Julian Vereker of Naim Audio, & Bernhard Steiner of Mission
This article appeared in The BAJ in April 1999.
When Europe comes calling should we throw open the door or draw the curtains and pretend we’re not at home? Malcolm Steward invited the opinions of Mission CEO, Dr Bernhard Steiner and Naim Audio’s Managing Director and founder, Julian Vereker MBE. Demonstrating this publication’s commitment to supporting local economies, the summit took place at The Journal’s closest watering-hole over non-harmonised, staunchly imperial, London-brewed beer.
Malcolm Steward: Bernhard, would you care to start by explaining why you feel it is vital for British companies to embrace Europe. Playing Devil’s advocate, I would say that as we have coped well for many years without full integration, why should things change now?
Dr Bernhard Steiner: I’m not certain you can say that. Nobody knows how much better you would have done had you had been properly open to Europe. I think that global markets are important for companies who want to survive today. As Europe is so close to Britain I think you should look at it as a local, open market and not an export market.
Julian Vereker MBE: I agree but I have reservations. I think that any market other than one’s home market is an export market because the cultures in different markets are markedly different. The global approach may be appropriate for multinational companies producing consumables – foodstuff or pharmaceuticals, say, which appear in large stores everywhere. However, when you come to specialised items that require special levels of communication in order to make their performance satisfactory in the customer’s home, you need people in those countries who are of those countries to stand between the manufacturer and the customer.
BS: I don’t disagree with that. Our particular industry, undoubtedly, is the strongest in terms of development, research and manufacturing in Britain. No other country in Europe has that kind of know-how. What we are doing is not just selling products but disseminating know-how into other countries. In my view, embracing Europe doesn’t mean giving up your culture, mentality or language. Europe should be seen as an economical community where it should be as easy to buy British products as any other without thinking that you have to import them first. However, those products should retain their British qualities and identities. I’m simply talking about making them available to all the countries in Europe without customs or the documentation that you still need to deal with to place, say, a British speaker in the shops in France or Germany.
JV: That’s fine. I don’t disagree but the price we have to pay for that is much, much tighter regulation. From the time that I started manufacturing and exporting to now, things haven’t become any quicker. In the ‘seventies, I could build a product in Salisbury, put it in the car, get a T2 and have it stamped by customs as I drove to Germany: the following afternoon it would be on sale in the store in Germany, paid for by the dealer in Deutchmarks, which I could bring home and change to sterling at the bank. Now it’s no quicker – apart from computerisation, which speeds the process slightly, and a slight reduction in paperwork.
But now, because we’re part of the EU and we have to define what the level playing field is, I have to obey those rules and regulations that define it. So, I have to comply by having a CE mark on the product. The cost of that alone prevents new companies from doing what others and I did back in the seventies: starting out in back-rooms or garages making one item, selling it and making another. Those companies didn’t begin with huge resources but it’s now not possible to start a company without them.
Nowadays one is immediately faced with tens of thousands of Pounds’ worth of testing in order to make sure one’s products comply. Our industry spent over £100,000 working with the people who set the standards and, because they are bureaucrats rather than hi-fi enthusiasts, their objectives are rather different. I think that reduces the size of the market for the consumer and hence the choice. It reduces the possibilities for young people starting off and getting into the market: the first step is too high.
There are all sorts of issues that demonstrate the absurdity of some of the regulations. For instance, I sat on a BREMA committee when we were doing work to put forward to the European directorate regarding safety. Some German standards relating to fire hazards with hi-fi and televisions were coming in, and they were absurd and restrictive. I said “This is crazy. How many people get hurt by these products because of their electrical safety or the temperature at which they operate compared with the number of people who are hurt by dropping them on their feet? We contacted the Department of Health who surveyed accident and emergency units and found that ninety-seven per cent of all the accidents involving such products were caused by people running into them. There were only rare occasions where a television had actually burnt a house down.
However, that sort of regulation has arrived and we live with it. It’s fine for Naim, and it’s fine for Mission, but it’s not fine for the start-up.
