Doing Business in Europe: Risk, Regulation and Quality

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Doing Business in EuropeRisk, Regulation and
Quality

• Dr Charles Dannreuther
• POLIS, University of Leeds
• ipicd_at_leeds.ac.uk

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Overview

• Part one the modern firm and national
  capitalisms
• Part two the post modern firm and global
  capitalism
• Competitiveness and quality based competition
• Conclusions

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The business of uncertainty

• A firm is likely therefore to emerge in those
  cases where a very short term contract would be
  unsatisfactory. It seems improbable that a firm
  would emerge without the existence of
  uncertainty. (Coase, 1937, p. 337338)
• Transaction Cost Economics TCE
• Hierarchy when high market-based transaction
  costs due to
• bounded rationality, opportunism and asset
  specicity

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critiques

• Bounded rationality
• Optimising does not mean uncertain
• Ergodic critique of Dunn 2000
• Assumes that the future is the statistical
  reflection of the past history? agency?
• Economic action is socially embedded
• Varieties of capitalism exist
• Radical change not included
• What happens when things go really wrong?

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Risk versus uncertainty

• Frank Knight Risk, Uncertainty and Profit
• Risk versus Uncertainty
• Homogenous groupings risk
• Heterogeneity uncertainty
• Organise specialists into hierarchies
• Compute with modern statistical techniques
• Boundaries, hierarchies and knowledge

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There are crises and there are CRISES

• Regulation Theory
• Why does capitalism prevail?
• Stable periods of accumulation
• Supported by social institutions of state,
  schools, welfare etc (modes of social regulation)
  
• Help to manage crises by guaranteeing certain
  assumptions (eg health, wealth, property,
  security)
• High growth period of post war Fordism
• Periods of structural crisis
• When core assumptions fail eg 1930s, 1970s, today?

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Risk and the large firm

• Risk?
• Cyclical crises can be managed when groupings are
  homogenous
• Predictable institutions evolve
• Market risk EEC guarantees property rights for
  large companies, consumption is price not quality
  related
• Labour risk get social benefits from national
  compromises
• Political risk have authority from mass
  parties, bipolar international system and
  corporatist representations
• National varieties of capitalism
• States provide core rights of property, political
  representation and social welfare

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Uncertainty and the large firm

• Uncertainty?
• When groupings become heterogeneous
• Boundaries
• National, social, and market boundaries dissolve
  with social change
• Hierarchies
• Single European Market harmonises standards to
  reduce non tariff barriers,
• Regional economies and clusters out compete large
  economies
• ICT implodes corporate hierarchies
• Knowledge
• Authority of technocrats challenged
• Environment (Becks boomerang effect), BSE etc

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C20th vs C21st Risk
C20th Century C21st Century Company responses
Boundaries Fixed and solid (national markets) Shifting and Porous (regional over national, culture over class, gender and workforce) Competitiveness in global markets and value chains for quality based competition
Hierarchies Vertical and authoritative (nation states and rule of law) Flat and discursive (subsidies and regulations replaced by benchmarks and good practice) Outsourcing, innovation and shareholder value
Knowledge Scientific and elite (eg universities and statistics) Scientific plus popular (popular debates and experience challenge academics) Market prevails, constant innovation to react to change Risk archipelagos
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Risk under globalisation

• Competitiveness and quality based competition
• Quality brand and ISO
• Flexible Labour Markets and skills agendas
• Quality Employability
• Financialisation and credit ratings
• Quality Share holder value

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Why Quality Standards Matter

• Now, there is a prime consideration in the
  craft- gild stage that enhances the power of the
  merchant to shift his costs to the consumer. This
  is the fact that his market is a personal one and
  the consumer gives his order before the goods are
  made. On the other hand, the bargaining power of
  the merchant is menaced by the incapacity of
  customers accurately to judge of the quality of
  goods as against their capacity clearly to
  distinguish prices. Therefore, it is enough for
  the purposes of a protective organization in the
  custom-order stage of the industry to direct
  attention solely to the quality of the product
  rather than the price or the wage, and to seek
  only to exclude bad ware and the makers of bad
  ware.1
• 1 See 44, John R. Commons 1909 American
  Shoemakers, 1648-1895 A Sketch of Industrial
  Evolution The Quarterly Journal of Economics,
  24, 1, pp. 39-84.

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Case Study Emilia Romagna

• Italian high growth in 1980s
• From small industrial districts in Northern Italy
  
• Flexible specialistion key
• Specialist SMEs cooperating in loose chains to
  produce high quality high value products
• Strong Municipal infrastructure
• Strong cooperative tradition
• Specialised in high quality
• To supply Turin industry and international niches

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Competitiveness and Quality competition

• What is competitiveness?
• competitive advantage through the processes used
  to add value
• (not comparative advantage in factors of
  production)
• Domestic conditions (consumers, suppliers)
  contribute to international competitiveness
• Practical and observable solutions, rather than
  free market or mercantilist ideals
• Innovation at the core (often driven by necessity)

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Porters Diamond

• Factor Conditions
• Specialists help industries lead
• Demand Conditions
• Where domestic markets reveal buyer needs
• Related and Supporting Industries
• Internationally competitive home based suppliers
• Firm Strategy, Structure and Rivalry
• Domestic competition spurs innovation and
  improvements

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The Competitiveness debate

• Innovation at the core
• National Innovation Systems
• Globalisation and diversity
• Beyond left and right
• Competitive corporatism (eg Ireland)
• The New Economy and competitiveness
• Hi tech SMEs and high value
• Value chain analysis
• And share holder value

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Company Responses to Competitiveness

• Global Value Chains and Off shoring
• http//www.globalvaluechains.org/
• Markets (traditional exchange)
• Modular value chains (stages)
• Relational value chains (industrial districts)
• Captive value chains (Toyotaism)
• Hierarchy (corporation)
• Coordination and benchmarks
• The knowledge economy?

