What are your thoughts about European business right now?
—Oliver Stoldt, Interlaken, Switzerland
It might be missing something. We don’t get why European consumers are flying over to the US by the 737 load to buy up everything in US shopping malls, but European companies aren’t engaged in the business equivalent.
The euro is strong, making exports very difficult, while the dollar is weak, and the US stock market is listing. You would think there would be a buying binge going on. Yes, earlier this month, the Belgian brewer InBev NV made a $46 billion (around Rs1.97 trillion) bid for Anheuser-Busch Companies Inc., and there have been smaller deals, too, such as Finmeccanica SpA’s acquisition of DRS Technologies Inc. and Schneider Electric’s purchase of Pelco Inc.
But, the relative paucity of European acquisitions in the US is downright perplexing. Typically, business abhors leaving value on the table.
Jack and Suzy Welch
What is going on? The lack of available credit is one factor: Most European banks don’t look that different from their American counterparts. But, last week, during meetings with executives in the UK, Switzerland, Spain and Italy, we repeatedly heard two other explanations. First, the US has too much political and economic uncertainty for most investors. And, second, the US just isn’t “where it’s at”.
By contrast, the Brics—Brazil, Russia, India and China—decidedly are. “Russia scares many of us,” as one executive put it, “but you have to be in India and China.” In Spain, Brazil was also on everyone’s lips. Excitement about the Bric nations is not wrong. Even if you discount the ubiquitous hype about the march of China and India towards hegemony in the world economy and Latin America’s recent economic strength, the pure numbers are enough to raise any investor’s blood pressure, not to mention have him reaching for his wallet.
We are not just talking about the usual GDP stats, which show China growth up an astonishing 11% in 2007, and India close behind at about 9%. We are also talking about the kind of figures that appeared, for instance, in a recent McKinsey and Co. presentation, which said that China will build 24 new airports by 2010 and bring online 400 gigawatts of electrical capacity in the next five years, equivalent to the amount used by New York City—times 30.
At the same time, according to other sources, India’s financial services and technology industries are adding tens of thousands of jobs a week and, even with the country’s ingrained problems of poverty and bureaucracy, its middle class could number in the hundreds of millions by 2030.
No wonder Europe is looking at the Brics—and its companies are so captivated by what they see there.
It is what they are not seeing in the US that has us confused. One of the fundamental tenets of management is that you have to eat while you dream—that is, you have to make money in the short term while you invest for the long.
Any dope can do the former. All it takes is squeezing everyone and everything you have got. The same goes for the latter. Just tell everyone to bug off—you are envisioning the future. But, the real challenge of leadership is balancing today’s needs with tomorrow’s opportunities.
It seems to us that too many European businesses might be over-focusing on the dreaming part. Growth is great. But, in your entry to such markets, it can be hard to eat. Some Bric acquisitions might be profitable right away, but many won’t be, and it often takes years for de novo start-ups in China and in India to make money.
Meanwhile, the US still has the largest market in the world, and its economy, while struggling, is by no means out of the game. Oil prices and tough financial conditions are hitting some sectors hard, but many companies are still reporting very good earnings and cash-flow gains.
With US equity prices down, Europeans, armed with their currency advantage, could make American acquisitions today and feel the impact a lot sooner and surer than “elsewhere”.
We are not suggesting that the European investment focus on the Brics is wrong or that acquisition activity in the US is non-existent. We are observing only that, roughly 300 years after the last European conquerors left these shores, the time has never been better for Europe to “invade” again. This time, they have a better shot at winning.
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©2008/By NYT Syndicate