The Challenge of the Single Market

Table 1.1 presents some generalizations about the way in which 1992 will impact on the cost/return/risk variables considered by potential investors. There is now ample evidence of the importance attached to market size and growth, trade barriers, and investment climate variables in investment decision-making, and aspects of the 1992 programme will impact significantly on these major variables. The background studies on the aggregate effects of 1992 postulate static and dynamic gains working through into innovation, technological progress and faster growth (Cecchini et al. 1988). This should provide a more conducive environment for inward investors than during the 1970s and 1980s when Europe was perceived by multinational enterprises (MNEs) as a region of the world with a deteriorating investment climate (OECD 1987 Recent Trends in International Direct Investment) ¹ Table 1.1 Effects of 1992 programme on foreign direct investment/collaboration – influencing variables https://www.niso.org/standards/z39-96/ns/oasis-exchange/table">

Effect on cost/return/risk profile of potential investor collaborator ^b

Aggregate effects

Strategic and dynamic gains through economies of scale and learning, reduction in X-inefficiency, stimulus to innovation and competition (virtuous circle’) ^a

Market size and projected market growth stimulated

Specific effects

Country of origin

External relations programme regarding reciprocity, treatment of foreign subsidiaries in the community, local content and anti-dumping rules

Protectionism (actual or threatened) increases risks to non-investors/collaborators mainly from Japan and Pacific Rim

Sector

Financial services

Low-tech products

Medium-tech products

High-tech products

Common market for services

Reductions of/greater surveillance of state aids; ending of discriminatory public procurement

Removal of barriers associated with standards, regulations, testing

Removal of barriers associated with standards, regulations, testing; ending of discriminatory public procurement, state aids plus deregulation of public monopolies

Sector-specific effects:

Positive impacts relate to improved access to public contracts, removal of administrative barriers, emergence of common standards and regulations, removal of trade obstacles Negative impacts relate to increased competition, restructuring, reductions in price levels

Firm

Components of 1992 programme as above plus

Removal of fiscal barriers

Policies for transborder collaboration

More active competition policy

Stronger regional policy, but possibly reductions in investment incentives

Uncertain, and sectoral differences

Improved competitive position of EC producers

Acquisition possibilities reduced

Lower subsidies to inward investors

Source: Authors a

But the Cecchini Report e.g. did not allow for possibilities of restructuring acting to diminish competitive pressures; and external relations issues were virtually ignored. See Kay, N.M. (1989).

b

Cost factors include costs of labour, capital, raw materials and services; transport costs; productivity; government policies, i.e. taxes, incentives, performance requirements, trade policies; foreign exchange considerations. Return factors include market size, projected market growth, competitive factors, foreign exchange considerations. Risk factors include political and economic stability; transparency and predictability of government policies; flexibility to close down or relocate. See Kay, N.M. (1989) Corporate Strategies, Technological Change and 1992, Working Paper Series, Standing Commission on the Scottish Economy, Glasgow, April.