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A review of European business integration: does European business exist?
Subject:
Business enterprises (Economic aspects)
Convergence (Social sciences) (Analysis)
Authors:
Dahan, Nicolas M.
Frech, William J.
Pub Date:
12/01/2008
Publication:
Name: International Journal of Business Research Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2008 International Academy of Business and Economics ISSN: 1555-1296
Issue:
Date: Dec, 2008 Source Volume: 8 Source Issue: 5
Product:
Product Code: 9912200 Venture Analysis
Geographic:
Geographic Code: 4E Europe

Accession Number:
190617007
Full Text:
ABSTRACT

This paper poses the question of the existence and extent of "European business". This notion can be characterized along four dimensions. First, European business can be viewed as a homogeneous business environment (specifically, a regulatory framework and integrated consumer markets). Second, European business also corresponds to a certain type of firms: firms with a regional scale of operations, conducive to paneuropean standardization of corporate policies and practices. Through a review of existing empirical data along these main dimensions, our ultimate assessment is that "European business" does exist but is not as widespread as held by popular belief.

Keywords: European business; European integration; Europeanization; Economic convergence;

Single Market

1. INTRODUCTION: WHAT EUROPEAN BUSINESS AND EUROPEAN BUSINESS INTEGRATION MEAN

With 495 million citizens in its 27 countries (EU27), a GDP of $14.5tn (2006), a Single Market achieved as early as 1993, and a common currency already used by 15 of its members, it seems that the European Union has successfully achieved its economic integration. Furthermore, with multinational enterprises such as Total, Allianz, Volkswagen, Siemens, Axa or Carrefour headquartered in the region and whose operations encompass most of the EU27 countries, it is not surprising that the expression 'European business' has become familiar. In fact, the notion has become so widespread that CNBC publishes a monthly magazine with this title, and many universities offer 'European Business' courses, if not entire degrees, supported by numerous specialized textbooks (Bennett, 1997; Harris, 1999; Johnson and Turner, 2006; Mercado, Welford and Prescott, 2001).

It thus looks as if journalists, academia and the business community take for granted that European business exists and is significant. But is it really? When looking at the international business literature, there is some misunderstanding in the definitions of European business, as several authors confuse European business with doing business in Europe. Besides, European business implies a regionalization of the business environment and corporate operations in Europe, relative to such alternatives as a local, national or global scope. We can report a multitude of mixed results in this regard, painting a much more complex picture that initially assumed. This is why we feel the matter far from settled, and in need of a thorough discussion.

First, it must be noted that the expression itself remains unclear. Harris (1999) and Mercado et al. (2001) simply define European business as any firm doing business in Europe, ranging from a local bakery in France to Microsoft having operations in Europe. We feel that this definition is much too broad as it does not allow to distinguish between firms whose scope of operations and markets are purely national (or even sub-national, such as the French bakery) or global (such as IBM or Microsoft) and firms whose focus is truly paneuropean. These authors confuse firms doing business in Europe with firms truly engaged in business on a regional scale, whose operations and customers are located in multiple countries within Europe. In other words, what makes a business European (rather than say, global or German) is that its market scope and scale of operations extend beyond more than one European nation, while remaining dominantly focused on European countries, rather than spanning across other continents as well.

Going beyond this more precise definition of European business, the notion can be characterized along four dimensions. First, European business can correspond to a homogenous business environment, consisting of a level playing field based on common rules and standards, as well as homogeneous markets made of consumers with similar demand. Second, European business should also refer to firms with a regional scale of operations, leading to a high level of paneuropean standardization. Thus, on one hand, European business can be viewed as a business environment (market dimensions) or as a type of firm (firm dimensions). On the other hand, European business can also be seen in terms of an end result, namely, firms having internationalized to the point of conducting business with a regional focus (activities occur at the paneuropean level rather than at the national or global levels), as well as in terms of an ongoing process of homogenization of markets and business operations. These four dimensions can provide a comprehensive picture of the notion. This view is captured in table 1.

Based on this characterization, it remains to be seen whether European business is actually the exception or the norm in Europe. In other words, has the business environment in Europe become integrated enough, have European customer demands converged enough, do most European firms operate on a paneuropean basis in a standardized manner, in order to warrant the use of the expression European business? Or is it an overstatement, an illusion which many have hastily adopted but remains mostly void of any sense?

