Sunday, October 23, 2016

America vs. Europe on economic scale

On an interview on Bloomberg radio last week, a European finance commentator made an interesting observation about why US companies often outdo European companies when it comes to gaining global scale in industries (economic scale = serving a larger market so that costs per unit are reduced). He noted that in the US there is a massive single market naturally, because it is a huge country with one economic system, one currency, one language, one mail system, etc. So it is natural for many US companies to seek large scale, because they are already part of a huge market right there waiting for them. Because they are accustomed to seeking massive scale, US companies then have an advantage in transitioning to global markets, where the scale gets only more massive. By contrast, European companies often serve a smaller scale, which does not always lend itself to shifting to global scale as easily. But the commentator was clear he thought it could be done. Another factor is that many European countries have extensive longstanding ties to other regions of the world left over from the colonial era, like French and British ties to Africa and Asia, Spain's ties to Latin America, and Dutch ties to South Africa. Having said that, many European companies already have global scale. One example is Carrefour, the French supermarket found in 30 countries. Among many other examples are BMW, Aldi, Saab, Electrolux, Bosch, Siemens.

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