BS: If you now wish to sell in Europe you only need to obtain a CE mark rather than meet the requirements of a dozen different countries. I believe it is good that we should strive for globalisation, even if it is difficult in the beginning. The problem with globalisation is the civil servant-types charged with administering it.
I also firmly believe that if we can get rid of different currencies and, therefore, exchange rates, we’ll have a much greater opportunity to sell at equal terms in the different markets. I don’t know about Naim, but Mission has suffered over the last two years from the high exchange rate of the Pound against European currencies. We have lost business or margins because the Germans are not prepared to pay more for a British product just because the Pound has become more expensive.
Only recently, an exchange rate fluctuation made British products too expensive in Germany. That would not happen in a fully integrated Europe because it would not be allowed to happen.
JV: This is one area where I disagree with you entirely. The first issue is the effect on the business – and remember that we’ve watched this over twenty-five years because we have been exporting since day one. The last time this happened we put my theories into practice – that if a currency goes down in value it is quite likely because that country has gone into a recession. Therefore, in order to make its products competitive, or to make things happen so that it can increase its exports, the currency goes down; that makes its products more competitive, it sells more of them and slowly it earns its way out of recession. So, because the United Kingdom has been going along very well, its currency is high. We’re not starving here and we’re not failing to export things because there are countries in other parts of the world whose economies are also good. So Naim actually stabilised its prices in Germany all the way through the last increase in the value of the Pound. Our sales fell and we lost margin but we wanted to see what would happen. It was my view that it had nothing to do with price at all; it had only to do with the German market going into decline and it would come out of that in the end. Our sales went down by half through that period. The price stayed pretty much the same. In the United States, where the prices also stayed the same through that period, our sales went up by forty per cent. So this has much less to do with the values of the currencies and much more to do with what happening within those economies.
BS: In our case things were different. We did not react immediately on the exchange rate situation and lost a lot of sales in the beginning. Then we did the same as you, and recovered quite a lot of those sales but at the expense of margin. And we have to run a business that makes decent margins otherwise our shareholders become unhappy.
With regard to markets and market niches, if you are at the very high end, the price becomes less important than the quality of the product and other considerations. At Mission, we did not suffer with our high end products even when we maintained the prices, but we suffered a lot with the volume products, which needed to compete with locally manufactured products. Obviously, if you sell only into the specialised markets then the dealers and the margin will continue to support you because they are supporting your particular product and not just a product in a different price category. If you consider the volume market and the less specialised areas, though, retailers look for products at specific price points – a speaker, say, at 199, one at 299, and another at 399. If your 399 model jumps to 450 its place will be occupied by another manufacturer’s 399 model, and this is where you lose.
I’m not saying that companies should make less or more money: what I’m saying is that if you have, at least within the European Union, the ability to market on equal terms, where price sensitivity exists you will not suffer losses through a currency fluctuation, even during a recession. People buy products even during a recession. In the German recession the audio market didn’t suffer a fifty per cent drop. So if we as exporters from the United Kingdom lost fifty per cent of our sales, we lost much more than the market as a whole. I saw GfK figures that suggested that the market only dropped by fifteen per cent – it’s the difference between those figures that concerns me.
MS: Julian, would you opinions alter if you were operating in the same market sector as Mission?
JV: No. There are many other issues that enter into the equation at that point. In the United Kingdom we typically have high ‘high street’ prices: computers cost more, cars cost more, televisions cost more, food costs more. There are a lot of people who get very upset about that. But I say that it is a national characteristic. We are, as a nation, not too unhappy about paying those prices because, subconsciously, we recognise that the financial difference between the retail price of a product and the cost of the raw materials used in its manufacture, provides people with jobs. So we have near full employment here while the rest of Europe has two or three times the level of unemployment. The cost of this European notion of a high efficiency economy and cheap products is people’s jobs. This reinforces my argument that we face a very large difference in attitude between the cultures in Europe: different countries and cultures choose to spend their money in very different ways. And the difference is not subtle; it’s huge.