Whether European business exists or not raises the central issue of the extent of European integration, in this particular case in terms of two economic aspects: European business integration (that is, the internationalization of operations at the level of a paneuropean market) as well as European corporate integration (at the level of the individual firm, standardizing its operations and policies across European countries). In the rest of the article, we will answer the question of the existence and extent of European business by reviewing the four aforementioned aspects of the concept, summarized in table 1 above.

2. EUROPEAN BUSINESS AS A BUSINESS ENVIRONMENT

We start with the broader perspective of markets and whether they have reached a substantial level of unification through the process of European integration driven by the European Union. When it comes to a market, one can look at it from a regulatory standpoint as the business environment in which a firm is immersed, or as a venue for the interaction between suppliers and customers. This is why we will first discuss the development of the Single Market as an initiative aiming at leveling the business environment of European firms, then address the extent of convergence of national economies, their industries and consumers across Europe, in order to decide whether integrated European markets exist.

2.1 Leveling the Playing Field: A Review of the Single Market

While the goal of achieving the "four freedoms" (namely, free movement of goods, services, capital and persons) was stated in the Treaty of Rome as early as 1957, it has taken almost thirty years to gain enough momentum to see significant progress. Under Jacques Delors' presidencies (1985-1994), the veto power of individual member states in this policy area was removed and the Single European Act (effective in 1987) laid out a clear roadmap to achieve the Single Market by 1993. The intent of the four freedoms was to go beyond free trade, which typically involves only goods and services, in order to include all production factors. The economic rationale was that this policy would enable the most efficient allocation of resources across countries, maximizing wealth creation. In terms of the Single Market implementation, having already abolished tariff barriers by 1968, the focus has been on eliminating non-tariff barriers to trade (such as differing national product or safety standards), maintaining fair competition (through market liberalization, deregulation, anti-trust policies), as well as eliminating restrictions to cross-border investments, citizen residency and work. Officially, the Single Market was enacted on time, in 1993, and ten years later the European Commission loudly trumpeted the reaped benefits: "The Commission estimates that the Internal Market has delivered 2.5 million extra jobs and nearly 900 billion [euro] in extra wealth" (European Commission, 2003, p. 3). However, even fifteen years later, the European Commission still has an ongoing Single Market agenda, as evidenced by numerous new EU directives targeted at furthering the Internal Market every year, as well as the need to have a long-term Internal Market strategy (European Commission, 2003). The European Commission also conducts regular surveys of the internal market implementation: the annual "Internal Market Scoreboard" which monitors the speed of national transposition of EU directives, and uses its coercion power by sanctioning member states for incorrect transposition or incorrect application of Internal Market rules (European Commission, 2007). Overall, the picture presented by the European Commission is indeed a positive one: the deficit in EU directive transposition has been significantly reduced, showing that national governments have made recent efforts to deflate the backlog. There are, however, a fairly high number of infringement cases of EU regulations pursued every year by the European Commission against country-members, ranging from Estonia (11 cases) to worst-offender Italy, with 161 cases in 2006 (opt. cit.).

All these transposition delays and infringement cases point out to the fact that the process is rarely smooth, and that there has always been a fair amount of foot-dragging on the part of member states. As a careful review of each of the "four freedoms" will show, the Single Market still faces some significant gaps today.

