Survey Brings Corporate View to “The State of the European Union”

Survey of 2,000 executives under discussion at Brussels

By Shellie Karabell

A new survey shows business leaders believe financial decision-making within the European Union should be more centralised and the EU itself could shrink in order to become more competitive. INSEAD, Booz & Co, and the European Executive Council (EEC) surveyed more than 2,000 executives from around the world to create this survey on the corporate view of the EU, to be discussed at the second annual “The State of the European Union” conference presented by the EEC in Brussels at Egmont Palace.

Respondents expressed confidence that the EU will remain an essential payer on the international stage, indicating that the current economic crisis is a time of transformation of the EU project, and acknowledges the possibility that some countries may be forced to leave the Eurozone, thus creating a two-speed Europe: a stronger and smaller core moving faster than the rest. They also believed Europe’s greatest challenge is its lack of competitiveness and low level of growth – problems which require structural change if they are to be surmounted.

“The financial crisis presents a rare opportunity for long-overdue structural reforms and even for questioning the existing political agenda,” said INSEAD Dean Dipak Jain. “It is important that the corporate view be heard so that Europe can attract new investments, talent and resources, and generate new prospects for business and economic growth.”

The executives surveyed fully support the completion of the single market in Europe, and the transference of “best practices” among member states, but felt that no one EU social model would suit each member country. Hence, while economic integration was perceived as necessary, social flexibility was seen as an important factor in the successful future of the EU.

The report is organised into six areas: The Corporate View on the EU, Austerity and Responsibility, Europe’s Social Structure, Technology and Innovation in Europe, Younger Voices and the BRICS Perspective, and Questions for Debate. Authors are: Ludo Van der Heyden, the Mubadala Chaired Professor in Corporate Governance and Strategy; Bruno Lanvin, Director of INSEAD eLab; Per-Ola Karlsson, Senior Vice-President & Managing Director, Booz & Co; and Robert Gogel, Co-Founder of the European Executive Council (EEC) and CEO of Integreon.

Competitiveness is Good for Social Welfare!

The most competitive countries in Europe (i.e. UK, Finland, Germany, Denmark) are also the ones with the highest social welfare spending, according to a report prepared by INSEAD and Booz & Company at the State of Europe conference in Brussels. Report co-author Ludo Van der Heyden says this means that as Europe grows together, it has more to share. But these same countries did not spend more than their competitiveness could support (see graph below).

"This shows there is no trade off between competitiveness and social spending; there are just bad allocations," he concluded, however, most respondents believed that social spending should NOT be centralized at the EU level but should remain a national priority.

There were some extremes at the country level regarding perceptions of competitiveness and social expenditures. In Poland more than 80% of respondents said they thought social systems were a deterrent to competitiveness, but the Hungarians strongly disagreed.

"Europe is not about the average," said Van der Heyden. "While the EU tries to raise the average, this is not to say that every country is to be 'average'."

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Innovating the Way Out of Crisis

INSEAD eLAB Executive Director Bruno Lanvin says that finding solutions to the problem of a lack of innovation in the EU remains a challenge. The top solution suggested by respondents to the report by INSEAD and Booz for the State of the European Union involves increased cooperation between corporations and universities – even though they admit that such cooperation is really a symptom of success, not a cure for the problem.

The good news, however, is that most business leaders agree that in addition to its excellent physical infrastructure, Europe is endowed with an energetic, well-educated workforce. Can the EU harness this core strength and focus its talent and energy to promote innovation? A significant number of respondents believe that the answer is yes. If the region is to do so, however, it must take such measures as prioritizing science and technology at every level of education.

Jean-Philippe Courtois, President of Microsoft International sees digital skills as a key enabler for growth potential in Europe - it has become necessary to have these skills in almost every industry. Cloud computing is also a big enabler is a driver of growth and enables innovation. It should create many jobs in Europe.

Barbara Frei, Region manager Mediterranean, ABB Italy Country Manager and CEO of ABB S.p.A. feels that there is a lack of young people with the skills that her company needs in Europe and feels that more needs to be done. She also wants to encourage entrepreneurship - making things easier and encouraging people to take risk.