BS: We’re coming to very difficult ground here for two reasons. Number one: many people from England now buy their cars in Europe because they’re cheaper. What will happen is that rather than having an instantaneous adjustment to that situation there will be a slow shift towards it. Number two: you will not, Julian, be able to keep up that protection because the general public is not prepared to pay higher prices just to keep employment in Britain high. The car industry is one typical example where cars cost twenty to twenty-five per cent more here than in most European countries.
I have to say that I find it highly unfair to a population where the people who are able to travel can go to Belgium to buy their cars while those who don’t have that opportunity have to pay twenty-five per cent more. That is neither fair nor is it the correct way to run an economy.
JV: Yes, but you can get in your car and go to your local supermarket and buy milk for £0.22. If you have it delivered to your door it costs £0.37. You have to decide what you’re going to do. If you want to go to Belgium and deal with all the boring rigmarole of buying a car abroad then you can save a whole lot of money. Supposedly.
BS: But should it be the government’s job to tell you what you are and are not allowed to decide?
JV: Bernhard, you’re saying “shouldn’t” but the fact is that it is like that. For example, take the price thing. As you say, companies have to make a profit. We, for example, make the largest margin in the United Kingdom. If we had to sell everything at the price it sells at export we wouldn’t be in business. It’s the same for car makers – they have to make some money somewhere.
BS: Now comes the second, very interesting point . . . Your company, like mine, is running its own United Kingdom business: so if you treated things equally, you would have a United Kingdom distributor, give him a margin, and let him sell to dealers. But, because we are our own distributors we only take one level of margin and this is why we get a better margin for business in our home market. The future of our business in Europe, in my view, is selling “direct”, selling in such a way that there are not two margin levels – selling in a similar way to the way in which we sell to the retailers in the United Kingdom.
JV: That may work for big people but it doesn’t work for small companies. You actually have an irreducible size of unit to do the selling in a country. We go back to what I said before about language and dealing with people from the same culture: you can’t actually make a business less than one person. You have to have a market size of at least £500,000 in order to afford an office, a technician, sales and marketing resources. You need a local base: it can’t all happen from the main factory because in Europe we have zero mobility compared to the United States, for example. And everything about Europe works against being mobile.
BS: I know both our companies are doing reasonable business in Europe but I believe that the days of having fully structured and organised distributors in every one of your markets are over. Borders within Europe basically don’t exist – and products will travel anyway. Of course, the more specialised you are, the closer you are to your dealers and the more distant you are from the big retail groups. But if I sell to the Metro Group in Germany I’m not selling to Germany any more: I’m selling to Germany, Switzerland, Austria, Belgium, Holland, Spain, and Scandinavia because the Group has shops everywhere. It wants a global agreement with your company or it won’t sell your products. A national distributor will not be able to sell to it because the Group wants to see overall what business it is doing with you and to negotiate terms with you directly. So, if we as British companies want to do proper European business, we need to invoice in Euro – because this is what has been agreed – and we need to deliver whatever products the group buys to wherever it wants them to be.
Of course, when it comes to dealing with the habits, cultures and languages of the people in Europe, you need a certain amount of local input (especially in France, where you’re not allowed to use the English language). But it boils down to this: we as British companies would have more access to the European market if we were more a part of it and not selling into Europe from the outside
JV: I think that’s a recipe for what I would describe as trash triumphing. It makes for a bigger difference between the specialist items – the niche products – we’re both selling, and the global commodities. So it’s fine for those companies whose products turn up here in Dixons, Comet and Tesco, and in France in FNAC. It’s all very transparent and wonderful. But as the apparent price of those products decreases because of the size of the market, it makes our products appear much more expensive, which will squeeze them out or diminish the market. In fact, that’s already happening so this just makes it worse. If one believes that trash should triumph, so be it. But it’s not my view.
BS: It is not what I want either. Trash should not succeed.
JV: I’m sorry. I’m being slightly unkind but . . . it brings everything down to the lowest common denominator rather than taking the lead from the highest common factor.
