Where Europe Soars

Europe is too often the forgotten continent of global business.

Europe is too often the forgotten continent of global business. Business people are willing to forgive America its failings because of the glamour of its superstar companies. And they are willing to overlook the emerging world’s rampant corruption and dismal infrastructure because it is growing so fast. But Europe? They regard it as synonymous with aging populations and overmighty governments, sluggish growth and missed opportunities, the euro crisis and public-sector deficits.

Mention European high technology in Silicon Valley and you will be met with a sneer. Mention European competitiveness in Washington — or at least the conservative half of Washington — and you will hear a lecture on Euro-socialism. The blogger Jennifer Rubin recently dismissed European countries as “economic basket cases” in an offhand comment in The Washington Post: an absurd verdict, to be sure, but one that reveals the prejudices of a surprising number of Americans. If anti-Americanism is the default position of the brain-dead left, anti-Europeanism is becoming the default position of the brain-dead right. 

It is high time we took a new look at the old continent. Germany is currently the world’s most successful mature economy. It grew by 3.6 percent last year, in contrast to America’s 2.9 percent, and, if the International Monetary Fund is to be believed, Germany is destined to grow faster than the rest of the G-7, in terms of gross domestic product per head, over the next five years. But there are numerous examples of excellence on the rest of the continent as well.

There is almost no area of economic life where Europe cannot produce a world-class company: engineering (Siemens and Daimler); petrochemicals (Royal Dutch Shell and, for all its recent problems, BP); banking (HSBC Holdings and Santander); pharmaceuticals (GlaxoSmithKline and AstraZeneca) and retailing (Ikea and H&M).

For all its dirigisme, France is the home to world-beating companies in everything from nuclear power (Areva) to luxury (LVMH). Britain has some of the world’s most innovative supermarkets. Compare Tesco with much of America’s lumbering supermarket industry, for example, and Tesco comes out on top. Zara, of Spain, is one of the world’s most successful fashion retailers. A new ranking of countries in terms of their friendliness to entrepreneurship, by Zoltan J. Acs, a professor at George Mason University, and Erkko Autio, a professor at Imperial College London Business School, puts Denmark in first place and four Nordic countries in the top 10. (Finland comes 13th.)

The European business environment is by no means as hostile as it used to be. European business schools, such as Insead and IESE Business School–University of Navarra, are churning out first-class managers. European universities are bending over backward to cooperate with industry. European venture capital industry investment grew by 23 percent a year in 2003-6 compared with just 0.3 percent a year by the America industry. Indeed, three European countries — Denmark, Sweden and Great Britain — have bigger venture capital industries, relative to the size of their populations, than the United States. Europe’s longstanding cultural disdain for entrepreneurship is a thing of the past. “Dragon’s Den,” a British television program that features entrepreneurs pitching their ideas to venture capitalists, is one of the most successful programs on television (and has produced spinoffs around the world). When I was at Oxford in the late 1970s, no one talked about entrepreneurship. Today, the University of Oxford Entrepreneurs’ club has more than 1,000 members.

Europe’s companies have also done a commendable job of coping with the continent’s remaining burdens. Some even claim that the burdens have made them stronger: Dieter Zetsche, the chairman of Daimler, repeatedly defended the high euro on the grounds that it sorted out the fit from the flabby, like a vigorous workout regime. Zara makes more than half of its clothes in Europe, compensating for Europe’s higher costs by making sure that it keeps its operations lean and its turnaround rapid. Britain’s supermarkets are turning an aging work force to their advantage: Older workers are often more reliable than their younger colleagues, and many of them are happy to work only in busy seasons.

Nor are Europe’s strengths confined to big companies. The German economic miracle has been powered by small and medium-size companies — the so-called Mittelstand. Germany’s middle-size companies dominate the global market in an astonishing range of areas: printing machines for money (Koenig & Bauer), license plates (Ultsch), tanning beds (JK-Group), children’s soap bubbles (Pustefix), snuff (Poschl), shaving brushes (H.-J. Müller), high-pressure cleaners (Alfred Kärcher). The list could go on for pages.

