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How global-minded European firms are surging ahead

May 03, 2010 Business Daily, Strategy

“Contrary to the widespread cliché of American dynamism versus European economic stagnation, over the past decade Europe’s top companies have beaten America’s (not to mention Japan’s) by an often substantial margin. Despite the rise of China and the rest, Europe has held roughly steady, at about 17 percent, its share of world exports since 2000, while America’s has fallen by more than a third, from 17 to 11 percent—a crude but significant indicator of global competitiveness. Since the early 1990s, Europe has steadily expanded its share of the world’s 100 biggest multinationals…from 57 in 1991 to 61 last year, while the U.S. number has dropped from 26 to 19.”

STEFAN THEIL, Newsweek (16 April 2010)

America is the land of can-do companies, thrusting entrepreneurs, continuous business innovation, sizzling brands – yes? Europe’s corporate landscape is filled with sclerotic dinosaurs crippled by too-powerful labour unions and wrapped up in government red tape – yes?

Stefan Theil of Newsweek recently invited you to rethink those presumptions, and he put forward a compelling argument that suggests that far from “not getting it”, Europe is actually doing rather well in the global company stakes. As the excerpt shows, Europe is holding its share of world exports steady in the face of concerted assault by emerging market giants like China, India and Brazil – while America’s share is wilting. Six of the world’s top ten merchandise-exporting countries are still European.

At the level of individual companies, European multinationals dominate the top 100 firms. And in the decade to 2008, European firms grew their profits at an annual rate that was on average twice that of their American counterparts. We fixate on the headline-grabbing runaway American success stories like Apple and Google, but these figures suggest that they may be the exception rather than the norm. Less noisy gladiators like Spain’s Telefonica, France’s Alstom, Germany’s Volkswagen and Britain’s Vodafone and HSBC are meanwhile increasing their global market dominance.

So what’s going on here? What are these European companies doing to drive this success? Theil tells us the answer lies in responses to globalisation: “European companies have moved much faster and further to seize markets beyond their borders. Foreign sales—even when considering all of Europe as a single home market—are 39 percent, versus roughly 30 percent for U.S. and Japanese companies, and only 20 percent for big companies in the BRIC countries. The latter, far from conquering the world, remain mostly focused on their domestic markets.”

Smaller local markets forced European firms to think global long before others got into the game, and they have been working on the sources of global competitive advantage – product quality, brand reputation, local knowledge, global supply chains – for a while now. In fact European firms have so far ridden the wave of emerging-market growth quite well, offering a plethora of products and services to the burgeoning economies of China and India.

What’s the take-home for us? Well, we too are constrained by a small local market, and struggle to create a genuine regional economic bloc. Kenyan firms need to style up and think global. We are too caught up in the immediacy of our local situation, and are not doing enough to serve the world around us. For all our energetic local entrepreneurship, where are the companies that can take on the best in the world? I can think of only a small handful of locally sired companies that aim for an African footprint, let alone a global one. We don’t have the brands, the quality or the value chains that would allow us to take on the best.

That is a real shame. A new breed of corporate leaders needs to change the frame of reference for Kenyan companies. It is really time to leave our village mindsets behind.

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