BS: I think products need to be sold in the way they deserve. That means specialised products selling through specialised distribution, and volume products through volume distribution. Nobody wants specialised trades, especially ours, to go away.
MS: You both seem to agree that for a pan-global operation – Panasonic, Mitsubishi, General Motors or suchlike – Europe is fine and truly helpful. But when you slide down the ladder to a five, ten or twenty million Pound company it makes life more difficult.
JV: It makes it impossible for the sub-half-million Pound company because the cost of entry is too high.
BS: Let me be brutally aggressive and ask whether a sub-half-million Pound company should exist . . .
MS: You’re moving into dangerous territory here Bernhard . . .not everybody who starts a company has twenty million tucked away in his back pocket.
JV: A lot of people do . . .
BS: That’s right. And it’s much easier to raise start-up capital these days. But please don’t take my previous remark out of context. Does a half-million Pound company need to export or does it just sell to a market in which whatever it sells it can place anywhere? I believe that if the half-million Pound company has to have just one approval – and even if you’re selling into just the United Kingdom you need to fulfil safety requirements – . . .
JV: Forgive me interrupting but it’s the same now over the whole of Europe. When I started I was able to sell to the shop down the road having just made sure that the equipment complied with the standard, not even having had a test, which cost nothing. Now, because we’re part of Europe, there’s now this step. As you said, it may have happened anyway but, nevertheless, it is there. So the price of having this big market is more and more expensive legislation. The trouble is that the rules are becoming more complicated: it’s reaching the point where you can’t run a business on a small scale. I have other businesses that are as small as four people and as big as one hundred, and the four-person business – and the rules here are not as onerous as elsewhere in Europe – still requires a person to administer it, which it is too small to support.
BS: So you need to go to someone outside the business who can do that work – at a cost, of course.
JV: So, again, we see Europe reducing people’s choice.
BS: Now we’re becoming more global talking about employee protection and so on, which, of course, within the European environment is a collection of disparate legislation. A German employee, for instance, enjoys ten times better protection than an employee in the United Kingdom. The question is should that United Kingdom employee be better protected or not. The answer depends upon whom you ask: the employee will naturally say “Yes”, and the employer will say “No, not really.”
JV: This is interesting because I suggest it depends upon how the question is put to both parties. Some years ago we had been working flat out and our production director though it was a good idea to have overtime too. I, for many reasons, don’t like overtime and stopped it. At a subsequent meeting a woman stood up and objected to this. Now, it so happened that several members of her family also worked for me, so I said that it was a simple choice: if she continued working the number of hours she had been working I would no longer be able to employ her son, daughter-in-law or sister. There was a deathly hush because nobody on the factory floor had thought of it in those terms. Such decisions hitherto had been perceived as ‘them and us’, bosses and workers-type of decisions, when they are truly moral decisions that we should all be involved in making. It comes back to what I said earlier: in the United Kingdom, we tend to like it if everybody has a job. Efficiency is not so important.
BS: I agree and the efficiency might be the same if the employment laws here remain as they are. In Germany, for example – and I certainly don’t say that I agree with this – you could not employ extra people when demand increases and let them go when it drops. We try to avoid overtime at Mission, as you do, and we employ when production goes up and let go when production goes down to protect the existence of the company. No company today can afford to keep staff in employment when there is nothing for them to do. The era when you could put money aside in the fat days to cover overheads in periods of low sales is over. We are not making the margins to do that.
