Project Syndicate - The links between states and companies have grabbed headlines, most recently in Russia, where President Vladimir Putin seems obsessed with creating �national champions� in the energy and aerospace sectors. Such efforts seem but a part of a surge of protectionism in European political debate about business, especially when it comes to cross-border acquisitions.
Across Europe, governments position themselves to be seen as defending �national� players from �foreign� competitors. �Economic patriotism,� the slogan coined by France�s Prime Minister Dominique de Villepin following PepsiCo�s rumored attempt in July 2005 to takeover Danone, perhaps best encapsulates the political imperative. Although de Villepin�s speeches are more flamboyant than those of most political leaders, the underlying sentiment extends far beyond France.
The same impulse appears to be at work behind Italy�s policy on Autostrade, Spain�s on Endesa, Poland�s on its banking sector, the former Swedish Prime Minister�s on Volvo, German unease about �locust�-like funds on Deutsche Börse, or the United Kingdom�s ever louder defense of the London Stock Exchange�s independence from the United States.
The basic belief that underpins �economic patriotism� is that of an alignment of interests between companies considered �national� (most prominently the largest ones or so-called �champions�), their national employees, and the national community. According to de Villepin, �to defend the employees� interests well, we must protect the interests of our companies.� He later argued that Danone should be considered �French� because its �milk collection and its water sources are in France.� But Danone�s own filings indicate that only 22% of its global sales and less than 14% of its global workforce are in France.
In fact, the link between European companies and national communities is becoming more tenuous by the day. Research that I carried out for Bruegel surveyed the largest 100 listed companies headquartered in Europe (ranked by market capitalization) and analyzed the geographical distribution of their revenue, which is increasingly transparent since the adoption of International Financial Reporting Standards (IFRS) last year.
Europe was divided into eight broad zones, comprising individual countries like Germany, France, and Italy, or groupings of smaller countries such as Benelux and the Nordic area. The survey then calculated the share of revenue earned by each company in the zone in which it is headquartered (or �home base�), the rest of Europe, and the rest of the world. Where relevant information for companies was available, the comparable distribution of employees was also examined.
The results show that the share of the home base in total revenue has become, on average, relatively low: just three-eighths, or 37.5%, on average for Europe�s largest 100 companies. Of course, this figure covers a wide diversity of industries, and also some geographical differences across the continent. For example, the averages for German (34%) or French (35%) companies are markedly lower than for their Spanish (56%) or Italian (65%) counterparts. But the general trend is unambiguous.
For a broadly representative sub-sample of 55 companies that could be tracked since 1997, the proportion of revenue generated in the home region has fallen sharply on average, from 50.2% to 36.9%. For these companies, sales to the �rest of Europe,� which represented an average of less than 30% of total European sales in 1997, rose above 43% in 2005.
If the trend is extrapolated, the home bases of Europe�s largest companies will account, on average, for less than half of their European revenue, and less than a third of their global revenue, before the end of this decade. These companies are �Europeanizing� fast, and the relative weight of their home base is declining even faster.
Moreover, this is not just a story about sales. The survey also measured the geographical distribution of employees relative to the distribution of revenue. While the distribution profiles between employees and revenue could be sharply dissimilar in some companies, on average they were almost identical: for a sub-sample of 73 companies among Europe�s top 100, the home base represented 37% of employees and 35% of revenue on average in 2005, while the rest of Europe accounted for 29% of employees and 28% of revenue. This strongly suggests that jobs broadly �follow� sales (or perhaps the other way round), even though, once again, this is true only on average and not for all companies.
What are the implications for policymakers? Put simply, the numbers show a growing gap of interests between these so-called �champions� and their national home bases. For Europe�s governments, fostering champions increasingly means providing benefits to non-national customers and employees � a dubious use of taxpayer money.
Another consequence is that regulatory competition is likely to increase in Europe, as companies are less bound by local interests to keep their headquarters at �home� if the tax or regulatory environment becomes unfavorable. The decision by Depfa Bank to shift its headquarters from Wiesbaden to Dublin in 2002 may be a sign of things to come.
The biggest risk is that the growing disconnect between the perception of �national� companies and the reality of Europeanization may lead to spectacularly ill-judged policies. It is high time for business leaders to be more candid about where their real constituencies lie, and for national politicians to recognize that they can no longer wield control over the giants of today�s European business.
Europe's Top 100 Companies: Geographical Distribution of 2005 Revenue


Share of revenue made in
Companies headquartered in: HQ Zone Rest of Europe Rest of the World
number of companies
Switzerland 9 18.1% 32.6% 49.3%
Germany 14 34.2% 30.8% 35.0%
Benelux 11 34.4% 27.1% 38.5%
UK and Ireland 26 34.4% 20.3% 45.3%
France 18 35.5% 33.5% 31.0%
Nordic countries 9 43.9% 30.9% 25.2%
Spain & Portugal 6 56.5% 9.9% 33.7%
Italy 7 65.5% 24.6% 9.9%
Europe Top 100: average 100 37.5% 26.6% 35.9%

US Rest of the World
US Top 100 Average 100 66.1% 33.9%

Source: annual reports, Bruegel calculations
Nicolas V�ron is a research fellow at Bruegel and the co-author, most recently, of Smoke and Mirrors, Inc.

Copyright: Project Syndicate, 2006.
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