2.1.1 Free movement of goods in the EU. This is by far the area where the most progress can be reported. As far as tariff-barriers to trade are concerned, internal tariff have been fully abolished throughout the European Economic Area, which currently includes thirty countries, and for each product category a Common Customs Tariff is applied on imports from the rest of the world. As far as non-tariff barriers to trade are concerned, the picture is more mixed. On the plus side, red tape has been significantly reduced: "Before the frontiers came down, the tax system alone required 60 million customs clearance documents annually: these are no longer needed" (European Commission, 2002). However, we have experienced a long history of differing national standards which have obstructed the trade of goods within the EU. In the sixties, the initial approach to solving this issue was to negotiate product by product (also known as "vertical approach"), in order to harmonize each product standard. This was achieved for products such as fruit juices, butter or jam. In the seventies, however, the European Commission started to move away from this vertical approach, as harmonization negotiations were taking too long. The alternative solution to product standard harmonization has been "mutual recognition", also referred to as "Cassis de Dijon principle" due to the landmark decision by the European Court of Justice in 1979, based upon articles 28 to 30 of the EC Treaty that prohibit protectionist measures among member states. Mutual recognition mandates that all member states (as well as EEA countries and Turkey) recognize as acceptable imports products manufactured in another country as long as these products are in compliance with the national standards of the manufacturing country, even if those standards differ from those of the destination country. This second solution has become the most popular one as it has saved a lot of time in avoiding protracted negotiations to harmonize standards. However, the end result is that, while trade is greatly facilitated within the EEA, there is limited harmonization of national standards. Rather than reducing national differences, they simply have become officially tolerated (de Witte, Hanf and Vos, 2001). This is hardly the same as fully integrated product markets where single paneuropean product standards would be enforced. It means that little convergence in national product policies can be reported (Dimitrova and Steunenberg, 2000). Harmonization has been limited to a small subset of goods, such as pharmaceutical or construction products. Mostly obscure and highly technical, they were usually picked because of their higher health and safety risks than the non-harmonized ones. Other than this small minority of products, the only areas were some policy convergence has really occurred include safety, environmental and labeling standards (for examples, toy safety, catalytic converters for car exhaust pipes, eco-labels, GMO labeling).

2.1.2 Free movement of services in the EU. Although the liberalization of service markets is included in the EC treaty (articles 59 to 66), and came into effect as early as 1970, national obstacles have remained substantial until 2006. In this regard, the European Commission's own assessment was sobering: "There is no genuine Internal Market for services yet" (European Commission, 2004a, p. 10). Although the services directive was a key Internal Market strategy priority of the European Commission for 2003, it took many more years to enact it, due to strong resistance from public opinion and governments in some of the former EU15 countries. One of the most controversial and publicized provisions covered the wage and working conditions of temporary service workers posted in another EU country by their employer (Menz, 2005). For example, could Portuguese or Polish construction workers be employed in Germany and be paid well below the German minimum wage because they signed their labor contract in their country of origin? The final compromise adopted in 2006 (directive 2006/123/EC) is less ambitious than what the European Commission envisioned initially. In particular, it decided to uphold the "country of destination" principle established by the Posting-of-Workers Directive (Directive 96/71/EC), rather than introducing a highly contested "country of origin" principle in employment conditions of posted workers (Minder and Parker, 2005).

Additionally, market liberalization has been very selective in services (Smith, 2001), as specific areas such as financial services, network-based services remain an eyesore. We now address briefly these issues.

The pace of integration has been slower for financial services (including banking, insurance and securities): "Financial markets in the EU could and should be more integrated" (European Commission, 2004a, p. 11). In particular, some protectionist measures still restrict the freedom of provision for financial services. The European Commission also issues an annual "Financial Integration Monitor" (FIM) report to assess progress. So far, the conclusion has been that financial services are less integrated than most other markets, and European banks remain domestically focused (this point is also confirmed by Centeno and Mello, 1999; as well as Dahl et al., In Press). Network-based services include energy, transport, telecommunications and postal services. In all these sectors, the transition from state monopolies and a highly regulated and constrained business environment to privatization and deregulation has been very slow, due in no small part to an intense lobbying of change resistance from the former national monopoly firms (see Schumann and Widmaier, 2004, for a lobbying example in the electricity sector). The British Department of Trade and Industry recently commissioned an economic study of European network industries. The study calculated Market Opening Indexes as of 2006, showing that while market opening was 84% achieved in the air transport industry, electricity and telecoms were in the mid-seventies and postal services were only 57% open to competition (Copenhagen Economics, 2007). One of the conclusions was that full opening of the six markets included in the study could lead to up to 350,000 job creations across Europe and an EU GDP increase of 1.7% (opt. cit.).

