Last summer, as the mounting European debt crisis was forcing many businesses in the region to scale back, the multinational Dow Chemical made a seemingly contrarian move: rather than hunker down, it doubled down.
Dow expanded its presence in the region by allocating euro 10 million, or about $13.2 million, for a new water-desalination research centre on Spain’s eastern seaboard, about 50 miles southwest of Barcelona. There a staff of engineers hopes to develop new ways to produce cheap, clean water.
While not as big an investment as some of Dow’s others in Europe, it showed that even in a troubled economy like Spain’s, big foreign multinational companies still see opportunities.
“We invested because there’s good technology, educated workers and an increasingly competitive cost structure,” said Geoffery E Merszei, the president of Dow’s European operations. “Europe is not growing as fast as Asia Pacific countries, but it’s certainly not doomsday here.”
The evidence so far may be more anecdotal than statistical. But despite the lingering debt crisis and an incubating recession in many nations of the European monetary union, many global companies say they are maintaining or even increasing their investments in the euro zone and elsewhere on the Continent.
They are peering past the region’s current woes and betting on eventual payoffs, as European officials and politicians shift their rhetoric toward reviving growth and luring private investment, after two years of grinding austerity.
The rising confidence of multinational corporations follows several years in which foreign direct investment in Europe slumped, hampered by lacklustre economic activity, weakness in the region’s banking system, worries about a Greek default and fears that all these troubles could ignite a second Lehman-like liquidity crisis in global markets.
Now, though, as the fever of the euro crisis cools, headlines regularly herald fresh investments in Europe by big foreign firms.
In Ireland, for example, multinationals are increasing spending as that country’s economic doldrums make it more cost-competitive than ever. Microsoft, for one, recently invested $130 million to expand a data centre outside Dublin. Eli Lilly, the drug giant, plans to spend euro 330 million on a new biopharmaceutical plant near Cork, creating hundreds of jobs.
General Electric, meantime, is forging ahead with a euro 30 million investment to expand research and development in energy, aviation and medical technology in Germany — a nation GE considers a haven from the euro storm — and an additional euro 56 million to broaden its commercial presence.
Infosys, the big Indian technology consulting and outsourcing company, plans millions in additional investments in its core northern European markets, and is girding to hire hundreds more people in Europe this year.
The trend appears to counter the big reversal in 2010, the latest period for which full-year figures are available, when foreign direct investment in Europe fell by 19 per cent from the previous year.
Lately, according to analysts, economists and executives, companies and cash-flush investment funds from China, India, Brazil and the United Arab Emirates are adding to their baskets of European assets and are on the prowl for fresh investments in infrastructure, technology and manufacturing across the European Union.
In 2011, Europe for the first time edged out the United States as China’s biggest region for overseas investment. So far this year, China’s European deals have included the Shandong Heavy Industry Group’s purchase of a 75 per cent stake in the Italian yacht maker Ferretti, and the State Grid Corporation of China’s buying 25 per cent of Portugal’s electric utility.
“There is more optimism that the euro crisis will be solved soon — or at the least people will see that we can live with it,” said Marc Henry, the financial director at Michelin, the French company that is one of the world’s largest tire makers. He said Michelin intended to invest more in plants, equipment, research and development on the Continent this year and beyond.
The company plans to spend £50 million (more than $79 million) to update machinery at its factories in Britain over the next five years, for instance, and is also looking at possible expansions in Eastern Europe.
The hard times are hardly over, of course. For every cash-rich conglomerate betting on a European turnaround, thousands of small and midsize companies have been sapped by three years of financial and economic volatility spawned by weaker countries along the euro zone’s southern tier.
What is more, bank credit has become much tighter for many smaller companies, despite a new programme by the European Central Bank to flood the euro zone’s financial institutions with cheap money to ensure they continue lending into the economy.
Though BNP Paribas, Deutsche Bank and other financial giants insist they have not curbed loan making to businesses and consumers, many European companies and foreign ones seeking to invest in Europe say they are having difficulty getting bank financing to expand activities.
By contrast, big companies with their own financing arms have been able to tap into the central bank’s cheap lending. Volkswagen Bank, for example, said last week that it had taken out such loans, although it did not disclose the sum.
Many say that Europe also needs a better system of venture capital to enable entrepreneurs and businesses to turn innovative ideas into commercial successes.
On a recent visit to Paris to inaugurate Google’s new headquarters here for southern Europe, the Middle East and Africa, Eric E Schmidt, the company’s executive chairman, said there was not much difference between entrepreneurs in the United States and France — except for access to money.
A widening economic divide between wealthy northern countries like Britain, Germany, Belgium, the Netherlands and Luxembourg, and weaker ones in the south, also does not help. Companies making investments are leaning more toward markets that are already prospering, rather than extending their ties in ones where austerity budgets have raised questions about the economic, political and social environment.
India’s Infosys is gaining European business despite the debt crisis and rising unemployment, said B G Scrinivas, the head of Infosys’s European operations.
But the company plans to keep its investments focused mainly on Britain, Germany, France, Switzerland and the Benelux countries, as it expands its ranks of software professionals and sets up additional sales and consulting offices.
“We are not really focusing on countries like Greece, Spain or Portugal,” said Scrinivas, adding that it would probably take some time before the euro zone’s overall economic climate improved.
Still, the company is heartened to see Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France working harder to tame the debt crisis, despite some stumbles.
The euro crisis has made politicians realise they must rapidly create a better environment for business that provides incentives to invest. High taxes, expensive operating costs, rigid labour markets and heavy regulation have disenfranchised many companies, said Merszei of Dow.
“That has been happening over the years, and it’s why today you have disadvantaged parts of Europe,” he said. “Once they start creating a level playing field, the dynamic will change.”
© 2012 The New York Times News Service