JV: I don’t agree. This is another discussion I have with my people at pay review time each year. I call it the comfort zone. Naim does not pay the highest wages – nothing like the highest the industry supports – and we explain this by saying that it gives us a choice. When business turns down for whatever reason, we don’t have to let anybody go. I don’t think we’ve let anyone go in the past twenty years. I prefer to sleep at night: I like knowing that we have sufficient resources to go on employing people for three or four or five months making things that we’re not selling. There are a whole lot of changes we’ve introduced in our methods of manufacturing that are geared not to losing or adding staff but to altering our output dramatically. We spent, for example, many hundred of thousands of Pounds on automatic assembly machinery. We can alter that department by a factor of eight to one with the same staff, which helps account for demand fluctuations. So when you say it’s not possible I can assure you that it is. We have variations of more than two to one between our busiest and least busy months, and coping with that does require a lot of money and resources – such as space to store products during the summer when things are quiet – but it’s not impossible. And one can say that from looking at the GfK figures; we’re obviously not doing too badly in the marketplace here or in the States or Europe or wherever, so even doing those things we are competitive. But it is a balancing act and everybody has a choice. If people want the big bucks that some companies pay they have to accept that they won’t necessarily enjoy the same sort of security.
BS: I’m thinking again about the sub-half-million Pound company we spoke of before – that kind of reserve is not there. Those companies will need to have to deal with day-to-day problems as they arise. Mission is, of course, a larger concern and we have in most situations been able to retain what we call our core staff. And one good thing about United Kingdom employment law is the availability of contract labour, which is often very helpful – so you can avoid the hire and fire situation.
The issue, though, is that balancing is the art of business – balancing your costs and cash and stocks in such a way that you can run a smooth and steady business – even when, as in hi-fi, you have one season in which you sell everything and a long period where very often you question whether the next season is ever going to arrive. Our business overall has not been very stable and, moving away from Europe now . . .
MS: I was about to ask whether Europe will help you to stabilise your business.
BS: Europe could help. If you have easy access to more markets you can spread the risk to your business. In the United Kingdom, and I’m sure it’s the same for Julian, if you have excess stock you can call up a few friends and ask if they can take it. If you have a distribution organisation where you need to cross borders and go for a quick fix or quick reaction to balance your business, the way we do things at the moment makes it very difficult. We have about 60 million people in the United Kingdom and a market over there that adds close to another 300 million. When you can spread your business over an area that’s five times wider it helps reduce the risk.
MS: Is that relevant to the hi-fi and home entertainment markets?
BS: It’s difficult to define the hi-fi market within the consumer market. All I can do is see it as a market and , it might be a stupid example but, if you ignore other considerations, the mechanical rules are the same whether you are selling potatoes or selling hi-fi. Hi-fi has much higher value and there’s emotion involved. It’s influenced by fashion and there’s an amount of perceived quality. It delivers a characteristic sound and it has a particular appearance. A potato is a potato. Some are harder than others; some mash more easily, but overall potatoes are easier to sell. When we discuss Europe being for big things and for small things, I think that if Europe is not open for the potato market, and in every country we have different potatoes with different qualities, then as a potato farmer I have two options: either I concentrate solely on my home market and try to fulfil its requirements, or if I want to get into potato selling in a big way I need to accept that there is no globalisation but that for every country – as it used to be – you have to adhere to special rules.
My family’s business is selling apples. Until six or seven years ago, the apples we sold to Germany had to have a certain diameter; those for the United Kingdom were completely different; and you couldn’t sell to France because they had their own apples and so on. Today, if you’re selling apples you give them to a global distribution organisation and they can be sold all over Europe.
MS: Don’t you find that farcical? This is one area where I have real doubts about Europe: do we want to involve ourselves with a community that seems to relish employing bureaucrats whose sole purpose is to measure, define, rationalise and pass legislation about a Granny Smith?
BS: Apples are apples until you get involved with the whole logistical chain of high volume distribution – with counting machines, packing machines, containers and prepared cases – and then they have to conform to standards.
MS: What happened to farmers simply taking their produce to the local market, putting them on a stall and selling them regardless of their imperfect dimensions?
BS: My family still does that with about a third of its produce but the local market is a limited market. We could not sell all our harvest within the local region because there simply are not enough customers. So, when you enter a global market you automatically have to accept norms and qualifications that tell you that this is the only way you can sell your apples.
MS: Surely you can export to other markets: Japan, for example, where there is little home-grown produce and your apples would command a premium price.