Hermann Simon, chairman of Simon-Kucher & Partners, has explained how German companies have been so successful in “Hidden Champions of the 21st Century,” one of the most interesting management books of recent years. The secret of their success is a combination of focus and relentless improvement. They focus on niche markets where they possess unique technical expertise. They relentlessly improve their products. Rational, for example, calculates that it produces an industry-changing breakthrough every six or seven years, such as introducing sensors into its ovens. And German companies provide superb after-service. This has allowed them to take advantage of globalization: Germany provides the machine tools for China’s workshop to the world. And it has protected them from price competition; their products are usually so specialized and so well crafted that they frighten off any potential competitor.

Other countries can also boast their own versions of the Mittelstand. Scandinavia rivals Germany in its profusion of first-class engineering companies. Northern Italy is home to world-beating companies in everything from shoe design to glass blowing. Baader has 80 percent of the world market in fish processing systems. (The company’s training is so good that qualified mechanics are known as “Baader men” in Finland.) Amorim, of Portugal, is the world’s market leader in cork products and cork flooring. Chupa Chups, of Spain, is the world’s most successful lollipop maker.

Europe is far from being the new-economy laggard that some Americans imagine. It is true that some of its high-tech companies are fading. But other companies are on the upswing. TomTom International bought Tele Atlas, a Dutch mapping outfit, for $4.3 billion. Vente-privee.com of France has pioneered flash sales for people who join its club. Angry Birds by Rovio Mobile, of Finland, is one of the most addictive video games on the market. Europe has also developed a high-tech infrastructure complete with serial entrepreneurs, experienced venture capitalists and high-tech clusters. The high-tech hub in Cambridge, England has given birth to more than 3,000 companies and produced more than 200 millionaires. Hermann Hauser, the presiding genius of the hub, has founded dozens of companies and co-founded a venture capital firm, Amadeus Capital Partners.

Europe is also a powerful player in what will emerge as one of the most important components of the new economy, green energy. Vestas, of Denmark, is the world’s leading manufacturer of wind turbines, with more than 30,000 whirring turbines generating electricity around the world. Germany is a renewable energy giant, with world-beating companies in both solar power (SolarWorld, Q-Cells and Conergy) and wind power (Nordex, REpower and Enercon). All in all, sun-starved Germany produces a third of the world’s solar panels and half its wind rotors.

Above all, Europe has a couple of strengths that will serve it well even as its population ages. One is its cultural richness. How can a region that gave the world Shakespeare and Molière (not to mention Monty Python) fail to prosper in an era in which the soft economy increasingly trumps the hard one? Look at the way that European companies continue to dominate the luxury market. Or look at the way that Scandinavian thrillers have taken the world by storm. (Americans who swooned over Stieg Larsson’s trilogy will soon be obsessing about a Danish television series, “The Killing,” which is one of the most gripping thrillers in recent years and is being remade by Fox Television Studios for the AMC network.)

A second European strength is that it is so globalized. Europeans are far more comfortable with globalization than inhabitants of giant countries, such as India, China or the United States. Many European companies, such as Unilever and Royal Dutch Shell, were born multinational. Some of the most exciting new companies effortlessly draw on talented people from across the continent: Playfish, one of the leading social gaming companies, was co-founded by a Finn, Kristian Segerstråle. On the continent, most managers speak several languages. Even the monoglot British have a long history of dealing with the rest of the world, thanks to their imperial past.

Europe is hardly a paradise for entrepreneurs.

It has produced far fewer high-growth companies than the United States. Janez Potocnik, the E.U. commissioner for science and research, points out that only 5 percent of European companies that were created from scratch since 1980 are in the top 1,000 E.U. companies by market capitalization, compared with 22 percent in the United States. European politicians are willing to use any excuse to meddle. The continent’s ancient prejudice against business is still present in its punitive attitude toward bankruptcy and the fact that it still calls venture capital “risk capital.” The European Union also has plenty of pressing problems: the euro-zone is divided between the productive north and the more backward south, and governments across the continent have been living well beyond their means. But there is much more to Europe than these familiar problems. A classic New Yorker cartoon mocks the cultural blinkers of the average American company: “Fetch the lederhosen,” the boss exclaims to his board. “We’re going global!” American bosses — and indeed Chinese and Indian bosses — would be well advised not to underestimate the people of the lederhosen.

Download the PDF