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Globalisation brings opportunities for EU industries

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Despite the rise of developing industrial powers, the European Union remains the world’s biggest exporter, as well as the No. 1 target for foreign direct investment. The European Commission’s annual ‘European Competitiveness Report’ details how the EU has stayed on top and what the Commission is doing to make sure it stays there.

Some people see globalisation as a threat to European industries. From cars to wind turbines, many of Europe’s signature products are now partly manufactured abroad.

But far from the mortal threat that globalisation was once thought to pose to EU industries, time has revealed that the positives outweigh the negatives. The European Commission’s annual European Competitiveness Reportpdf Choose translations of the previous link  highlights the various ways that European industries have gained from globalisation, as well as the steps the EC is taking to make these gains grow.

Best bet – and getting better

The focus of the EC’s 2012 report is maximising the benefits of globalisation. Globalisation is an important topic for a variety of reasons, including that it will be a key driver of economic recovery.

Because globalisation fosters exports and reductions in production costs, new industrial markets outside the EU are helping, not hurting, Europe’s international competitiveness. Despite increased competition from new industrial players, the EU still leads the world in both exports and foreign direct investment, (FDI), which means that more foreign countries and foreign companies invest in the EU than anywhere else.

Even with the global economic slowdown, the EU attracted $421 billion in FDI in 2011 – more than one-fourth the world’s FDI total. This is good news for Europe. FDI generate new jobs and increase productivity, allowing the EU to create more goods, more efficiently – which makes Europe an even more attractive place to invest. But, mainly due to a decline of intra-EU flows, the EU is losing some of its attractiveness as a FDI destination.

Another way that globalisation allows the EU to maximise competitive gains is through ‘value chain positioning’. Aided by advances in cross-border transport, value chain positioning enables certain tasks and parts of Europeans firms’ production processes to be carried out in other parts of the world. In this way, a car part might be made in Asia, but the car is still European – as is the bulk of revenue.

This globalised collaboration has coincided with a sharp uptick in intermediate and semi-finished products, which allows industries to take advantage of the comparative advantages of external locations and markets. Therefore, in a globalised world, so-called ‘value-chain performance’ is becoming a more important measure of competitiveness than the traditional emphasis focused mainly on exports of final products. Around 87% of the value of EU exports was domestically produced.

New empirical evidence shows the effectiveness of EU's sustainable industrial policy and its importance for the competitiveness of European firms within global value-chains. The EU leads in the world in the energy efficiency gains in exports and EU manufacturing firms are global frontrunners in energy efficiency innovation activities and investments in clean and more energy-efficient products.

Policies of progress

If European industries are going to tap into the opportunities rising from globalisation, then international barriers, in particular the ones hampering the internationalisation of SMEs – both between European nations and between Europe and the rest of the world – must be removed. As such, the 2012 European Competitiveness Report makes suggestions about how to best reap the rewards of globalisation.

The report suggests that the EU pursues policies that increase openness to trade and better-target the promotion of R&D in process and market innovations. This will help local companies become part of global value chains, allowing them to reap the benefits of products produced abroad. Gaining access to these global value chains is paramount given that more than two-thirds of EU imports consist of intermediary products – that is, products traded among producers and suppliers.

Off-shoring, which is when companies relocate a business process from one country to another, will also require that regulations evolve to adapt to the 21st century. The report therefore promotes policies that will increase the EU’s share of exports of finished goods from trading partners, particularly emerging industrial powers like China, Brazil and India.

Closer to home, the report suggests ‘neighbourhood policies’ targeted at fostering trade in Europe’s backyards. Cross-border investment and trade with neighbouring countries are, in the words of the report, ‘low-hanging fruits’ that have not yet been utilised to their full potential. The report says that Russia, Ukraine, Switzerland, Norway and Egypt are some of the EU’s top non-EU trading partners.

The EU is well positioned to benefit from globalisation. Europe’s industrial infrastructure, educated workforce and track record of innovation set it apart. As a result, globalisation will do nothing to unseat EU industry as a global leader in the new industrial revolution.

Online discussion

The economic and societal challenges faced by us today call for new and better targeted industrial policy at EU level. This cannot be achieved without a broad debate. We would be grateful if you would share your thoughts and ideas with us here.

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