Political interference that retards growth

Leading chief executives believe Europe will have a future as a top business location if it exploits its talented personnel and capacity for innovation, but they want less interference by politicians and more steps to liberalise labour and product markets, writes Brian Groom.

Financial Times

Three-quarters oppose state intervention to prevent cross-border takeovers - an issue that is hotly debated in relation to Mittal Steel's bid for Luxembourg-based Arcelor.

As part of the Best of European Business Awards, leaders of 40 of Europe's top companies in eight countries were surveyed - by the Financial Times and Roland Berger Strategy Consultants in collaboration with the Conference Board and the Lisbon Council - for their views on their business's future and the political and economic environment.

The chief executives see Europe's future as firmly at the higher-value end. More than 80 per cent believe the continent will have a stable or increasing role in areas such as research, finance, recruitment and education of managers and sales and marketing. Many, however, foresee a declining role for Europe in manufacturing and production, sourcing of materials and recruitment of their broader workforces.

Eighty per cent think Europe will maintain or increase its role as a "near-shoring" destination for outsourcing of support functions. This may reflect interest in central European countries such as Poland and Hungary over China or India.

The executives see innovation and human resources as factors driving competitiveness, with staff training and education not far behind product and service quality, brand image and financial resources as sources of success. Availability of skilled people is seen as the most important macroeconomic factor, cited by 82 per cent, ahead of infrastructure (73 per cent), legislation (67 per cent) the social framework (54 per cent) and the business climate (52 per cent).

European companies compete primarily on quality rather than cost. While 86 per cent of chief executives consider product and service quality as important for their competitiveness, low costs are important for only 58 per cent.

The executives are not impressed by grand political gestures. They want to see more liberal labour and product market regulations, a review of all European Union legislation for its cost-effectiveness and impact on business, and lower corporate taxes.

However, they want EU leaders to complete the internal market in services, harmonise the tax base for corporate taxation and remake the EU budget to cut agricultural subsidies and increase spending on research and development.

More than 70 per cent oppose the idea of declaring any industry closed to cross-border takeover. They are split, however, over the notion of national champions, with 39 per cent respectively considering it a good or bad idea - perhaps reflecting confusion over whether this means state intervention to favour certain companies or simply creating competitive conditions.

A separate analysis of companies shortlisted in seven national awards - in the UK, Germany, France, Italy, Spain, Poland and Portugal - that led up to the pan-European final identifies factors behind success.

Instead of the usual pattern of restructuring to cut costs followed by growth, successful companies pursued a dual strategy: they benchmarked their cost position continuously and at the same time launched growth initiatives. They recognised also that to reach full potential they had to achieve all types of innovation in parallel.

Bureaucracy seemed not to hinder the most successful businesses. Sales growth rates of shortlisted companies in Italy and Portugal, seen as having high levels of administration, were as good as those in more lightly regulated Britain and Spain.

Companies in which the state held a stake grew, on average, half as fast as those in private hands.