2.1.3 Free movement of capital. As discussed in the case of goods, removal of barriers to circulation does not imply necessarily convergence of national markets. This has been observed regarding financial markets by Guiso et al.: "While free capital mobility has been a reality in the EU since the late 1980s, financial market segmentation has persisted, due to exchange rate risk until EMU in 1999 and even after that date due to different regulations and institutions across the EU." (2004, p. 526). In fact, these authors report huge differences in terms of financial market characteristics across Europe, as described by indicators such as the level of stock market capitalization or the extent of lending (measured by the claims to GDP ratio). Notwithstanding these enduring national differences, with the creation of the European Central Bank and the historical introduction of the Euro, at least bond markets became fully integrated at the end of the nineties. Furthermore, European stock markets have also become much more integrated, through EU initiatives as well as private initiatives such as the mergers of the Paris, Brussels, Amsterdam stock markets (Euronext), and the development of paneuropean financial products (such as the EURO STOXX index). This has led Hardouvelis et al. to conclude: "We find that, in the second half of the 1990s, ... individual Eurozone country stock markets appear to be fully integrated into the EU market" (2006, p. 367). This process is however limited to Eurozone countries. These authors did not find stock market integration as far the United Kingdom is concerned.

2.1.4 Free movement of people. While the free movement of EU citizens is fully achieved, and restrictions to residency in another EU country are very limited, the free movement of workers is still a sore point. Even between EU15 countries, numerous cases of discriminatory regulations against workers or businesses trying to establish an operation in another member state had to be investigated by the European Commission and brought before the European Court of Justice in the eighties and nineties. Most often, member states were accused of preventing the establishment of service businesses (such as audit or healthcare) or the movement of foreign workers by not recognizing their diplomas, professional qualifications or licenses. Significant progress has been made toward mutual recognition of professional qualifications in most occupations (e.g, accounting, architecture, medicine, nursing, pharmacy). After a "vertical approach" (that is, occupation by occupation) in the seventies and eighties, the European Commission switched to a horizontal approach with the landmark 89/48/EC directive in 1989, creating a "general system" which requires that qualifications from other states must be recognized, as long as common minimal requirements are met by these member states. All regulations adopted in the last forty years in this regard were recently consolidated into a directive (2005/36/EC) which came into effect on 20 October 2007. Another contributing factor to free movement of workers is the recent harmonization of higher education degrees toward a common model of Bachelor's degree in three years after high school, Master's degree in five years, and Doctorate in eight years. This initiative was launched with the Sorbonne declaration in 1998 and pursued through the Bologna process (1999 to 2010).

However, the free mobility of workers is limited to the EU15 countries so far, as the citizens from the twelve countries that joined since 2004, plus two in 2007, do not currently enjoy the privilege of free movement. This temporary restriction is meant as a transitory measure until May 1, 2011 in order to avoid massive immigration from poorer state members to richer ones (Euractiv, 2007). In conclusion to this section, our review of the evidence points to the fact that if achievements have been significant in the late eighties and early nineties, the pace of progress has decreased as the European Union stumbled upon the hardest pockets of resistance (Nienhaus and Busche, 2003). As put by the British Department of Trade and Industry, "twenty years after the initial launch of the Single Market, progress is slowing" (DTI, 2007).

To be fair, even if the pace of integration is much slower than between 1987 and 1993, some longstanding issues have been recently resolved, such as the adoption of a Services Directive, the creation of a European Company statute (effective in 2004) or the gradual liberalization of network industries. It must also be noted that a goal of 100% completion of the Single Market will never be achieved even if all member states were willing to always comply immediately with all EU decisions. This is due to the emergence of new industries in need of regulation, the constant evolution of technologies, the changing social and environmental expectations of EU citizens and politicians. EU Internal Market policies will therefore be constantly in need of updates (European Commission, 2002; Heinemann, 2003).

This assessment leaves the impression of a half-full / half-empty glass. To put these achievements in perspective, one has to remember that there are two possible processes of legal integration at the EU-level, namely "positive" and "negative integrations" (Scharpf, 1998). Negative integration means that the aim of the EU law is to eliminate cross-country discriminations. The mutual recognition principle would be an example of negative integration. Positive integration refers to the development of common rules (either through harmonization of existing national provisions, or creation of common rules from scratch). As far as the four freedoms are concerned, negative integration has been the norm, and positive integration the exception (Majone, 2005). This means that what has been achieved is mainly an elimination of most discriminatory measures which were preventing intra-EU trade, rather than a real convergence toward paneuropean norms.

