EU enlargement means cheap labour but not necessarily strong new sales outlets

EU enlargement will result in cheaper labour, access to larger markets andcheaper imports, according to findings published today from the Grant ThorntonInternational Business Owners Survey (IBOS) of medium sized businesses. However,according to overall results from businesses in nine EU member countries, accessto new markets, mostly in Central and Eastern Europe and the Baltics, will notnecessarily result in new sales opportunities. Overall less than four out of tenbusinesses predicted an increase in sales.

In May 2004, the European Union expands from 15 to 25 members. Over 38% ofmedium sized businesses in France, Germany, Greece, Ireland, Italy, theNetherlands, Spain, Sweden, and the UK, thought access to cheaper labour and tolarger markets would be the two most likely effects of European enlargement.Interestingly, German and Irish businesses recorded much higher responses. InIreland, cheaper labour and access to larger markets were seen as naturaldevelopments of enlargement by 62% and 52% of businesses respectively. InGermany, 57% mentioned these as possible outcomes.

EU enlargement has a downside as well. More regulations (34%), increasingcompetition at home (33%) and within the EU (28%) and more taxes (26%) were alltouted as likely effects of enlargement. A quarter of businesses already in theEU think foreign investment will fall as a result of enlargement. Most fearfulof this appear to be the Irish (49%), a factor which is perhaps unsurprisinggiven that the country has been a major beneficiary of Foreign Direct Investmentfor over 15 years. Strong concerns were also expressed in Germany by 38% ofrespondents. Less worried were businesses in Sweden (10%), France (14%) and theUK (17%).

The survey showed changes in attitude from a year ago. Expectation of cheaperlabour rose from 32% to 38%. On the other hand, expectations of increasedcompetition fell from 35% to 28%, of greater taxes from 30% to 26% and of moreregulations from 38% to 34%.

Overall, the majority (almost 6 out of 10) of the EU businesses surveyed do notbelieve that enlargement will result in increased sales. More than half thebusinesses in France and Greece (56%) thought enlargement would result in newsales but others remain unconvinced. Even German businesses, already heavilyinvolved in trade with many of the soon to be member countries, had a much lowerexpectation of new sales opportunities (39%) and a mere 12% of UK businessesbelieve that enlargement will make much of a difference to their sales numbers.There is greater agreement on which new member state will provide the greatestopportunities, with Poland backed by 60% of businesses. This largely reflectsPoland's market size and large population, which, at 39 million, is by far thelargest of the new members.

Commenting on the results, Sacha Romanovitch, Partner, Grant Thornton said:Geography and history still play an important role in forming the perception ofmany EU entrepreneurs. The majority of medium sized businesses tend to remainfocused on their principal foreign markets and to only look elsewhere in a bidto add, and not necessarily replace, their trade outposts. With many businessesacross Europe actively engaged in debt reduction strategies, a factor whichinevitably impacts on investment levels, it could be some years before EasternEurope and the Baltics are fully embraced as a new markets for investment".

Notes to editors

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