No Frontiers
By RICHARD BAILEY
OvER the last four years British industry has been involved in a whole series of operations designed to bring individual firms into the European market; 'interpenetration,' as they are called. The prospect of Britain joining the Com- mon Market raises the whole question of the position of the firms that now have a foot in Europe. Have they been premature and placed their bets too soon? Or are they now a move ahead of their competitors who decided to wait until a political decision had been taken?
There is no single answer to this question; it depends on why any particular firm decided to extend its activities to the Common Market, and how the move was carried out. The most obvious reason that has sent British capital moving into the European Economic Community has been the fear of being shut out. Manufacturers of products on which the common tariff will be high, and whose main competitors are among the Six, clearly stood to lose heavily. In other cases, the level of return on capital was estimated to be higher in the Common Market than in the United Kingdom. For some companies the ques- tion of whether or not Britain would join the Common Market was a secondary consideration. The decision of ICI to spend £100 million on manufacturing facilities in the European Com- mon Market over the next ten years falls into this category. The Lower Rhine area has always been an important market for chemicals. Rotter- dam, with easy access to raw materials, wonder- ful transport facilities and the newly constructed pipe-lines and oil refineries, is an ideal centre for chemical manufacture.
Not all firms have embarked on large-scale investment in new plant. In many cases the way into Europe has been by the purchase of a hold- ing in an existing concern. This has the advantage of acquiring not only plant but managerial and sales experience in the market, and all the local contacts that take so long to build up from scratch. Others have decided to have their pro- duct manufactured under licence—the favourite method with firms that wanted to. wait and see how things developed before investing a lot of their capital. Portfolio investment is the most difficult to assess. A great deal of British money has found its way into the shares of Common Market firms; the motives for buying have varied all the way from purchases by firms and individuals wanting to spread their risks as widely as possible, to big buying by investment institu- tions and insurance companies.
Some idea of the scale of British investment in the Common Market can be gathered from a written answer by the Chancellor of the Exchequer on December 13, 1960, stating that investment by United Kingdom firms in the Common Market countries 'amounted to £20 million in 1957, £35 million in 1958, £55 million in 1959, and about £25 million in the first half of 1960.' No detailed figures have been published giving the breakdown of British investment in Europe either by countries or by industries, but the almost daily announcements in the press on new moves by British firms show how varied these have been, including investment in Com- mon Market engineering, motor-cars, paper- making and chemicals. Belgium has received a considerable amount of well-publicised invest- ment, much of it in new plants; but with the
information at present available it is not possible to say which has been the most favoured nation among the Six.
What will happen to all these new plants and subsidiaries when Britain is inside the same tariff system as the rest of the European Economic Community? The answer will depend very much on the kind of product and the sort of co-opera- tion involved. Factories turning out goods adapted to the requirements of a particular distri- bution area will continue to flourish. So to a great extent will those that are able to back up the home factory by the provision of after-sales ser- vice. But where the parent company back in Eng- land can deliver the goods just as cheaply once the tariffs are down, the Common Market subsidiary may prove a white elephant. Assembly plants, for example, may prove to have little advantage once it is as cheap to import the complete product.
The important thing in considering investment in Europe is to get the perspective right. How long-range this should be depends on the industry concerned, but five years ahead is probably about the earliest that there is likely to be anything approaching a state of normality in Europe in the economic sense. By that time the effects of the removal of national tariff barriers to make one great market of 240 million people (170 million without Britain) will be making them- selves felt. The big result will be to step up the rate of economic growth and to increase competi- tion, completely changing the production pattern of Western Europe. Vertical integration, which paid off behind high tariff walls, will no longer have such advantages when supplies can be bought more cheaply elsewhere in the market.
The American motor industry gives a number of clues as to what may happen in Europe. In the United States body-stamping and engine plants are situated near steel works or big market concentrations. Aluminium components are being made right beside the aluminium refineries which in turn are near large sources of power. Glass works are being built where there is plenty of labour and water. So far decentralisation has not gone beyond national boundaries in Europe. But some of the moves inside the Common Market, including some of those by the larger British firms, represent the first steps towards this new continent-wide pattern of industry. The trend towards a manufacturing industry with bigger and less centralised units will gather momentum as the tariffs come down over the next five years. The increased competition will weed out those concerns that built factories in the belief that the Common Market represented a slow-motion gold rush from which all would benefit.
It is not yet possible, though, to know how far Europe's national governments, languages and traditions will damp down the process of integra- tion. The Americans, after all, have a common language, money system, tradition and viewpoint. It will take Europe, even without economic frontiers, a long time to reach this stage.
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