU regulation• Appropriate actions for all the Euro economies hardto define, give the large differences between theindividual economies• Stimulation (like Japan, UK and US) fended off dueto inflationary fears, holding back exportsLarge economies impeded• Economies like Spain and France in difficulties, withhigh budget deficits, high unemployment• Reforms in labour markets are not decisivelyimplemented by the governments (often with publicunrest)European wide recovery slow• Due to the intertwinement of the countries in thesingle currency, healthier countries like Germany areslowed down due to lower demand for theirproducts in the internal EU market• Further integration (e.g. Eurobonds), to even outthe differences between countries, will take a longtime to materialize, if at allFuture ExpectationsEU-17• Long-term low growth environment• High unemployment to sustain, due to lowconfidence in the economy, resulting in lowinvestments in new employment• More displeasure amongst the population, due tounemployment, lower purchasing power (higherinflation), deteriorating infrastructure andinvestments in education  Lower personal wealthEU-Souvereign• Large divide between separate countries, due todifferent monetary and political directions• Sweden model to come out of the crisis withsignificant advantages over the UK, and the EU-17;especially in the personal wealth sphereNon-EU• Strong growth of non-EU countries. Able to set theirown policies, with reliable governments andcurrencies, resulting in large confidence• Low inflation; companies continue investing in thesecountries, at the expense of other EuropeancountriesFuture developments in Europe: There is a lot of uncertaintyabout the further institutional developments in Europe [3/3].
  10. 10. Comparison: Indicators for an analysis of the three institutional‘models’ in Europe.Type Measure Source measureWealth indicatorsFinancial GDP per capita PPP (2012) Worldfactbook AbsoluteGross national savings, % of GDP (2011) World competitiveness report PercentageInflation rate (2011 year average) World competitiveness report PercentageBelow poverty line WorldfactbookSecurity Organized crime World competitiveness report Rank 1-7 (+)Job security (Unemployment) Worldfactbook PercentagePersonal Life expectancy Worldfactbook Absolute in yearsEducation/development HD Index - United Nations 0-1 (+)Personal freedom Legatum Prosperity index Rank (worldwide)Quality of living (capital city) Mercer Rank (worldwide)Inequality index Gini index (Worldfactbook) 0-100 (100=unequality)Country wealth indicatorsGovernance Institutional framework World competitiveness report Rank 1-7 (+) combined scoreEfficiency of Legal framework World competitiveness report Rank 1-7 (+) combined scoreInfrastructure Quality of overall infrastructure World competitiveness report Rank 1-7 (+) combined scoreQuality of electricity supply World competitiveness report Rank 1-7 (+)Mobile phone connections World competitiveness report Absolute/100Government efficiency Government spending per capita Worldfactbook AbsoluteGovernment spending / GDP (PPP) Worldfactbook FactorGovernment budget surplus/deficit of GDP Worldfactbook Percentage10 year bond interest yield Wall street journal PercentageInvestment Gross investment business/ GDP Worldfactbook PercentageDoing BusinessCosts Corporate income taxes KPMG report PercentageEmployer effective social security rates KPMG report $100,000 income PercentageEmployer effective social security rates KPMG report $300,000 income PercentageFramework Irregular payments and bribes World competitiveness report Rank 1-7 (+)cost of crime and violence World competitiveness report Rank 1-7 (+)Bureaucracy Burden of regulation World competitiveness report Rank 1-7 (+)Effective governance Legatum Prosperity index Rank (worldwide)
  11. 11. 34,60%37,50%12,90%26,80%23,70%18,80%3400039000440004900054000590000%5%10%15%20%25%30%35%40%GDP per capita (PPP) 2012, $ Gross national savings, % of GDP0,20%1,30%4,50%1,40%2,50%2,30%0,0%0,5%1,0%1,5%2,0%2,5%3,0%3,5%4,0%4,5%5,0%0%2%4%6%8%10%12%Unemployment rate Inflation ratePersonal Wealth Doing business21,17%28%23% 22%29,55% 33,33%6,30%14,10%12,20%31,40% 14,80%41,00%Corporate income tax Employer social security rate6,2 6,35,96,25,95,46,1 5,85,35,7 5,85,34,33,4 3,443,42,72,02,53,03,54,04,55,05,56,06,57,0Bribes Cost of crime and violence Burden of regulation1=worst,7=bestComparison: Wealth, consumer power and ease of doingbusiness.