Regardless of the kind of legal integration achieved, has this process resulted in the convergence of national economies and integration of European markets? We will address this question in the next section.

2.2 The Extent of Economic Convergence and Market Integration Across Europe

We will discuss this issue by looking at convergence at the macroeconomic level, then integration at the market level, and last, we will ask whether firms in Europe face a "European customer". If convergence has occurred it should be demonstrated by key characteristics at the national level becoming more similar. At the macroeconomic level, this could mean more similar rates of economic growth, inflation and interest rates, income growth, etc. At the industry level, this could be seen with convergence in prices and product ranges. At the consumer level, this would imply more similarity in tastes, needs, purchasing and consuming behaviors. Is this the case?

2.2.1 Economic convergence of national economies in Europe. At the macroeconomic level, whether national economies across the EU are converging is the subject of much economic debate. Nobody disputes the "nominal convergence" imposed by the Maastricht criteria for joining the Eurozone: they have imposed a monetary and budgetary discipline which have had lasting effects on public deficits, interest rates and ultimately inflation as well as growth rates. There may also be a "real convergence" of European economies, that is, an increased synchronization in business cycles across European countries. Artis and Zhang (1999) found convergence toward the German business cycle in ERM countries (i.e., countries that were preparing to adopt the Euro as their currency). Ormerod and Mounfield (2002), Bergman (2004) as well as Artis et al. (2004) confirmed the higher synchronization of economic cycles, including for the time period after the introduction of the Euro (it is worth noting that in these studies the United Kingdom were found to be outside this convergence pattern). However, these results are strongly challenged by Camacho et al. (2006) who found no basis for the "European business cycle" hypothesis, and thus no evidence of convergence of national economies. Furthermore, at a more systemic level, authors of the "varieties of capitalism" (Cernat, 2006; Hall and Soskice, 2001) and national "business systems" (Whitley, 1992 and 1999) approaches stress the resilience of national differences in socio-economic systems. Because of diverse resource endowments, historical legacies such as past policy decisions, and stable cultural differences, each country has developed different governance and regulation mechanisms which are unlikely to change quickly and converge. In this view, even if the economic outlook may become more similar across European countries, the fundamental macroeconomic (as well as social and political) characteristics of each country should remain highly disparate.

2.2.2 The European integration of national industries. One clear common effect of the Single Market has been to open national markets to more competition, forcing each industry to improve its efficiency. Ultimately, this contributed to significant economic gains in each member state, particularly in the smaller states where competition was more limited prior to the Single Market (Allen et al., 1998). How much industry convergence can be reported? If national markets across Europe were integrating into Single markets, several researchers have argued that this should be noticeable in price convergence for each industry. The reasoning is that in a unified market where national barriers are put down, free trade should drive prices closer, particularly if a common currency is used. In this regard, the European Commission reports little further price convergence since 1996 overall: "price convergence in the EU has stalled" (European Commission, 2004a, p. 6). Engel and Rogers (2004) confirmed this pattern of initial price convergence in the early nineties, and no further price convergence since the introduction of the Euro in Eurozone countries. At the industry level, the European Commission noted that prices are particularly inflexible in services (European Commission, 2006c). Thus, market integration as measured by price convergence is not a clear trend. It depends greatly on the industry and has not necessarily increased in recent years.

2.2.3 Is there a convergence in demand? The elusive "European customer". Free movement of EU citizens as well as access to goods and services from the rest of the EU could be expected to contribute to convergence in national cultures and customer behavior. Whether the expectation has been fulfilled remains unsettled. Leeflang and van Raaij (2000) conducted a meta-analysis of existing empirical studies and concluded that there has been some convergence in consumer behavior across Europe, toward characteristics such as environmental and health concerns, a greying population as well as smaller household sizes. Ganesh (1998) also found consumer segments with similar behaviors across European countries, enabling certain firms to target homogeneous segments by using a standardized marketing approach. This led both Ganesh (1998) as well as Leeflang and van Raaij (2000) to boldly state that standardized Euromarketing was the name of the game. On the other hand, while De Mooij (2003) as well as De Mooij and Hofstede (2002) do not dispute that there may be convergence in certain consumer characteristics (such as technology access, median age, income), however, these authors challenge the fact that they lead to more similar consumer behaviors. In fact, De Mooij's study of European consumers concluded that divergence, not convergence, of consumer behavior was prevalent (2003, p. 184). According to De Mooij as well as De Mooij and Hofstede (2002), the main reason for this divergence is that national value systems do not converge over time and greatly influence consumer behaviors. In other words, the stability of national cultures is the main determinant of consumer behaviors. Boddewyn and Grosse (1995), as well as Diamantopoulos et al. (1995) also expressed strong doubts over the convergence of consumer behaviors in Europe.