BS: Certainly: if it was easy to get in Japan, we would. However, what Europe has at least accepted is that they’re not protecting local industries or businesses any more. They’re saying “We are here. We’re open to everybody. The French are not closing their borders to Italian wine any more . . .”
JV: Except at certain times of the year.
BS: That’s not the government; it’s the drivers or farmers.
JV: Yes, but that’s what happens. I also have an interest in a bicycle company. Germany is the one company in Europe where we cannot send bicycles with European standard lighting. They have to have special, made-in-Germany lighting sets, and you can’t sell a bicycle in Germany without lights. You can everywhere else in Europe except in Germany. If you look at any individual microcosm the rules are exactly the same as they ever were. The open markets on the globe are open: the United States is truly open – you can sell anything there.
BS: As long as it passes FCC.
JV: You do not have to pass FCC, although there are certain states into which you can’t export unless you have EUL approval. You can’t supply something that doesn’t comply but you don’t have to have it tested. You have a mobility of how the whole economy ebbs and flows because it’s a same size market and people move around: any American you meet has lived in at least five different cities. In Europe it’s vary rare to find someone who has moved around as much. And that’s going to be one of the killers for Europe. If the currencies are locked together and there’s no mobility, the whole of Europe’s currency stability and social stability will be controlled from Brussels. In every other field of human endeavour there is a feedback mechanism which makes the currencies go up and down and does all the things that keep things balanced globally. The minute you lock things down it comes under the control of bureaucrats and politicians – and bureaucrats aren’t known for the speediness of their response, and politicians aren’t known for the accuracy of their plans.
BS: I agree with you but Brussels is as good or as bad as the people every country sends there. Brussels is managed . . .
JV: . . by all the countries’ cast-offs: all the failures.
BS: So maybe we should make sure our governments send the good people and not the bad ones.
JV: How would they know? Governments are not renowned for choosing good people. It’s not one of their skills.
BS: With a little bit of luck you’ll have some good ones, as you do in local politics. At the end, we are the people who are electing them, so it comes back to us. What I want to say, though, is that America was not built in a day but over two hundred years. It now has a population of 220 million while the present population of the EU member states is around 320 million. We have the chance to create this global market and to make it easier for those people to move around. I’m sure that one hundred years ago most Americans lived in one city rather than five.
JV: They still moved about.
BS: Okay, they moved from East to West, going where they could earn a living. The good thing about Europe is that you can generally earn your money where you live and you don’t need to move around. But if you look at continental European tourism, every road in every country is packed during summer because everyone is crossing borders. Now, I hate travelling and getting stuck in jams. Years ago, going home from Germany meant crossing into Austria and then into Italy. I could wait at the German-Austrian border for three hours and then sit for four hours at the Austrian-Italian border. Now it’s wonderful: since Austria became an EU member I can drive straight through. The same situation now applies to moving goods around. Today, because of Europe, I can send a lorry from Huntingdon to deliver to FNAC in France, on to Metro in Germany and then to Scandinavia: no extra paperwork needs to be done any more. So, this means there is already an easier way to distribute products thanks to the EU.
JV: I think it’s an emotional thing not a factual difference. If you go back ten years, before the borders were down and we still needed T2s and so on, we still loaded up the lorries and sent them all over Europe. You might have had the lorry waiting to get papers stamped but the time taken for the whole selling business, since the advent of computerised documentation, has not changed significantly.
MS: Bernhard, are you saying that if you woke up tomorrow and found Europe had become completely harmonised overnight, your overall business life would be easier and better?
BS: Yes, considerably.
MS: Julian, how about you?
JV: I don’t think it would make an iota of difference. In the long term, though, I have serious doubts whether a group so disparate can be held together that tightly in economic terms.
MS: So let’s reverse the question. We’ll roll back twenty years and say “Here’s Germany: it’s a separate market. Here’s France: it’s a separate market . . .”