  12. 12. Country Wealth Government efficiency54600 553003670041700391003550026401437671866031723185712210715000200002500030000350004000045000500005500060000GDP per capita (PPP) 2012, $ Government spending per capita5,75,55,35,654,56,65,25,65,86,26,44,04,55,05,56,06,57,0Legal framework efficiency Quality of infrastructure0,62%2,18%1,77%1,64%1,30%1,83%-1,50%-1,00%-0,50%0,00%0,50%1,00%1,50%2,00%2,50%-10%-5%0%5%10%15%Government budget surplus Government 10 year bond yield1=worst,7=best0,20%1,30%4,50%1,40%2,50%2,30%0,00%0,50%1,00%1,50%2,00%2,50%3,00%3,50%4,00%4,50%5,00%0%5%10%15%20%25%Gross business investment / GDP Inflation rateComparison: Country wealth and government efficiency.
  13. 13. Best in classWorst in classType Measure Source measure Switzerland Norway UK Sweden Germany FranceWealth indicatorsFinancial GDP per capita PPP (2012) Worldfactbook Absolute $54600 $55300 $36700 $41700 $39100 $35500Gross national savings, % of GDP (2011) World competitiveness report Percentage 34,60% 37,50% 12,90% 26,80% 23,70% 18,80%Inflation rate (2011 year average) World competitiveness report Percentage 0,20% 1,30% 4,50% 1,40% 2,50% 2,30%Below poverty line Worldfactbook 7,90% - 14% - 15,50% 7,80%Security Organized crime World competitiveness report Rank 1-7 (+) 6,4 6,2 6 6 6 5,8Job security (Unemployment) Worldfactbook Percentage 2,90% 3,10% 7,80% 7,50% 6,50% 10,30%Personal Life expectancy Worldfactbook Absolute in years 81,17 80,32 80,17 81,18 80,19 81,46Education/development HD Index - United Nations 0-1 (+) 0,913 0,955 0,875 0,916 0,92 0,893Personal freedom Legatum Prosperity index Rank (worldwide) #22 #6 #11 #5 #12 #16Quality of living (capital city) Mercer Rank (worldwide) #2 #32 #38 #19 #16 #29Inequality index Gini index (Worldfactbook) 0-100 (100=unequality) 33,7 (2008) 25 (2008) 34 (2005) 23 (2005) 27 (2006) 32,7 (2008)Country wealth indicatorsGovernance Institutional framework World competitiveness report Rank 1-7 (+) combined score 5,8 5,7 5,4 5,7 5,3 4,8Efficiency of Legal framework World competitiveness report Rank 1-7 (+) combined score 5,7 5,5 5,3 5,6 5 4,5Infrastructure Quality of overall infrastructure World competitiveness report Rank 1-7 (+) combined score 6,6 5,2 5,6 5,8 6,2 6,4Quality of electricity supply World competitiveness report Rank 1-7 (+) 6,8 6,5 6,7 6,6 6,4 6,7Mobile phone connections (2011) World competitiveness report Absolute/100 130,1 116,8 130,8 118,6 132,3 105Government efficiency Government spending per capita Worldfactbook Absolute $26401 $43767 $18660 $31723 $18571 $22107Government spending / GDP (PPP) Worldfactbook Factor 58,25% 74,30% 50,93% 73,10% 48,25% 64,70%Government budget surplus/deficit of GDP Worldfactbook Percentage 0,30% 15,20% -7,70% -0,30% 0,10% -4,50%10 year bond interest yield Wall street journal Percentage 0,62% 2,18% 1,77% 1,64% 1,30% 1,83%Investment Gross investment business/ GDP Worldfactbook