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Roland Berger Sees Widening Europe North-South Competitive Gap

Companies in northwest Europe will benefit from a widening competitive advantage over their southern European counterparts as growth returns, a survey of executives by Roland Berger Strategy Consultants GmbH showed.

Even as Europe’s economy recovers in 2014, with significant expansion in 2015, governments need to increase investment in infrastructure and education while cutting public debt, according to the study. A majority of the southwest European respondents still sees the economy stagnating in 2015.

“People are asking whether it makes sense yet to invest in southern Europe,” Max Falckenberg, a Berlin-based partner at Roland Berger who led the survey, said in a telephone interview. “The process will be slow, because the unit labor costs and productivity in southern Europe need to become more competitive and the market needs further stabilization.”

Switzerland is the world’s most competitive economy, the World Economic Forum said Sept. 4, holding the top spot for a fifth year. Germany and the U.S. rose two slots to fourth and fifth respectively in the Geneva-based organization’s 148-nation league. Singapore and Finland retained their second and third positions.

Of the 701 respondents, 70 percent forecast economic expansion in 2014, with “significant” growth in 2015, the Roland Berger study showed. About 53 percent of respondents in northwest Europe expect their competitiveness relative to the region to improve. By contrast, only 10 percent in southwest Europe see an improvement in their position. No Swiss respondents anticipated a worsening of their situation.

German Reforms

Germany, home to Siemens AG (SIE), Europe’s largest engineering company, and Volkswagen AG (VOW), which is seeking to become the world’s biggest carmaker by 2018, must continue reforming, European Central Bank Executive Board member Joerg Asmussen said in a speech in Dautphetal-Buchenau on Aug. 27.

“Germany and Europe are dependent upon exports, so we have to see to what extent regulatory issues lead to problems,” Roland Berger’s Falckenberg said. “Competitiveness in France is more difficult. The government is making it harder for businesses to shut operations if the business does not work. And this makes the French market less attractive to investors.”

Europe’s competitiveness compared to Asia will decline in the next three years, according to 64 percent of respondents in the survey, while 49 percent expect it to worsen when compared to North America. Only 14 percent see the competitive advantage against North America improving in that period.

“All companies constantly have to improve profitability. Automotive suppliers have to reduce their costs by 3 percent to 5 percent every year,” Falckenberg said. “If states would start to act in a similar way, significant amounts would be available for investments in infrastructure and education.”

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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