Doing Business in the European Union

By Terri Morrison
© Copyright 2004, All Rights Reserved

While you might consider yourself an old hand at doing business in Europe, see if you can answer the following questions about the new EU:

TRUE or FALSE?
In one of the new EU nations, the order of personal names is reversed—surnames are listed first, followed by "first" names. TRUE: This is the traditional pattern in Hungary, where famous Hungarians like musicians Béla Bartók and Franz Liszt are known as Bartók Béla and Liszt Franz (or, in the original Hungarian, Liszt Ferenc).

TRUE or FALSE: All of the new EU members were formerly Communist states, members of the Warsaw Pact. FALSE: Cyprus and Malta were never Communist.

Obviously, the new EU is significantly different from the old.

The Old European Union
Even before the May expansion, the EU changed the way the world does business. After a shaky start, the Euro became a major world currency. Indeed, with the U.S. dollar falling, the Euro has grown in importance. (That key commodity, oil, has long been traded only in U.S. Dollars, but there is talk about changing that to Euros.)

Every foreign company that does business in the EU must do so on the EU’s terms, and abide by EU regulations. The EU’s executive arm, the European Commission, made major U.S. corporations abide by its dictates. In the past five years, the Commission’s opposition stopped WorldCom’s $115 billion acquisition of Sprint, and General Electric’s $45 billion takeover of Honeywell International. Just recently, the Commission fined Microsoft $603 million for using its near monopoly in the Windows operating system to squeeze out rivals. (This is the largest fine the EU ever served against a company; Microsoft has promised to appeal.)

Expanding to 25 members will make the EU an even more powerful economic force on the global stage.

The New Members
The soon-to-be-members of the EU are, in alphabetical order: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia. Bulgaria and Romania hope to join by 2007; Turkey has also applied but its membership remains in doubt, reportedly due to human rights concerns.

As you can see, by May 1 virtually all of Europe will be members or prospective members of the EU. The notable exceptions are Iceland, traditionally neutral Switzerland, contrary Norway (whose oil wealth allows it to remain separate), poverty-stricken Albania, and all of war-torn former Yugoslavia (except for peaceful, prosperous Slovenia).

Except for Cyprus and Malta, Communists ruled all of the new EU nations for much of the 20th century. Capitalism itself is new to them. While they have embraced capitalism whole-heartedly, many of their populations miss the security Communism used to provide. For example, unemployment was almost unheard of under Communism, even if some jobs were make-work.

Also, while religion has receded into the background in much of Western Europe, that is not the case in all of the new EU. Poland is often considered "the most Catholic country in the world." Catholicism is also part of the Slovenian national character, which helps differentiate it from the Orthodox and Muslim states of the former Yugoslavia.

Target Markets in the New EU
Depending on your products, certain countries are better targets for specific industries than others. New EU nations that are considered ready markets for foreign high-tech products are Poland, Hungary, Slovenia, Estonia and the Czech Republic. Estonia is so open to high-tech change, its government is so wired that its Congress votes remotely—at virtual sessions!

Since the cost of labor is lower in Eastern Europe than in Western Europe, many multinational corporations have been moving into the new EU countries in anticipation of the expansion. For example, Fiat and Daewoo are the biggest foreign investors in Poland’s manufacturing industry—they have built huge auto assembly plants there. Volkswagen has actually started building cars in Slovakia; while Kia and Peugeot-Citroën are not far behind.

Of course, different market conditions also dictate what can be sold to each country. As Mediterranean islands, Malta and Cyprus have unique needs for maritime supplies. Former Warsaw Pact nations require environmental cleanup technology at the sites the former USSR polluted—especially at former Soviet military bases.

Finally, the United States is cognizant of the fact that many citizens in the crowded nations of the old Europe want U.S. military bases closed down. This is certainly one of the reasons the United States plans to open up military bases in nations such as Romania and Bulgaria. (Officially, the reason for the relocations is for U.S. military to be closer to potential hot spots.)

Where the U.S. military goes, its soldiers and dependents follow—and there are no better consumers of American products than U.S. citizens abroad, homesick for a taste of the United States.

Excerpted from OAG Frequent Flyer, April 14, 2004