Percentage 20,60% 21,40% 13,90% 18,20% 17,80% 19,90%Doing BusinessCosts Corporate income taxes KPMG report Percentage 21,17% (Zurich) 28% 23% 22% 29,55% 33,33%Employer effective social security rates KPMG report $100,000income Percentage 6,30% 14,10% 12,20% 31,40% 14,80% 41,00%Employer effective social security rates KPMG report $300,000income Percentage 5,90% 14,10% 13,30% 31,40% 4,90% 39,00%Framework Irregular payments and bribes World competitiveness report Rank 1-7 (+) 6,2 6,3 5,9 6,2 5,9 5,4cost of crime and violence World competitiveness report Rank 1-7 (+) 6,1 5,8 5,3 5,7 5,8 5,3Bureaucracy Burden of regulation World competitiveness report Rank 1-7 (+) 4,3 3,4 3,4 4 3,4 2,7Effective governance Legatum Prosperity index Rank (worldwide) 1 13 7 4 16 18Total Green 14 7 0 2 3 2Total Red 1 3 9 0 3 13Score (green - red) 13 4 -9 2 0 -11Rank 1 2 5 3 4 6Performance: A comparison of the extreme values shows thatnon-EU states and especially Switzerland are the top performers.
  14. 14. Type Measure Switzerland Norway UK Sweden Germany FranceWealth indicatorsFinancial GDP per capita PPP (2012) 5 6 2 4 3 1Gross national savings, % of GDP (2011) 5 6 1 4 3 2Inflation rate (2011 year average) 6 5 1 4 2 3Below poverty line 5 - 4 - 3 6Security Organized crime 6 5 4 4 4 1Job security (Unemployment) 6 5 2 3 4 1Personal Life expectancy 4 3 1 5 2 6Education/development 3 6 1 4 5 2Personal freedom 1 5 4 6 3 2Quality of living (capital city) 6 2 1 4 5 3Inequality index 2 5 1 6 4 3Country wealth indicatorsGovernance Institutional framework 6 5 3 5 2 1Efficiency of Legal framework 6 4 3 5 2 1Infrastructure Quality of overall infrastructure 6 1 2 3 4 5Quality of electricity supply 6 2 5 3 1 5Mobile phone connections 4 2 5 3 6 1Government efficiency Government spending per capita 4 6 2 5 1 3Government spending / GDP (PPP) 4 1 5 2 6 3Government budget surplus/deficit of GDP 5 6 1 3 4 210 year bond interest yield 6 1 3 4 5 2Investment Gross investment business/ GDP 5 6 1 3 2 4Doing BusinessCosts Corporate income taxes 6 3 4 5 2 1Employer effective social security rates 6 3 5 2 4 1Employer effective social security rates 5 3 4 2 6 1Framework Irregular payments and bribes 5 6 3 5 3 1cost of crime and violence 6 5 2 3 5 2Bureaucracy Burden of regulation 6 4 4 5 4 1Effective governance 6 3 4 5 2 1Total Score 141 109 78 107 97 65Rank 1 2 5 3 4 6Performance: A comparison of all indicators shows that non-EUstates and especially Switzerland are the top performers.
  15. 15. Getting started: Do not hesitate to contact the“Gateway-to-Europe Lab” of the ASIA CONNECTCenter for support for your market entry/expansionactivities in Europe.ASIA CONNECT Center-HSGDr. Roger Moser, DirectorUniversity of St.GallenDufourstrasse 40aCH-9000 St.Gallen, SwitzerlandTel: +41 71 224 73 54E-mail: Roger.Moser@unisg.chWeb: www.acc.unisg.ch

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