In conclusion to this section about the level of completion of the Single Market and its impact in terms of economic integration of EU state members, it seems that the reality is more complex than the 'European business' gospel would have us believe. Being the largest free-trade zone in the world, with free mobility of production factors and a single currency is only part of the story. The Single Market is far from being complete, and the Euro is only used by a small majority of EU state members so far. Besides, even if the business playing field was perfectly level, there is no guarantee that it would translate into economic convergence. Each member state possess resilient characteristics leading to fairly stable and diverse national business systems as well as customer behaviors. Having discussed European business as a legal and economic environment for conducting business, we now turn to European business as a type of firms in order to assess their existence and extent.

3. EUROPEAN BUSINESS AS A TYPE OF FIRMS

At the firm level, the question becomes whether firms located in Europe increasingly operate with a paneuropean scale, and if so, whether they have integrated their operations and business policies in a standardized manner across Europe. If this is the dominant pattern, these firms form a 'European business' community, that is, a category of firms regionally focused on Europe.

3.1 The Scale of Operations of European Firms

The first part of the question fits into the debate over the scale of Multinational Enterprises and their businesses. Ohmae (1985, 1995) makes a case for the rising relevance of the regional level as trading blocks strengthen across the world, becoming the point of reference for many multinationals. This is confirmed by Rugman (2003, 2005) who uses an in-depth study of the top 500 multinationals worldwide to show that most (84%) multinationals are "home-region oriented", that is, the majority of their sales are intra-regional in the same region as their headquarters, while only a small percentage of the top multinationals is bi-regional (6.6%) or truly global (2.4%). Davies et al. (2001) confirm and complement Rugman's findings regarding large multinationals. These authors showed that "intra-EU multinationality" (that is, cross-border production within the EU) had increased between 1987 and 1993. In other words, the scale of production of the largest manufacturing companies in Europe has extended beyond national borders within Europe. While the argument is compelling, both these surveys focus on a few hundred largest firms, which is hardly the whole corporate picture within Europe. Whitley and Kristensen (1995) argue that most European firms remain nationally embedded, and that firms with a paneuropean scope are the exception, not the rule. Additional evidence that European firms have seized the opportunity of the Single Market to expand the scale of their operations beyond their domestic market into the rest of Europe can be found partly in the number of cross-border M&As in Europe. Indeed, increasingly more cross-country merger cases have been notified by the European Commission's DG Competition in the period 1993 to 2007 (from one case to 389 cases, respectively). In his study, Bjorvatn observed an "increase in cross-border mergers in a world of more integrated economies" (2003, p. 1211). More precisely, according to Martynova and Renneboog (2006), 87,804 M&A deals were recorded for Europe during 1993-2001, compared to only 9,958 such transactions during the previous major M&A wave (1983-89 period). In monetary terms, the total value added up to US$ 5.6 trillion for the most recent period, more than eight times the combined total of the previous period.

There is thus ground to say that a significant number of European firms have expanded the scale of their operations across borders and within Europe, taking advantage of the Single Market. However, we cannot say with certainty whether only the largest multinationals have developed a regional scale, nor to which extent European multinationals' scale of operations have become truly paneuropean or merely 'multi-national' (i.e, a few countries in Europe rather than the entire region). Having established that the scale of operations has expanded across Europe at least for some firms, it remains to be seen whether these firms also reorganized their operations and business policies in a more standardized manner.

3.2 The Extent of Corporate European Integration

The process of standardization of business operations and policies across countries is called "corporate integration" by Dunning and Robson, and defined as "the international integration of activities by and within multinational enterprises" (1987, p. 103). The rationale is that by standardizing operations, several benefits can be expected: redundant expenses can be eliminated, scale economies can be increased, consistent policies can be maintained and best practices can be transferred across countries. All these gains should lead to significant cost savings.