Most panelists discussing "reinventing innovation and technology" added that there is not a great appetite for mobility for employees in Europe and would like to see more flexibility on the work market.

Bruno Strigini, President of Europe/Canada, MSD feels that the Silicon Valley should be seen as an example of something that Europe could emulate. It is essential to define what sectors in which Europe can be competitive and focus on those - rather than try to be good everywhere. There is the impression that China is just good at manufacturing but they are making strong progress in Academia and Europe needs to invest massively in certain sectors.

Mark Otty, Area Managing Partner EMEIA, Ernst & Young agrees that it is essential to create a concept of silicon valley and bring together skills, companies and academia to create a center for innovation. We should not assume that the emerging countries are not able to innovate and not worry about it because more and more companies are also outsourcing their R&D.

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The EU from the Outside In

The view of the EU economic crisis is far worse seen from outside - specifically in the Latin American countries - compared to businessmen within the EU, according to a report prepared by INSEAD and Booz on the State of the European Union for the European Executive Council, organizers of the second annual Sate of the European Union conference in Brussels today...

"The view of business is 'get the European project finished'; it's not time for a European contract yet. Focus on the broader issues of fiscal and monetary policies and fostering peace and democracy and let the individual countries take care of their social issues," says INSEAD professor Ludo Van der Heyden, one of the authors of the study.

"One of the big questions is how to leverage the power and wealth of Europe," said Henrik Bourgeois, VP of European Affairs at GE. "Europe should try to reduce the turbulence and volatility within the union...it could start by reducing budget deficits an implementing fiscal contract."

Europe needs to continue to be the world's most open economy and must avoid protectionist reflexes in this time of crisis, both externally and internally as a lot of progress is yet to be made in the internal market within the EU. There could be a truly integrated energy market for example.

Labor Market Reform 

Europe needs to work on labor market reforms: matching skills with areas of growth (there is a need for investment in lifelong learning, particularly for young professionals), but we need more flexible labor regulation, said Henrik Bourgeois. 

We need less tax burdens especially on labor markets and Europe needs to foster labor mobility within the EU. 

Europe needs to continue to invest in innovation. And it needs to be prepared to go to the next level of economic integration; economic coordination is not sufficient. There must be a unified roadmap. EU politicians and policy-makers must be prepared to take quick actions if and when necessary. This makes business sense for investors and for Europe's commercial partners.

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INSEAD – Booz –“State of the European Union” Study Shows European Executives Want Tighter Fiscal Union

The majority of the 2000 top-level executives responding to the INSEAD-Booz Study support closer coordination within the Eurozone and the EU to respond to economic needs such as deficit reduction, monitoring or stimulating growth. And they support the creation of Eurobonds.

But this closer economic coordination could come at the cost of losing EU members which are not able to keep up with the pace of “core” countries. Respondents to the survey said they were comfortable with the concept of a “two-speed Europe” and supported consolidation among the current EU members, claiming the European Union is large enough for the time being.

However, the executives surveyed believe social issues – such as health care and retirement should remain matters of national policy.

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INSEAD, BOOZ & Co to Release Major Study on Corporate View of the European Union at “The State of the European Union” Conference on 31 May, Brussels (Egmont Palace)

In the current climate of economic uncertainty, each European member state has had a rough job. Governments have fallen, credit worthiness has been downgraded in the marketplace, the single currency has come under pressure and the very fabric of the European Union itself has been questioned. What does the business world make of all this?

More than 2000 senior executives were surveyed for this comprehensive survey that examines the austerity debate, Europe’s social structure, industrial competitiveness and innovation, the opinion of the younger generations and a view of Europe from abroad.

“Europe has some of the most competitive economies in the world,” claims report co-author INSEAD Mubadala Chaired Professor of Corporate Governance and Strategy Professor Ludo Van der Heyden, “ but it also has some of the worst. The biggest difference is between Northern and Southern Europe. And rather than see Brussels as part of the problem in the EU economic crisis, respondents to the survey felt Brussels could actually be part of the solution.”

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