Europe's pride

Yet even though European business has to operate in a difficult political, social and economic environment, it has produced an impressive crop of world-class companies. An analysis by McKinsey, a management consultancy, shows that Europe has 29% of the world's leading 2,000 or so companies, broadly in line with its 30% share of world GDP. It punches its weight in most global industries except IT, where America is leagues ahead.

British companies were pioneers of globalisation, perhaps because of Britain's open Anglo-Saxon business culture and financial system. More recently Britain's BP bought several American oil companies, triggering a wave of oil mergers in America and Europe. But then Britain is closer than its European cousins to the freewheeling American business model.

Over the past few years those continental European countries have been gradually shedding their old corporatism and learning new tricks from the Anglo-Saxons. Jeff Immelt, who succeeded Jack Welch at the helm of GE five years ago, is struck by the vast improvement in European top management in recent years. As he points out, most big European businesses are now successfully global. The figures bear out Mr Immelt's impressions.

Kevin Gardiner, head of global equity strategy at HSBC, an investment bank, who first spotted the Celtic Tiger miracle of the Irish economy a decade ago, has recently made another remarkable discovery: European businesses are making better profits than their American counterparts. He notes that “currently European companies seem to be slightly more profitable even than their American peers.” This has been achieved even though revenues have been growing more slowly than in America, which underscores Europe's growing success in restructuring and consolidation. Corporate America and corporate Europe are now neck and neck in the globalisation stakes.

Dominic Casserley at McKinsey's London office also takes a bullish view. “Write off Europe at your peril,” he says. “In many sectors European companies are clearly in the premier league. We see a generation of strong European management teams emerging who are aggressive, hungry and eager to expand.”

Some of this revitalisation of European business is due to the impetus from a more open trading system in a global economy. European companies, small as well as large, have quietly got on with moving many of their operations abroad where it makes economic sense to do so.

But two other powerful forces are also at work. One is the structural change now taking place in Germany. After years of languishing, Europe's biggest economy is beginning to feel the benefit of reforms, particularly to its financial system.

The other force is a gush of private-equity finance, much of it originating in America and landing in Europe. This started only a few years ago, but already private-equity and venture capital invested in Europe totals €173 billion ($225 billion) and is growing by leaps and bounds.

Donald Gogel, the boss of Clayton, Dubilier & Rice, an American private-equity firm, sums up the benefits: better governance; a more stable shareholder base; upgraded management talent; higher expectations; and a sense of urgency. Private equity gives the owners of the business direct control over its performance. If managers succeed, they earn a lot of money. If they fail to perform, they are replaced. Americans have known all this for a while, but Europeans are learning it fast.

Howard Read

Feb 8th 2007 From The Economist print edition

Read again to do the assignments that follow.

II. Vocabulary.

2.1. Give Russian equivalents for the following terms and expressions all found in the article above.

An average growth rate; sluggish performance; rigid labour laws; strong unions; redundant workers; product markets; protection from foreign takeovers; to provide more competition for the traditional west European manufacturers; a difficult political, social and economic environment; a management consultancy; oil mergers; private-equity finance.

2.2. Give English equivalents (all found in the text above) for the following Russian terms.

Реструктуризация; операции за рубежом; венчурный капитал; неизменно высокий уровень безработицы; импорт из Южной Кореи; нанимать новых работников; рабочая сила; корпоративное управление; структурные изменения; миноритарные акционеры; заседать в совете директоров; оживление европейского бизнеса.

2.3. In the text, find terms corresponding to the following definitions.

a) the way in which companies are managed and organised, ensuring in particular that the interests of shareholders are given sufficient weight;

b) any form of income;

c) for a single transaction, the excess of the selling price of the article or service being sold over the costs of providing it;

d) capital invested in a project in which there is a substantial element of risk, especially money invested in a new venture or an expanding business in exchange for shares in the business;

e) an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.