Diageo: Europe must be more competitive

(CNN) -- Europe needs to cut back on its red tape and be more competitive if it is to succeed on a global stage, according to Diageo's chief executive.

Paul Walsh, boss of the world's largest spirits producer, told CNN: "We have to have less regulation and more focus on a competitive edge. Europe is becoming less competitive in the global scene."

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Britain also needs to reforge its relationship with the European Union, he added. However, this should not necessarily be thrashed out through an "in-or-out" referendum as proposed by British Prime Minister David Cameron.

"As a businessman I would have preferred a much more authoritarian approach," he joked, "but I suspect that politicians are deprived of that ability."

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He added: "I think we should do everything in our power to stay in the EU, and that means inevitably some kind of compromise."

Diageo posted a 5% rise in sales growth for the second half of last year, despite a decline in European sales. Southern Europe was particularly hard hit, suffering a 19% fall in sales as the financial crisis continued to bite.

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"Europe continues to become a smaller piece of the overall pie," said Walsh, who is focusing on faster growth markets, such as Latin America, Africa and Asia.

Recent acquisitions for London-based Diageo have included ShuiJingFang, a maker of baijiu, a Chinese white spirit, as well as Mey Icki, in Turkey. Diageo is in the process of acquiring a majority stake in United Spirits, India's largest spirits company.

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Growth in these emerging markets is offsetting declines in Europe, but Diageo's home markets are still vital.

"We have to do a far better job in educating our population on the imperative of staying in Europe," said Walsh. "I don't believe that task should just be left to the politicians, business too have to stand up."

Diageo won't be putting any pro-Europe stickers on their bottles; Walsh believes the educating should start within the business itself.

"We need to engage first and foremost with our employees," Walsh said. He added the company should "explain to them that many of these brands enjoy their place in the global marketplace because of free trade agreements that are configured via Europe."

CNN's Anna Stewart contributed to this article