As a rule, US investors don’t pay much attention to European Union regulations but they probably should. The European Union countries have more people (497 million versus 300 million) and a larger GDP (18 trillion versus 14.5 trillion) than the US.
With that large a market, it isn’t just large multinational manufacturers who are doing business there. But even mid-size companies who don’t sell in Europe may have suppliers there. Larger manufacturers, with global sales and a global supply chain, are increasingly finding cost efficiencies by ensuring that all their products are compliant, no matter where they will be sold. So what Europe does matters to all these companies.
The most important of these regulations – RoHS and REACH – concern the materials that are in a manufactured product. (An overview of product materials regulation is here.) The simplified bottom line is this:
- Companies have to be able to document the materials in their product
- Companies must ensure that certain substances are not in their product
- Companies are responsible for everything in their product, so their information
systems and their processes must provide visiblity into their entire supply chain
While an in-depth industry-specific analysis is needed to really position the impact of these regulations, especially among a set of similarly-situated companies, taking note of prospective changes in regulations can provide an early warning of where to focus one’s attention.
For example, the European Union is reportedly considering a change involving RoHS (Restriction of Hazardous Substances) and its CE Mark directive (the little mark you see on the back of virtually every electronic device you buy). Manufacturers of electronic devices would no longer be able to simply assert that they meet the RoHS requirements, they would have to document it in considerable details. That could have a high cost and a significant negative impact on any manufacturer that did not have very good, well-documented information on its supply chain.