WHOI-90-52

e both winners and losers from the integration of the "common market," cries only of alarm
sem premature.2 But whenever the "old world" threatens institutional innovation, it
perhaps
behooves the "new" to proc with vigilance and understading.
In August of 1989, the General Electrc Company PLC (GEC) of Great Britan and Siemens AG
of West Germany made a final "sweetened" tender offer of over $3 bilion to purchase their
rival, the British defense and electronics concern, Plessey Company. The offer culminated a five
yea hostile taeover battle initiated by GEC. Later that month, the French defense electronics
giant Thomson CSF announce its planned acquisition of the defense electronics assets of N. V.
Philps, the major Dutch electronics concern. Beuse Europe defense ministries trditionally
have been loathe to approve foreign taeovers of defense contrctors, the Plessey taeover and
the Philps acquisitions are watersheds.
These events are importt more for their symbolism than their economic significance. They are
representative of an envisaged "new" Europe--one in which consolidation and restrcturing in
fundamenta industral sectors is expeted to lead to enhance economies of scale and improved
international competitiveness. These events demonstrate conclusively that Europe governments
are ready to begin "liberalizing" .their public procurement procss, at least within the common
market. It is significant too that these governments perceive savings through the concentration
of an industr in which "buy national" procurement policies are permitted under the GATT
3 As Europe acclerates its own unification, we can
multinational trade negotiation process.
expet to se similar events in other industral setors. Here we examine the implications of the
integration of Europe for one such setor: advanced marne electronics.
Although we draw upon examples from the advance marne technology field, our topic is of
wider significace. The public policy issues we describe are identica to those faced by firms
in any advance technology sector (although perhaps their relative weights may differ). As is
2 At a July 1989 meeting of the America Defense Preparedness Association, an industry
group, a U.S. Deparment of Commerce official caled for America defense firms to "scramble"
if they were interested parcipating in the Europe common market before Januar 1993
(NT, 1989).
3 The economic significance of this restructuring is extremely uncertn, and the symbolic
effect may be of greater importce. However, a study sponsored by the Europe Community
(EC) estimated that in 1984 alone two-thirds of a 6 bilion Europe currency unit (BECU; 1 ecu
is roughly on a par with the dollar) "savings" from liberalize procurement policies would have
accrued from a "long term restrcturing" effect in the defense equipment industry. Such a
savings appes small in comparson to the $3 billon Plessey tender offer, but it represents only
one yea. The savings is roughly between 3-9 percent of the estimated expeted tota "gains"
from the removal of the common market's internal market barers (EC, 1988). These snapshot
estimates should be regarded as only extremely speulative approximations.
14