Rhein on Energy and Climate

One of the strange phenomena of the European integration process is the slowness with which transnational business has replaced traditional structures. Business, whatever sector, has stayed for a long time where it had been before 1958. While intra-European trade has flourished companies did not feel much need to join hands with neighbouring competitors and prepare for global competition.

There have been, of course, examples of big EU mergers.

Airbus has been the most shining and successful case, after many difficulties and quarrels about company leadership. Sanofi, a French pharmaceutical giant born 1999 from a merger between Hoechst and Rhone-Poulenc, is also one of the success stories. Arcelor-Mittal may serve as an example of restructuring fledgling national steel companies into one of the world leaders.

Recently, cross-border cooperation and mergers multiply, driven by the need to achieve higher efficiency and improve global competitiveness. Increasingly, managers realise that their companies have become too small to survive and need to specialise on their most successful activities.

The forms in which cooperation takes place vary according to the type of business.

In the automobile industry rising costs of developing new models are propelling companies into ad hoc cooperation that would have been inconceivable a few decades ago. This goes in particular for new technologies like electric or fuel cell engines. In parallel, mergers take place to achieve economies of scale that are crucial for manufacturing trucks, buses or passenger cars. This global process is far from being completed.

The defence industry which has been a long been cherished by national protection and government control is also discovering the need for European cooperation. An effort to form a joint venture between Airbus and British Aerospace failed in 2013 because of German objections. Now, a Franco-German liaison for manufacturing tanks, artillery and other ground weapons is being formed. The market has become too small for two European companies producing similar equipment.

This merger should hopefully reactivate sluggish efforts to establish a common European defence, which should cover common standards, purchases and export licences for weapons.

The telecommunication business is also finally emerging from its origins of government owned telephone monopolies. Thanks to the EU, the national monopolies are progressively being replaced by multi-national groups operating in a European market with fewer players. The last merger is taking place in Germany, whose market will then be divided among three multi-national companies, the biggest with 40 million subscribers, tiny in US or Chinese dimensions. The European market consolidation is far from being completed, with France being a next target.

The trend toward European mergers will have a positive regulatory by-effect: the EU Commission will gradually replace national authorities as the major guardian of European competition.

Eberhard Rhein, Brussels, 4/7/2014

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