Various authors have considered the potential for European corporate integration of different functional activities. Cantwell (1987) illustrated in the pharmaceutical and car engine industries how location choices for R&D activities could be rationalized within a free-trade zone (the Single Market was not achieved yet). Millington and Bayliss (1996) looked at production integration at the European level. They stressed that firms had an incentive to integrate production only in industries characterized by high scale economies, low transportation costs as well as low national barriers to entry. If these conditions are not met, cross-border production integration is unlikely. This implies that not all industries should be expected to become highly integrated in this regard, even if the Single Market framework were fully achieved.

As far as human resource management and labor relations are concerned, authors appear extremely dubious of the possibility of a standardized paneuropean approach. Four years after the start of the Single Market, Sparrow and Hiltrop could not find a single European pattern of HRM (1997, p. 201). Likewise, Claus (2003) found more differences than similarities in HRM practices across European countries, and Brewster et al. (2004) found very mixed results, pointing to a limited convergence between 1990 and 1998, and forecasting divergence beyond 2000. Segalla et al. concluded that "integrating systems of employee management in Europe will be difficult but not impossible" (2000, p. 38), the difficulties being due to cultural differences according to these authors.

In advertising, Harris (1994) reported an increasing pressure to standardize across Europe, but also few firms having achieved full standardization. Okazaki et al. (2007) found that firms which perceive a convergence in their European business environment are more likely to integrate their advertising activities, as they seek to build a paneuropean brand identity. An example of this strategy would be Unilever. They note however that this is far from being a universal trend.

If a process of European corporate integration is at play, the next question is whether this process is leading ultimately to a convergence of operations and business practices in Europe toward what could be a common European corporate model. Djelic (2001) as well as Geppert et al. (2002) strongly dispute this notion. In line with the "varieties of capitalism" (Cernat, 2006; Hall and Soskice, 2001) and national "business systems" (Whitley, 1992 and 1999) approaches, these authors stress the historical legacies, national cultural differences leading to diverse national trajectories. They argue that even if all European countries and firms have been exposed to the influence of the American corporate model (and to cross-border influence within Europe, according to Geppert et al. (2002), the national-level response has been quite different in each country because of the specific national contexts. This point is also stressed by Whitley and Kristensen (1995), as well as Brewster, Mayrhofer and Morley (2004, p. 421), who distinguish between "directional convergence" (where countries head in the same direction, regardless of whether the starting and final points are different) and "final convergence" (where countries ultimately reach a closer position regarding a variable). This distinction is important because due to national boundedness and specific national trajectories, "final" business convergence is less likely than "directional" business convergence. The respective extent of final and directional convergences remains

to be discussed, as the majority opinion of limited final convergence across Europe has been challenged by recent empirical surveys such as Albert-Roulhac and Breen (2005) who found a clear greater (final) convergence among European firms' corporate governance practices since the start of their annual survey in 2001.

4. CONCLUSION: EUROPEAN BUSINESS INTEGRATION OR BUSINESS EUROPEANIZATION?

In conclusion to this review of existing research and data on European business integration, we can report mixed results. While significant legal integration has been achieved, it has mostly been of the "negative" kind (that is, elimination of national discriminations) rather than "positive" (harmonization of policies). This implies limited policy convergence across Europe. Furthermore, the Single Market is far from being completed yet.

On the plus side, we have witnessed some convergence of national economies, in terms of the synchronization of business cycles. However, price convergence has been limited, and national consumer demands have not converged much. Thus at the macro-level, while significant integration has occurred, viewing European economies and markets as fully integrated would be oversimplified. At the firm level, through the expansion of intra-EU trade and cross-border Foreign Direct Investment (including Mergers and Acquisitions), there is a trend of European corporate integration. However, this trend is highly industry dependent, and even large European multinationals remain embedded in their national context, leading to the fact that wide differences in management styles, business policies and organization of operations still exist.