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Global Brands

• SMART cars and risk sharing
• Productivity and marketing
• Global brands the promise
• Quality signal, global myth, and social
  responsibility
• Different consumers
• Global citizens, global dreamers,
  anti-globalists, agnostics
• Local responses to global brands
• Service sector growth
• SME economy prevails (eg Service Directive)

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Policy Responses to Competitiveness

• Supranational
• EU response to globalisation is the Lisbon Agenda
  to establish a competitive, sustainable and
  inclusive union
• National
• Competitiveness councils and regulatory reform
• capabilities developed in National Reform
  Programmes
• Regional
• Local institutional strengthening and innovation
  clusters and SMEs

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Competitiveness social agenda

• Inclusion
• to access variation in economy for innovation
• Economic rights
• that guarantee access to economy rather than
  payouts
• Capabilities
• that provide the mechanisms linking inclusion and
  competitiveness eg skills and VET

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Key EU SME policies

• SME Charter
• Central element to EU Lisbon Agenda
• Coordinates and publishes good practices for
  exchange
• The SME Policy Index 2007 Process
• Enterprise Action Plan
• Based on large scale consultation through Green
  Paper
• Specifies key goals and policies to achieve them
• Enabling businesses
• Think Small First of 2008 Small Business Act

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SME Charter 2000-

• 1 Education and training for entrepreneurship
• at all levels of school, further and higher
  education
• 2 Cheaper and faster start-up
• simplifying the procedures to create a new firm
• 3 Better legislation and regulation
• assessing regulation for its impact on small
  firms, and where possible simplifying or removing
  altogether obligations on SMEs
• 4 Availability of skills
• ensuring training institutions orientate courses
  to train people in the skills needed by small
  enterprises
• 5 Improving on-line access
• reducing costs and making small firms dealings
  with government more efficient

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SME Charter 2000-

• 6 More out of the Single Market
• continuing progress to remove barriers to trade
  and ensure fair competition in the internal
  market
• 7 Taxation and financial matters
• encouraging investment in small firms through
  ensuring tax and regulatory systems are
  favourable, and in particular that they reward
  success
• 8 Strengthen the technological capacity of small
  enterprises,
• ensuring that they are able to access and make
  use of any technology which could benefit their
  business
• 9 Successful e-business models and top-class
  small business support
• encouraging and enabling small enterprises to
  make the most of new opportunities in this areas
• 10 Develop stronger, more effective
  representation of small enterprises interests at
  Union and national level,
• ensuring that policy-makers are fully aware of
  the specific interests of small firms
• Searchable Best practice database on SME Charter
• http//ec.europa.eu/enterprise/enterprise_policy/c
  harter/gp/index.cfm?fuseactionpractice.list

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Enterprise Action Program

• Fuelling entrepreneurial mindsets
• Promote entrepreneurship and Education
• Encouraging more people to become entrepreneurs
• Balance risk/reward address negatives of failure
  and social security, promote business transfers
  and new social enterprises
• Gearing entrepreneurs for growth and
  competitiveness
• Esp women and BMEs, internatioanlisation, access
  KBE and networks

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Enterprise Action Program

• Improving the flow of finance
• Financial instruments, improve risk assessments,
  promote risk capital, business angels and venture
  capital
• Creating a more SME-friendly regulatory and
  administrative framework
• Good governance, RIAs, internal market and
  standardisation of rules, state aids etc

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Enterprise AP evaluation

• Scored well against clearly defined goals
• Check list mainly completed
• Why so successful?
• Brought a series of initiatives together into a
  coherent and integrated whole
• Success through dialogue and voluntary
  commitments with Commission as a promoter and
  facilitator for ideas, acting as a catalyst for
  others
• Practical measures illustrate how different
  actors working together to their mutual benefit
  on policy initiatives can deliver the goods.
• Many techniques used to raise awareness including
  brochures, Commission communications on specific
  issues, and conferences and Euro Info Centres
• Manageable goals

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Risk under Globalisation

• Boundaries are loose
• ICT undermines geography
• Added value selects from traditional distinctions
• Knowledge is contested
• Archipelagos of risk including social agendas
• Evaluation and transparency are key
• Hierarchies are consensual
• Open and coordinating
• Problem solving over regulating

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Conclusions

• Business environments change radically
• Quality and competitiveness as responses to
  globalisation
• Enabling of enterprise is central goal
• Evaluation and benchmarks are key
• Limits to the model?