NRI Papers
No.118 June 1 , 2007
  A Sea of Changes in the Structure of Europe's Economy and the Strategies Required for Japanese Companies  
Nobuo OKUBO,
Yoshinori NAKAJIMA
   With the eastward expansion of the European Union (EU), the flow of people, goods and capital between eastern and western Europe has become much easier. Accelerated economic activity has greatly reduced the significance of the country borders that still exist, such that there is less meaning in countries being "members" or "non-members" of the EU. Instead, the industrial map of the "expanded European market" now stretches from Portugal in the west to much of Russia in the east.
   When we look at this new map, we find that major dynamic changes are occurring in eastern and central Europe, and in parts of Russia, and that the "economic axis" is undeniably shifting eastward. Companies in those western European countries that are already members of the EU are fully developing this new market and are tying their growth to the expansion of Europe.
   South Korean companies have also been quick to draw on the growth of the European market. Samsung Electronics Co., Ltd. has seen its annual sales in Europe increase by 25 percent, proving that Asian companies can also benefit from the expansion of the European market.
   Despite recording steady gains in Europe, which are largely attributable to the appreciation of the euro, Japanese companies have failed to fully utilize the advantages offered by the growth of the market. The profitability of European subsidiaries is well below that of those in Asia and North America, and the current sentiment is that Japanese management has missed the chance presented by this change in the market.
   Japanese companies may yet be able to profit from the expansion of the European market by abandoning their conventional strategies and instead embracing three points. These are: (1) shifting their emphasis away from western Europe, (2) increasing the pace of their business reforms to match the growth of the market and (3) strengthening their business development functions under the initiative of regional headquarters (RHQs).
   Because there is little chance of seeing high growth within the Japanese market, Japanese companies must pursue growth in global markets. There is a definite need for Japanese companies to adopt new growth strategies for doing business in Europe.
I The Eastward Expansion of the EU and the Emergence of a New Industrial Map
II Western European Companies Focusing on the Central/Eastern European and Russian Markets
III Korean Companies Take an Active Approach in Central/Eastern Europe
IV Japanese Companies' Strategies for the Expanded European Market


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