These points lead us to conclude that European business as a specific business environment is not a reality for all firms in Europe. It very much depends on the industry (see the variety of integration levels reported by numerous empirical studies: Dahl et al., In Press; Matraves, 2002; Smith and Mitry, 2007, Timur et al., 2007), and factors such as the extent of scale economies, convergence in customer demand, transportation costs. Furthermore, European business as a type of firms is clearly a small subset of firms doing business in Europe. Mistaking one for the other (as Harris, 1999, as well as Mercado et al., 2001, did) would a gross oversimplification. Thus, our assessment is that "European business" does exist but is not as widespread as held by popular belief.

A first practical implication of this article is that non-European managers who tend to view the European region as a whole would be well-advised to reconsider, as significant differences persist, both at the national and at the industry levels.

A second practical implication pertains to European integration as a roadmap for economic integration, since many observers and other economic groupings (e.g., ASEAN) view the Single Market as an inspirational success story. Our review draws a sobering and more realistic picture which can serve both as a word of caution as well as to foresee some potential stumbling-blocks for countries attempting to further economic integration.

A theoretical implication of our discussion of the notion of European business could be the introduction of a new concept. As we reported mixed results both at the macro- and industry- levels, it appears that the national context has a critical moderating effect on the European integration trend. As national responses to this push are different, domestic environments, markets and consumers across Europe do not necessarily converge. This notion has been recently stressed by research in political science as far as public policy convergence across Europe is concerned. These authors stressed that EU policies did not always lead to national convergence because of different national-level responses, such as resistance, accommodation, compliance (Featherstone and Radaelli, 2003; Howell, 2004; Ladrech, 1994). This process has been coined "Europeanization" by Ladrech (1994), in order to distinguish it from the traditional European integration concept. As far as business and corporate integrations are concerned, this approach could be quite relevant: rather than limiting the discussion to whether European business integration and European corporate integration exist, we should also concern ourselves with their effect, as they may differ country by country. Therefore, just as political scientists distinguish European political integration (an EU level process) from (policy) Europeanization (a national level process), international business scholars would do well to distinguish European business and corporate integrations on one hand, from "business Europeanization" on the other hand. This new concept would enable us to move beyond the myth of integrated European markets necessarily leading to the convergence of national economies, markets and firm operations. It would help us to understand why business integration does not always lead to business convergence.

In closing, based on this review, areas for future research are clear: we need to move beyond anecdotic evidence (such as empirical studies of single industries) and surveys of limited scope (such as the top 300 multinationals in Europe) in order to get a broader picture of the extent of European business integration. An assessment of the relative achievement of negative versus positive integration as well as directional versus final convergence would also be useful. We also need further exploration of corporate-level integration: which activities have been standardized? Why these activities and not others? How has the integration process been managed? Last, we should not limit our investigations to the paneuropean level of economic integration. We should also look at its various effects at the national levels, in order to explore the notion of "business Europeanization", that is, national-level responses to economic integration. Thus there is much we still do not know about European business.

ACKNOWLEDGEMENT:

The authors would like to gratefully acknowledge the financial support of an Anisfield Research Fellowship grant, from the Anisfield School of Business, Ramapo College of NJ.

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Nicolas M. Dahan, Long Island University--CW Post, College of Management, Brookville, NY, USA

William J. Frech, Ramapo College of NJ, Anisfield School of Business, Mahwah, NJ, USA

Dr. Nicolas M. Dahan, PhD, is an Assistant Professor of Management at Long Island University--CW Post. His research interests include European business as well as relations between business and government (in particular, EU-level lobbying).

Dr. William J. Frech, PhD, is a Full Professor of International Business and Marketing at Ramapo College of NJ, USA. His research interests include European business, cross-cultural management, and political risk management.
TABLE 1: THE FOUR DIMENSIONS OF THE 'EUROPEAN BUSINESS' CONCEPT

                                     Regional focus

European Business as a               Level playing field (including
business environment                 common standards,
(market dimensions [right arrow])    regulation) at the regional
                                     level

European Business as a type          Paneuropean scale of
of firm                              operations
(firm dimensions [right arrow])

                                     Homogenization process

European Business as a               Convergence of demand and
business environment                 consumer behaviors,
(market dimensions [right arrow])    integration of national
                                     industries

European Business as a type          Standardization of corporate
of firm                              policies and operations
(firm dimensions [right arrow])
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