The european opportunity

I have written a lot about what it is like for a European company to enter the US market and what is involved. This blog is for US companies looking to penetrate European markets.

First some economic facts! GDP for the European Union is actually a bit higher then for the US. The combined consumer base of the European Union member states is over twice that of the United States. The Euro is stronger than the dollar and European interest rates are about 1.25% lower. However, European economic growth is expected to be on average 2.1% until 2010, whereas the US economy is expected to grow at a slightly higher rate. Unemployment is higher than in the US, but still under 10%.

Unlike the US markets the European markets are not truly homogeneous. In reality the fact that there are 16 different language groups and at least four major languages spoken in Europe makeing free movement of labor a dream for the future. Especially the four main language areas require native language skills. This is probably why most US companies start their European invasion with the UK. Most companies split Europe into regions: UK and Ireland, the Nordics, Eastern Europe, DACH (Germanic countries), France and Southern Europe. This way language groups and cultural differences are minimized in organizational silos. The key driver for selecting an entry point should be closeness to the largest concentration of your target customers. Many choose culturally the easiest location. This might also not be the least costly location to setup operations. The UK has one of the highest wage structures in all off Europe and the cost of living near major routes and economic centers can be astronomical.

Finding the right people to represent you is as difficult for US companies in Europe as it is for the Europeans when entering the US market. There are very few pan-European recruiters. Larger executive recruitment firms have partners in each major region, but most recruiting firms are regional. How do you pick the right recruiter? If you used Boyden in the US, then will you also use Boyden in Europe? Finally when you have five candidates and you have to the make the final decision (no recruiter can do that for you) how do you do it? Do you pick the person that you feel would perform best in the business culture that you are familiar with or do you choose the individual that would be right for the local culture?

If Europeans are afraid of US liability clauses then US companies should be fearful of European labor laws. Again the EU is not homogeneous. Laws may vary considerably by member state. What legal structure you set up for your local daughter company and what status you give your employees under local law makes a huge difference. In Europe you cannot form a Delaware company and just register to pay tax in the states that you conduct business in. Its member state requires its own taxable legal entity if you have a presence and pay wages in that member state. Finding the right legal services partners to advice you on the best structure for each member state that you decide to expand in is important.

The European Union has funds to support growth companies. The national entity charged to dispense grants varies by member state. The process of applying for funds can also vary significantly in scope and duration. Europeans use these grants to fund new market entry, localization and R&D initiatives. Such grants are "deminimis" in nature, which means that you can only apply for 50% of your budget. The EU has also set a three year 130,000 Euro limit for EU grants per company.

Due to many of the reasons alluded to above European channels are not pan-European either. Distribution has a larger role in the European software market than in the US. Most distributors are regional and value added reseller and national. Where to start? How do I get introduced in the right way? What are the rules of engagement? Is a 30 day extension on top of contractual net payment terms common in Southern Europe?All of these are factors to take into consideration when formulating European expansion strategy. 


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