Rules for Trade With Europe Will Change in 1992
It has been called a quiet revolution, a threat to America and Japan--and an opportunity, as well.
It will create winners and losers, elevating little-known firms to global prominence while forcing the less able into retreat.
It is 1992, the European Community’s plan to sweep aside the myriad rules that restrict the free movement of people, goods and services across the boundaries of its 12 member nations.
“Companies that don’t get inside Europe by 1992 will have a very difficult time getting in there after 1992,” warns Hugh K. Coble, group president with Fluor Daniel Inc., an engineering and construction company based in Irvine.
As the deadline draws near, California firms are taking a fresh look at how they market and distribute in Europe, where they manufacture and who their partners are.
Their fear is that a more unified European Community will erect strong barriers to those outside it; their expectation is that tough new competitors will emerge as Europe’s own firms vie for larger shares of the lucrative regional market.
Advantages to the Efficient
“Some people won’t be able to survive in this new game,” predicted William V. Young, a Bank of America vice president in London. “There probably will be some consolidation and somewhat of a shakeout.”
In the new game, advantages are likely to go to the most efficient, whether they are based in Los Angeles or Luxembourg.
“Let’s say you’re a breakfast cereal manufacturer and you have three or four plants to serve that market,” said Coble. “Now you can go with one plant.”
In addition, he looks forward to the day when “we’ll be able to move Dutch, German and U.K. people freely among those countries.”
For years, U.S. firms in banking, aerospace, engineering, high tech and other industries have conducted business in Europe. Each may experience 1992 differently.
In software, for example, American firms have thrived in Europe and do not foresee major problems.
“In each pocket in Europe, there tend to be a few key competitors, but it’s rare to find one that can compete across Europe,” said Nick Pollard, European marketing director for Ashton-Tate, a Torrance-based software producer that gets about a quarter of its revenue from sales across the Atlantic.
Banking to Change
To prepare for 1992, Ashton-Tate has speeded up efforts to translate software programs into European languages and also has been reviewing its European distribution systems.
“We believe we are fairly well positioned for 1992, primarily because we already operate on a pan-European basis,” Pollard said.
By contrast, some expect the situation in financial services to change markedly, with the emergence of European banking giants. That possibility in mind, Bank of America has consolidated 17 separate information processing centers that were spread through Western Europe into a single London facility.
Officials of the San Francisco-based bank say they will be competitive in a variety of services that use electronic technology, such as foreign exchange and transferring money across national boundaries.
But 1992 could pose a problem. Under U.S. law, commercial banking and investment banking are kept separate whereas in Europe they are not. Under the 1992 principle of “reciprocity,” Europe could decide to impose similar restrictions on U.S. banks there, saddling them with a competitive disadvantage.
“They’ve talked about reciprocity, but they haven’t really defined it,” said Young of the Bank of America.
Although the 1992 changes are not defense-oriented, many foresee changing rules and conditions that will affect U.S. defense and aerospace firms.
One concern: “It’s possible the EC might try to impose tariffs on the importation of defense items,” said William L. Godsey, a vice president in the Pomona division of General Dynamics, which currently is developing the RAM missile system in cooperation with West Germany and Denmark. “That would disrupt trade, at least defense trade.”
In the meantime, U.S. companies are watching the efforts of British and West German defense contractors to expand. This could create new opportunities--and frustrations--for American contractors, particularly if European countries team up to build big defense systems.
“U.S. companies that don’t show interest in what’s going on in Europe right now are going to be left out,” warned Kenneth N. Hollander, marketing vice president with Ford Aerospace, based in Newport Beach.