JV: They still are. But, as Bernhard has said, the separate markets are the peoples. The borders have nothing to do with it. Being part of Europe, and Europe opening up the way it has, is a good thing on all sorts of levels. And the idea of being able to deal within the ethnic groups rather than geographical regions is great. Having the freedom to sell across Europe or anywhere else in the world is fine. In our specialist area of trade, the amount of care we expect a dealer to take of our customer is extreme, and so it doesn’t make huge differences to us as a company having a larger or smaller market. There’s an amount of administration that has to take place and you’ve just moved it from doing transport documentation to doing documentation when you design the stuff.
MS: But it’s this whole area of harmonisation that seems to disturb people. Both Naim and Mission deal with America without any problems and America isn’t adopting the Euro, it hasn’t opened up its borders . . .
BS: But you have a huge market dealing in a uniform way. In America our distributor probably deals differently with the West Coast than with the East. The East Coast pays quickly and wants a discount while the West’s attitude is more relaxed and doesn’t pay as quickly. So you always have to adjust to your procedures. But that’s down to the customer not a political environment that has historically, in many cases, been created to slow down international players and to protect local economies. Now, we have seen again and again that local protected economies cannot survive because eventually local businesses want to grow and so need to find new markets. It’s like my family’s apple business: to expand we had to do things differently and accept new rules. Whether the rules are good is another issue . . . but that has nothing to do with Europe: it’s the officials.
MS: Let me bring things down to a simplistic level. Bernhard, if you could change just one thing about Europe, what would it be? What single change would make Europe significantly better from your perspective?
BS: The Euro: being able to sell my products in the same currency around Europe and not have to deal with exchange rates. Market transparency would make my life much easier
MS: Julian, what could Europe do to make you feel much happier about being a part of it?
JV: It could make the rest of Europe change their wall sockets to United Kingdom style fittings. That would make a huge financial difference to Naim – absolutely huge.
MS: Are you being completely serious?
JV: It would make billions of Pounds’ difference to the consumer electronics industry as a whole. It’s one of the things Europe could easily have done but hasn’t.
BS: Julian has just made a truly European statement . . . except that he reversed it. If Europe becomes Britain . . . Julian and I agree that we have to have a simplified market environment where we can sell the same product in every market. We won’t need product modifications or different leads and plugs. We’ll never change the languages but that’s okay.
JV: But I also think we should stick with our own currencies. It’s a lot safer.
MS: Safer in what respect?
JV: Less risk of serious unemployment in odd corners of Europe, which would require vast sums of money being poured in to rectify. For example, the more difficult employment in Germany becomes, the more jobs will be exported out of Europe to places like Korea and China. There could then come a time when if there’s a recession, because there aren’t enough people in the country earning a salary, the whole thing just goes Phut! You can’t bring the currency down so what can you do? There’s nothing you can do except pour money in, get people to move, or change the rules in some way.
BS: The United States has proven to the contrary by saying “Get competitive and you will win.” It took them a while, as we know, but it took a big dive and it didn’t protect, nor did it support the currency. It just said “the rules are now that money is freely available and we are reducing our interest rates, so go off and set up a business, find a market and do it properly.”
JV: But America does things that are the antithesis of what do here in Europe. For example, unemployment benefit only lasts for six months: after that you have to fend for yourself.
BS: But in America in those days you had to look after yourself from the moment you became unemployed. I’m earning a decent living so I’m happy to pay a certain amount to provide a social safety net, to provide for those who are unemployed. I think every European is happy with that because unemployment could happen to anyone tomorrow.
But there is in almost every European country a black economy that is mostly run by the unemployed. I believe that certain rules – with appropriate exceptions – need to be in place to motivate people to return to work. I know this from my own experience with Motorola in Germany where I was looking for about fifteen people to start in junior office and manual positions. I interviewed over one hundred people and managed to get five. All the rest weren’t interested because they were happier staying on benefits. That should not happen: it’s not acceptable. Some people receiving German unemployment money go and live in Spain where the cost of living is about sixty per cent of what it is in Germany. What incentive is there for those people to go back to work?
What I would like to see is an area of global harmonisation where there are regulations that prevent such abuse occurring, along with a commercial zone of 320 million people where you can market the same products without hindrance – be that VAT or currency or so on. Business life would be so much easier.
