High Technology.- HOW EUROPE CAN FIGHT THE MULTINATIONALS.
by Michael Butler (Financial Times, 05/01/1986)

    I have heard respectable people argue that it does not matter if
European high technology companies are taken over one after the other
by American or Japanese multinationals. If the market so decrees let
no man intervene!
    This needs to be thought through. The multinationals are in 
Europe TO PROMOTE THEIR PARENT COMPANIES' strategy for gaining world
market share and MAXIMISING THEIR LONG-TERM PROFITS. As part of that
strategy they may do some manufacturing in Europe and even some 
research. BUT THEIR POLICY IS DECIDED IN THEIR HEADQUARTERS AND THE
MAJORITY OF THEIR PROFITS FLOW THERE. Once they have knocked out or
taken over the European competition, they are free to shift the 
balance of their investment in plant and research towards home OR TO
OTHER MARKETS YET TO BE CONQUERED. If Boeing in aircraft, or IBM in
information technology, can achieve a still more dominant world 
market share than they have now, THE TEMPTATION TO BEHAVE LIKE
MONOPOLISTS WILL BE GREAT. European industry in other fields will
suffer. STILL MORE PROFITS, INVESTMENT AND RESEARCH WILL FLOW HOME.
BRAINS WILL FOLLOW THEM.
    Among the reasons why European companies are loosing market share
is that there are too many European "national champions". Two 
Japanese companies spent $1.5 bn on developing digital switching
systems, three American companies $3 bn and 10 separate European
companies $10 bn. It is not the Europeans who are winning. Another
reason is that Japanese and American competitors, in different ways,
enjoy major advantages. US public purchasing rules, such as Buy 
American, favour US companies -but US Government controls on the 
outflow of technology hinder European companies.
    Vast space and defence expenditure underpin American companies'
research and investment. European governments compete with each other
in giving Japanese and American incentives to invest in the EEC in 
high technology fields which produce least jobs and are most 
dangerous for European companies.
    The European Community is already taking some essential steps,
creating a single great market by 1992 and helping small and medium-
sized enterprises.But these things, excellent in themselves, will not
solve the problem. The multinationals will be as well placed as 
anyone to prosper in the single market and only large enterprises can
find the funds for research and marketing needed to climb towards the
crucial threshold of 5 per cent of the world market.
    What then can be done? Protectionism would make Europe still more
uncompetitive. More Government money is not the answer. Pooling basic
research efforts could help but only marginally. In Eureka, 
governments are seeking out the legal and fiscal obstacles to 
European co-operation. They will find some serious ones and it would
be helpful if rapid action could be taken to remove them, presumably
through European Community legislation. For the basic idea behind
Eureka, that European companies need to co-operate in order 
to survive, is right. Action is needed this year.
    But more is required; and time is short. The British Government,
which has the chair of Eureka until June and of the Community from
July, is well-placed to give a lead. Here is a menu for early action:
* First, the British proposal for a Eurotype warrant which would open
  all public purchasing to the products of co-operation between 
  European companies, should be adopted this year.
* Second, the Community should tell the US Government that the time 
  has come for reciprocity in public purchasing.
* Third, the Community should also seek reciprocity on the transfer
  of technology. It is time to take a common position on American
  restrictions.
* Fourth, national and Community competition rules should be 
  interpreted as applying to the world market. It makes no sense to
  prevent European companies from getting together in fields where
  the outside competition is more than strong enough to keep them on
  their toes without competing with each other.
* Fifth, Community Governments should agree to a self denying 
  ordinance not to give investment grants to non-European high 
  technology companies which would threaten European companies in
  their field.
* Sixth, all Community Governments should review their own investment
  and innovation incentives to ensure that they promote rather than
  discourage European co-operation.( The British Business Expansion
  Scheme specifically excludes it. )
    Schemes to promote European co-operation must apply to genuinely
European companies, those with their headquarters in European 
countries and of which the major part of the profits remain in Europe.
The multinationals will oppose this idea. Some have put a lot of
effort into convincing Governments that they themselves are European,
because they have subsidiaries incorporated in Europe and manufacture
there. That is an illusion and the nettle must be grasped. The US
Government knows which are American companies. We know which are
European.
    These are things the European Community can do to make it easier
for our companies to co-operate. But in the end it is the companies
who have to do the biggest thing. They have to forget that they are
long-standing rivals and remember the danger of hanging separately if
they do not stand together. They have to make deals under which each
produces complementary products and buys them from each other. They
have to form joint venture companies to produce hardware and, indeed,
whole IT systems. They have to find ways of pooling their marketing
efforts, either for particular products or by region.
    It will not be easy. Ways of thinking must be changed in the
European Commission, in Governments, in boardrooms and in middle-
management. That usually takes a long time. We haven't got it.
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Sir Michael Butler was until 1985 Permanent UK Representative
to the European Community.                                         
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