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‘New Europe' posed to compete

Europeans are still important business players, says BCG chief at Kellogg School conference, but continent must meet globalization challenges or risk decline

By Matt Golosinski

4/1/2005 - Few would consign Europe's corporate world to the dustbin, but its rich history can itself pose challenges in facing today's global business climate, said some participants at the Kellogg School's inaugural European Business Conference, held April 20 at the James L. Allen Center.

Just as Shakespeare's classics often have been adapted for modern audiences, a similar effort may be in order for certain longstanding European policies related to commerce, if Europe hopes to compete in the global economy.

Some changes — a mélange of the social, political and economic — may be sweeping and met with resistance and fear, warned Hans-Paul Buerkner, CEO of The Boston Consulting Group, and the afternoon's keynote speaker.

“If you are afraid of the future, you will lose,” said Mr. Buerkner, a German national and the first European to hold the top spot at the prestigious international consultancy. “The best companies are those that continually improve and adapt” to challenges such as those associated with globalization.

In particular, Buerkner drew attention to the rosy socioeconomic milieu historically experienced by many European workers who, he said, generally enjoy extraordinary benefits and a moderate workweek. He contrasted this auspicious scenario, which he termed “the land of milk and honey,” with a more sobering context rife with unemployment. Although much of Europe has grown accustomed to perks that include generous government employment subsidies and vacation allowances, he said, the global economy's increasing pressures will force these workers, their companies and governments to accept a new way of doing business.

“We are only seeing the beginning of a massive shift in economic power today,” said Buerkner, noting that so far primarily only consumer goods have been sourced cheaply in countries such as China. But he predicted that soon more business-to-business products and machinery will be similarly sourced.

The BCG leader pointed out possible solutions that European businesses can employ to compete — such as refining their marketing, R&D and supply chain efforts to maximum effect for the global context — but he also noted that Europe's governments will have to make some concessions related to labor, environmental protection, pension benefits and corporate tax incentives to create a more pro-business climate.

Fundamentally, Buerkner sees education as key to commercial success. Training workers for increasingly skilled roles in the global economy is imperative. “We should invest in infrastructure, communication and education,” he said. New industries, including entrepreneurial ventures “where ideas can grow,” should be funded; “old industries,” such as coal mines that have “no future” should not be subsidized.

“Most importantly,” he noted, “we must change the mindset of the people to create a mood of change” that emphasizes the value of “self-responsibility” rather than the expectation that a paternalistic government will “take care of them.”

Earlier in the day, another keynote speaker, Christoph Vogel, spoke about the European business climate from his perspective as vice president of strategy for Siemens Corp. Several panel discussions also considered Eurocentric marketing and finance, as well as challenges and opportunities in new European Union countries such as Czechoslovakia and Poland.

Bob Frelich, a panelist and director of U.S. Operations East for the investment and business development agency CzechInvest, explained the reasons why many prominent corporations, such as Honeywell, ExxonMobil, Toyota, Baxter and IBM, were making substantial investments in the Czech Republic.

For instance, said Mr. Frelich, ExxonMobil found Prague a good fit for one of the firm's business support centers in part because of the many languages spoken there — some 16 in all. In addition, the city's central European location was logistically enticing.

Another panelist addressed the legal dimensions of doing business in new and prospective EU countries. Arthur George, partner at Baker & McKenzie, said that some locations offered a better investment landscape than others. While Western Europe is generally more aligned with American notions of intellectual property rights, labor law and the court system, Eastern Europe's approach to these and other commercial concepts is frequently less easy to predict, said Mr. George.

“The laws are less clear, less tested in court, as you move more east in Europe,” he explained, adding that corruption in these regions is often another variable with which businesses must contend.

George pointed to one example involving real estate and property law, saying that the cost of land and facilities in a country such as Russia can present unexpected challenges to the uninitiated.

In Russia, for instance, if a firm buys another company's factory, the laws about who actually owns the land can be “complex and ambiguous,” said George.

Jim O'Connor '96, vice president and general manager of Motorola's Early Stage Accelerator, which strives to develop strategies for innovative commercialization of new technologies, also participated as a panelist. The Kellogg School alum referenced a new book, The World is Flat , by New York Times columnist Thomas L. Friedman.

Mr. O'Connor said that Friedman's book, which explores current trends in globalization, contends that today “there is no difference between [doing business in] Bangalore and Boston. … There's a lot of truth in that.”

“It's all about technological evolution, smarter devices,” said O'Connor. Given this agenda, he said that “the best engineers — from wherever — will make it onto a project.”

Good employee capabilities and a welcoming environment are both important to companies such as Motorola when making investments, said O'Connor, adding that Eastern Europe is “very fertile” for new investment and technology.

“These people are not knitting sweaters but are involved in hardcore technology,” he said.

Piotr Pikul '05, the conference's finance chair, was pleased by the more than 200 academics, students and business leaders in attendance from around the world, saying their presence was “strong proof that Europe indeed does still matter” in the global economy.

“With European brands making it big in America, continuing movement toward a single 450 million-person ‘European' market and revitalization by dynamic and investor-friendly Eastern Europe, the notion of ‘Old Europe' is clearly outdated,” said Pikul, adding that ‘New Europe' is being adopted as the slogan for the most successful companies doing business across the Atlantic.