JV: Bernhard, those things are immaterial. They’re all done by computer – and if they’re not done by computer now they will be by next year. In my view, that sort of commercial number-crunching has no effect on business at all. There’s no cost involved and there’s very little aggravation. I’m amazed at how efficient VAT is to raise as a tax. It’s so highly automated in all the countries in Europe . . . it’s a real non-issue.
MS: This is might sound like a purely emotional reaction but I resent the idea of being a British employer having to suffer some faceless Eurocrat imposing his notions of correct employment practice upon me. Do you find that as objectionable as I do?
BS: The issue is that in every country you have a certain pride and you want to be dealt with by someone who is exactly like you. If, for instance, I go to France and speak French I will be ushered straight into the MD’s office. If I arrive and speak in English, I’ll be waiting in a queue behind the French-speakers all day. This employment issue has nothing to do with Europe: if the civil servants in Brussels are doing a poor job we need to send others who can do the job properly. If we are not happy with the people our government is sending to Brussels we need to tell our government.
MS: But my point is this: I don’t care if, say, in Germany an employee is only permitted to work forty hours a week. But I don’t want Brussels telling me that I have to conform to German rules, and that my staff cannot work sixty hours a week if that’s what’s needed.
BS: In Germany, the unions have agreed certain rules. When I was with Motorola, we had a forty-two hour week. However, when we needed to increase production we went to the shop floor and agreed to breach that and work longer hours for an increase in pay. Over here – and this has nothing to do with being worse or better but more to do with plant and investment – the productivity of a person in manufacturing is lower than that of German worker in a German factory environment. But an industrial hour in the United Kingdom costs about seventy-five per cent of what an industrial hour costs in Germany. Nobody says that being European means that every little rule and regulation in a country needs to be changed to something global, because even in Germany there are regional differences. Within Italy there are immense differences . . .
MS: But that is the impression created by the United Kingdom media.
BS: There is an underlying negative attitude here towards Europe because the United Kingdom for many centuries had virtually controlled the world’s business. It’s understandable, therefore, that when its importance and control diminished – something that hadn’t happened to most European countries because they had never exercised that kind of power – people bluntly refused to be told what to do. I think that the media has manipulated the information strategy of governments and politicians regarding Europe until it has become an emotional rather than a rational issue.
As a European who spends much of his time in Germany, Italy and France, I have never felt in any of those countries that I have been dictated to by Europe. I don’t see Europe ever coming here and saying “You English need to drive on the right side of the road and only marry blonde women!”
JV: But our media does seem to present the idiotic side of European regulations.
BS: With the recent elections and change of government here, they need to go after arguments that are easy to transport. One thing we have learned is that good news is no news and bad news is good news: you have to be confrontational and you have to be negative, otherwise you don’t get any reaction. I firmly believe Britain would lose a great opportunity if it does not go for a European harmonisation of things that allows us freedom of religion, language . . . you to go to the pub in the evening in Britain while I go to the bar in the morning in Italy. All this should stay as it is but we should grasp the chance to make our business and personal lives easier through facilitation of travel, currency harmonisation and so on. That is my plea for Europe. If Europe goes beyond that I will be as opposed to it as many people in this country are.
JV: I’m absolutely in favour of all those kinds of harmonisation except for the currency. That really worries me. There’s no actual necessity for it. People use credit cards. Nobody wanders around with cash any more. And you certainly don’t do business transactions by any other means than electronic. It’s already as transparent as you need it to be – or not, as the case may be. I simply don’t approve of putting all those peoples’ wealth under control of politicians and bureaucrats rather than the – admittedly ill-defined – market place that has really done rather well over the past thirty years.
Although these two widely experienced and successful businessmen seem broadly in agreement about European ideals, their implementation – in particular, economic harmonisation – promotes significant divergence. They both agree, though, that for the good of our industry the Euro-strategists need to pay particular attention to what smaller businesses have to say.