Macro intentions, micro realities: A two-level strategic approach to the single European market

Multinational Business Review, Fall 2002 by Muller, Alan, van Tulder, Rob

The current understanding of Regional Integration is largely macro-economic and tends to neglect, even ex post, the significance of the Single European Market (SEM) for the restructuring of individual firms. This paper introduces a two-level approach in which integration and its outcomes are examined based on the strategic intent and strategic realities of governments and 'core' companies. The authors argue that in advocating the SEM, these actors did not necessarily share the same strategic intent. Firm-level data show that the expectations of European policymakers did not match actual strategies of European core companies.

INTRODUCTION

The second wave of over one hundred new Regional Integration Agreements (RIAs) in the 1990s dwarfed the first wave of integration in the 1960s both in terms of depth and breadth. Consequently, Regional Integration began to receive renewed attention from academic circles. Despite an overwhelming and diverse body of literature, clear answers on the nature, dynamism and rationale of Regional Integration are lacking (Gilpin, 2001). At the heart of the problem is a lopsided understanding of the phenomenon, which makes it not only difficult to interpret ex post, but also to ask the appropriate leading questions. An assessment of mainstream approaches to Regional Integration reveals an over-emphasis on states as primary actors behind integration processes and on macro-level economic theory and empirics for understanding integration outcomes. Meanwhile, both the role of micro-level actors (i.e. firms) in integration processes (Cowles, 1995) and an understanding of restructuring outcomes for individual companies remain undertheorized and understudied (Phelps, 1997).

This contribution introduces the divergence between policy-level, macro strategic considerations and company-level, micro strategic considerations as a source of much of the lack of clarity. Key strategic actors in Regional Integration, namely governments and core companies, work together to form regions, but do not necessarily share the same strategic reality or strategic intent with regard to integration. Differences stem largely from the different 'spaces' in which these key actors operate. Core companies are large firms that operate as spiders in webs of value chains and innovation, lead processes of internationalization (Van Tinder et al., 2001) and which - partly due to their core position - also have explicit political vision and direct access to political decisionmakers (Cowles, 1995). Yet their competitive space is not always synonymous to the policy space encompassed by the RIA, hence governments and core companies do not necessarily seek to coordinate economic activity spatially in similar ways. Outcomes are best understood in the context of the tension between their respective strategies. In this contribution policy-level expectations regarding the spatial consequences of the Single European Market (SEM) are tested using a new set of company-- level data from the SCOPE database at the University of Rotterdam (cf. Van Tulder et al., 2001), covering the period surrounding the implementation of the SEM (1990-1997).

LITERATURE REVIEW

The Single European Market (SEM) has been the proving ground for many analytical thrusts in the renewed vogue of macro-regionalism. Not only because it is the most high-profile RIA in history, but also because many theoretical and practical shortcomings of existing Regional Integration theories were primarily exposed in the wake of the Single European Act. The bulk of the literature has been primarily economics-- oriented, viewing regionalism as a `second-best' alternative to multilateral liberalization, and characterized by an overemphasis on trade issues. Recent studies suggest that the share of intra-regional to total trade hardly changed in the 1984-1999 period, implying no noticeable trade-- creating or trade-diverting effects as a result of the SEM (e.g. Molle, 2000).

Extensive empirical analysis has been conducted on the impact of the 1987 Single European Act (SEA) on trade and FDI flows between the US, European Union and Japan (e.g. Clegg and Scott-Green, 1999; Aristotelous and Fountas, 1996). Results have been largely inconclusive and focus on relatively outdated (pre-1992) data. The only relatively undisputed conclusion is that the SEM led to an increase in inward FDI in Europe (Dunning, 1997). At the same time, there is a considerable gap in the literature concerning extra-regional effects, such as post-integration outflows of FDI as well as the relationship between outflows and inflows. Other analyses have emphasized firm-level issues but continue to test them at high levels of aggregation. Predictions of firm behavior range from rationalization and consolidation to defensive and offensive import-substituting investment, with a wide range of empirical outcomes. More qualitative research targeted at individual firms has also been conducted, addressing e.g. European firm response to competitive pressures (Davies et al., 1999), but often focus on macro variables like national differences as the basis for analysis. In a survey of 13,900 European firms by the Single Market Review (1997), respondents were hesitant to define the SEM as a strategically important issue. Primary correlations were identified as more significant at the national level than at e.g. the industry level, a fact that belies the survey's macrotheoretical underpinnings despite its apparent micro focus. Additionally, the diversity of the sample in terms of firm size may have led to diffuse responses from firms which either had little stake in an integrated European market or lacked the political vision to know what that stake should be.