European Industrial Policy: The role of European Champions and M&As

European Champions and Industrial Policy

Franco Mosconi, Università di Parma, Cattedra Jean Monnet
LM ADA, 2024-2025
Lecture #8
25 February 2025 (First draft)Agenda [Chapter 2: pp. 55-109 + Appendix II]
[Table 2.8: A sample of M&As]

• M&As: What's going on in the European Single Market (ESM)?
• [S-C-P: Structure-Conduct-Performance]
• Further Waves of M&As and the role of the Big Players
• The Age of the 'European Champions':

> TYPE I 'European Champions' (e.g., Airbus)
> TYPE II 'European Champions' (i.e., via cross-border M&As)

• Summing up
• Homework/Class discussion/Group activities

M&As in Europe: Initial Observations

M&As: What's going on in Europe?/I
Table 2.8, pp. 83-87 (2004-2014)
And many other operations/deals you'll find ... (2015-to present)
↓
What do these operations/deals (and others that could be mentioned)
have in common?

M&As in Europe: A Tentative Answer

M&As: What's going on in Europe?/II
A tentative answer:
i.
They are cross-border and take place in the European Single Market
ii.
They are fundamentally 'industrial' (i.e., core business):
> 'horizontal' (same industry)
> 'vertical' (two or more companies that provide different supply
chain functions for a common good or service)
iii. They increase the possibility to exploit both economies of scale and
economies of scope
iv. They highlight the role Europe should play in increasing R&D expenditure,
and the THIRD SIDE of the 'Triangle'
v. To sum up: They give rise to the new European Champions

Big Players in Europe: Summary

The big players in Europe: A
Summary

Sources for European Big Players

The Big Player in Europe: A Summary/I

• Three sources :
  (i) BRUEGEL, The Brussels-based economic think tank (www.bruegel.org):
  Farewell National Champions: the Trend Towards Europeanisation of
  Europe's Largest Companies [Veron 2006]; The Happy Few [Ottaviano
  and Mayer 2007]
  (ii) THE ECONOMIST (www.economist.com): Who are the champions? -
  Survey on European Business [February 10, 2007]
  (iii) R & S-MEDIOBANCA (www.mbres.it): Multinationals: Financial
  Aggregates (156 out of 331 industrial companies are European) [R & S,
  2016]
• Empirical research: An Overview of Fortune Global 500

Global 2000 Company Distribution

The Big Player in Europe: A Summary/II
Punching its weight
1
Number of companies in Global 2000 by region and sector, %
Number of companies
Europe
US
Asia/Pacific
Others
na
2.198
336
105
410
307
77
63
503
129
100
-80
60
1-40
20
0
GDP 2004 Total
High
tech
Life
Basic Consumer Transport, Automotive Finance Engineering
sciences materials, goods, logistics & assembly
chemicals, retail,
utilities, wholesale
energy
& construction
Source: Mckinsey
'Europe has 29% of the world's
leading 2,000 companies, broadly
in line with its 30% share of world
GDP. It punches its weight in most
global industries except IT, where
America is leading ahead'
[Mckinsey-The Economist, 2007]

Empirical Study: Fortune Global 500

The empirical study: facts and
figures ('FORTUNE GLOBAL 500')

World's Largest Corporations by Macro-Area

The Big Players in Europe: An Overview/I
6,5
25%
17%
28%
23,5%
The world's largest corporations ranked
within macro-areas:
EU: 128
U.S .: 128 / North America: 141
CHINA: 95 / BRICs: 118
JAPAN: 57 / SOUTH-EAST ASIA: 85
+ Rest of the World
Source: Adapted from 'Fortune Global 500' [2014]

World's Largest Corporations by Country

The Big Players in Europe: An Overview/II
Numbers of Companies
140
128
120
100
95
80
60
57
40
31
28
27
20
9
0
US
CHINA
JAPAN
FRANCE
GERMANY
ITALY
GREAT
BRITAIN
The world's largest corporations
ranked within countries
Source: 'Fortune Global 500' [2014]

