Tuesday, January 29, 2008

Europe Rising

The rising power of new Europe

From The Statesman
ND Batra

Let’s see how Microsoft gets out of trouble this time. Once again the European Commission, instigated by complaints from Norwegian Web browser Opera and a group of technology companies, including IBM, has decided to look at the global giant’s business practices, especially regarding the Office suite of business applications, its browser Internet Explorer, and Outlook, claiming that programme bundling chokes competition. The Commission would like Microsoft to sell its products separately from its operating system so that they could be used on a free open source platform such as Linux rather than Windows. Last September, in a 6-3 ruling the Court of First Instance, Europe’s second highest after the European Court of Justice, affirmed the 2004 decision that Microsoft had violated anti-competitive rules by bundling its Media Player with Windows, and the company had to pay fines totaling $1.6 billion.

The European Committee for Interoperable Systems (ECIS), the technology coalition, wants to see the fulfillment of the initial promise of the Internet, that is, all systems should be interoperable so that the user could segue from one platform to another and documents could be exchanged across operating systems without loss of information. But that will destroy the business model of hi-tech companies, mostly US, that make money through niche creation and market domination as Microsoft has done through its Windows operating system used by more than 80 per cent desktops. European anti-trust regulators have also clobbered other hi-tech companies, including Qualcomm, MasterCard, Google, and most recently Apple’s i-Pod who agreed to sell digital songs in UK at a cheaper rate.

The problem, however, is that if every rising power, India, China, EU, for example, were to make its own anti-competitive rules, the pace of globalisation would be retarded.

In 2001, the European Union rejected General Electric Co.’s planned $42 billion acquisition of Honeywell International Inc. GE failed because it could not appreciate fully the emerging European culture. Europe might seem to be a house divided against itself, but when it comes to dealing with US global corporations like GE, Microsoft, Apple, et al, or a mercantilist country like China, EU takes a united stand.

TR Reid wrote in his book, The United States of Europe: The New Superpower and the End of American Supremacy: “The Europeans were concerned with bigness itself – the fear that a company with an overwhelming presence in certain markets would use its sheer size to drive out competitors, and then drive up prices for consumers. The GE-Honeywell merger was a classic example of the difference in antitrust theory of opposite sides of the Atlantic.” It was a big blow to GE’s former Chief Executive Jack Welch, who could get away with everything in the United States, but hit a stone wall in Europe.

According to Reid, “…Brussels was flexing its regulatory muscles long before Jack Welch sought approval for his merger. By the time the GE-Honeywell deal arrived in Brussels for consideration, the Directorate-General for Competition had already squelched business plans proposed by such titans of American business as Microsoft, Intel, and Coca-Cola. In 2000, the directorate killed the WorldCom/MCI-Sprint merger before US antitrust officials even got around to ruling on it.”

The biggest mistake GE made was to use the White House to push through the deal, which as Reid wrote was “The last thing the Europeans were willing to stand for – particularly at a time when corporate America was awash in charges of executive crime and dishonest accounting – was an American President lecturing them on the right way to regulate corporate behaviour.”
Lesson: Do not underestimate the growing power of Brussels.

Although legal battles cannot be avoided, it is also time for global business diplomacy. Instead of getting help from the government, global corporations should develop their own foreign relations; call it by any name you wish. All major corporations, Boeing, Microsoft, Google, for example, have their own corporate diplomats who use the same tools and talents as political diplomats do in making deals and dealing with international crisis. Many of them are retired ambassadors, state department officials, and military officers; and they know how to communicate with global stakeholders, including governments.

In a globalised economy, some level of openness and transparency is important. Financial reporting is subject to auditing and official scrutiny, nonetheless, corruption occurs. Although corporations do not have to declare themselves to be socially responsible, their dominant presence raises expectations in the public. Reporting about their social responsibility that can stand public scrutiny should be the goal, if it does not significantly hurt the bottom line.

Some corporations use their social responsibility activities as a tool of corporate diplomacy to build social capital and goodwill, something which hi-tech companies such as Microsoft and Google have just begun to do. Social capital is an intangible wealth that could be used when a corporation is hit with a crisis. If a corporation has a code of ethics, let it be known to the public how it is following the code. Of course, every corporation should have a code of ethics. The European Union code of business ethics is: Thou shall not kill the competition. But Americans believe in creative destruction. Who would abridge the Atlantic Ocean?

(ND Batra teaches communication and diplomacy at Norwich University)

1 comment:

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