Jacquemin-Rodrik Synthesis

«The Jacquemin-Rodrik Synthesis»>
ROUTLEDGE STUDIES IN THE EUROPEAN
ECONOMY
The New European
Industrial Policy
Global competitiveness and the
manufacturing renaissance
Franco Mosconi
ROUTLEDGE
' ... the possibility of a concerted
European industrial policy that will
overcome industry strategies
along national lines ... ' [A.
Jacquemin 1987]
>
A New European Industrial
Policy - i.e., knowledge
investment

New European Industrial Policy

«The New European Industrial Policy» (see
also: Handouts #1, #2)
European Commission on 'Industrial
Policy': European Champions [2002-2003]
Biotecnology and life sciences;
ICT;
Hydrogen economy;
Defence industry;
Aerospace.
European Commission on 'Industrial
Policy': Action lines [2012-2014]
Advanced manufacturing tech .;
Key-enabling tech .;
Bio-based products;
Sustainable industrial and
construction policy and raw
materials;
Clean vehicles;
Smart grids.

Age of European Champions

The Age of the 'European Champions'/I
(See: §5)

• 'The European Union will be able to exploit the chances offered by the
  Single market - and this is my firm conviction - only if we decide to
  create European Champions in areas ( ... ) such as energy, postal
  services, etc.' [Merkel 2006]
• Chancellor Angela Merkel, 2006:
  > European Council in Brussels (23-24 March)
  > N3 Arnstadt Engine Servicing Centre (JV Lufthansa & Rolls-Royce) (2 May)
  > European Forum on WDR (9 May)

Taxonomy: Type I European Champions

Towards a Taxonomy: Type IThe Age of Eurpean Champions/II
EC 'Type l'

• They have come about as a result of supranational cooperation and
  concerted public policy support for the development of technology in
  strategic sectors involving firms (state-owned) from more than one
  EU country.
• Success story of Airbus (from the 1970s)
• Are there other sectors where this approach could be replicated?

Airbus Case as a Model

The Age of the 'European Champions'/III -
EC 'Type l' : Is the Airbus Case a Model?

• 1970s:
  GIE - «Groupement d'Intérêt Economique> formed by 4 European
  countries/companies: France/Aérospatiale, Germany/Dasa, United
  Kingdom/British Aerospace, Spain/Casa
  ↓
  A model or a 'rather special case'?
• P. Seabright [2005] argues in favour of the latter because of the
  technological characteristics of the aerospace industry:
  'High fixed costs of production, variable costs of production that fall significantly
  with scale, and products that are somewhat less differentiated than in other
  comparably high-tech sectors such as motor vehicle and precision instruments.'

STM as a Type I Champion

The Age of the 'European Champions'/IV -
EC Type l' : STM

• 1980s
  We should keep in mind another Champion, when STMicroelectronics
  (semiconductors) was born through the merger between the Italian
  SGS Microelettronica and the French Thomson Semiconducteur - both
  state-owned at the time
  ↓
• Today's further developments:
  Chips Act
  IPCEI on microelectronics

Taxonomy: Type II European Champions

Toward a Taxonomy: 'Type II'The Age of the 'European Champions'/V -
EC 'Type II': European Cross-Border M&As

• Although there is some room of manoeuvre for (new) 'Type l' EC, it is
  the second type of our taxonomy ('Type II' EC) that is the most
  important given its role in reshaping EU market structure
• These are companies that have taken form under the pressure of the
  Single Market (remark: Baldwin & Wyplosz on 'scale effect' and
  'growth effect and factor market integration')
• They are the result of consecutive M&A waves.

Type II EC: Prominent Sectors and Resources

The Age of the 'European Champions'/VI -
EC 'Type II': European Cross-Border M&As

• Sectors/Industries that have gained most prominence in the last decades [see: Ch.
  1 > Handout #1, #2]:
  >High-tech
  > R&D intensive
• Access to :
  >
  Financial resources
  > Engineers/STEM, Researchers, Managers
  (Highly-skilled Human Capital)
• EU Tech and Education Policy is key to any champions-related policies for
  innovation and growth

Type II EC: Growth Strategies and M&A Waves

The Age of the 'European Champions'/VII -
EC 'Type II': European Cross-Border M&As

• The focus is on (large) European firms' recent behaviours
• In particular, on the growth strategies they are adopting in light of the
  completion of the 'level playing field' - the European Single Market
  (ESM)
• A strong M&As wave swept through the ESM from 2004 to 2014
  [TEXTBOOK, F. MOSCONI (2015) > 2015-To date: Homework/Class
  discussion/Group activities]
• Many deals being of a cross-border nature ...
• ... and leading to the emergence of what we have just labelled 'Type
  II' EC

Type II EC: ESM Deepening and Widening

The Age of the 'European Champions'/VIII -
EC 'Type II': European Cross-Border M&As

• ESM
  > Deepening (4 freedoms, structural reforms, etc.)
  > Widening (Eastern Enlargement of 2004/2007 plus Croatia in 2013 ... but minus
  UK on 31 January 2020)
• ... 'We can expect this new type of EC to consolidate even further as a result of
  future M&A activity ... ' (p. 81)
• More in general, Professor Barry Eichengreen (2007, University of California -
  Berkeley):
  > 'global champions'
  > 'firms with the scale and scope needed to compete internationally'

Type I & Type II: Summary

Type I & Type II: Summing Up

Key Facts from 10-Year M&A Wave

Summing Up/I
The most important facts that appear from the 10-year wave of M&As occurring in
Europe and under scrutiny:

• Since Eastern Enlargement (2004), M&A activity has been split into two periods,
  using the 2008 big crash as the breaking point: 2004-2008; 2009-2014 (TABLE 2.8)
• What can we learn from these European cross-border deals?
  The lesson is fivefold:
  (i) The entire spectrum of economic activities and industrial sectors has
  been involved
  (ii) The financial system (banks, insurance companies, Stock Exchanges) was
  the catalyst for many operations
  (iii) Oil&Gas/public utilities seen as a macro-sector was the setting for many
  deals

Liberalisation and Manufacturing Trends

Summing Up/II

• [both ii) and iii) have benefited from the liberalisation and
  privatisation processes that have taken place since the 1990s, and
  with particular force in the first decade of this new century.]
  iv) Manufacturing as an economic activity that has by no means
  fallen from grace (M&A deals from steel to fashion, from mechatronics
  to space & defence, etc.); i.e., manufacturing (still) matters!
  What's new is the increasing level of contamination with the
  service sector (e.g., ICT and other immaterial/intangible components of
  a production process have become crucial).
  v) Europe's leading position in M&A activity in the middle year of
  2000s.

Empirical Research Overview

Summing Up/III
The empirical research (A)

• In total, around 150 European
  cross-border M&As have been
  listed and scrutinized
• See: Table 2.8
  and the Appendix II
  The empirical research (B)
• All in all, it covers the 2004-2014
  period:
  i.
  2004-2008 (from Enlargement
  to financial crisis)
  ii.
  2009-2014 (ups and downs)
  iii. 2015-To date
  (homework/class
  discussion/Group activity)

M&A Sample and Strategic Focus

Summing up/IV

• The sample of M&As makes no claim of being exhaustive
• There are official sources (e.g., European Commission, DG Competition) and database (e.g., The
  Economist/Dealogic)
• My objective was (AND IT IS) more focused: study the ESM from the perspective of both Market structures and
  Firms' behaviour
• The underlying strategy of Europe's biggest firms is to concentrate on their core business:
  > Horizontal integration (similar industries)
  > (but also) Vertical integration (complementarity)
  [-> Conglomerate M&As are infrequent today = a merger of two firms that have completely unrelated business
  activities]
• Notwithstanding the centrality of a European-oriented M&A wave and the two types of EC, two other perspectives
  deserve attention:
  > TRANSATLANTIC alliances and deals (two-way arrangements EU/US)
  > BRIC-based companies entering the European market