Going Global? Know the Common Pitfalls — and How to Avoid Them
01 Sep, 2012
By the Netherlands Foreign Investment Agency
Each year, companies both large and small make the big decision to expand to Europe. But many soon find out that although expansion was the right choice, the location they picked was not. Rather than celebrating a successful business venture, they instead find themselves having to pull up stakes and move — sometimes to an entirely new country.
“Expanding to Europe is a wise business decision for many companies,” says Bas Pulles, commissioner, Netherlands Foreign Investment Agency. “Strategic locations, pro-business policies and a highly qualified local workforce can all add up to success. But choosing the right place requires careful research and analysis.”
Site selection experts say there are several common mistakes companies often make when expanding to Europe. Here are a few, and how to remedy them.
*The mistake: Assuming “one size fits all.”
The solution: Do some matchmaking.
Business needs vary, so one location may not be the best choice for all operations. For example, a location perfectly suited for a data center may not be ideal for a marketing and sales office. Consider the company’s goals, and make a wish list of factors that are integral to success. The online tool www.locationeurope.com (see sidebar) allows visitors to weigh factors such as market location, multilingual availability, and accessibility according to how important they are to an individual company, and then provides an analysis of locations that perform best in those categories. Thorough research, combined with a realistic view of a company’s needs, will result in a good business match.
*The mistake: Undervaluing the local workforce.
The solution: Find a workforce that fits both a company’s needs and culture.
For many North American companies expanding to Europe, recruiting and retaining employees with the right skills are the most important concern. If those employees will also be in contact with local or international customers, a well-educated, multilingual population that is also proficient in English is a big advantage. Countries such as the Netherlands, Belgium, Germany, Ireland, the UK, France, and Spain all have a workforce that fits these criteria.
In addition to language, cultural similarities are another important consideration. Does the local workforce mesh with the corporate culture? Do they have similar views on society, customs, and business relationships? Locations that are worldly, culturally open and focused on international commerce will contribute to a successful European expansion. Look for statistics that demonstrate a workforce that is highly productive, flexible and easily adaptable.
Finally, consider local labor costs. Typical compensation, worker contract regulations, hiring/firing policies, and union stance will vary greatly by title, vocation and country. Some countries may have temptingly low costs, but incur significant time lost to labor disputes, strikes, sickness or work slowdowns.
*The mistake: Not getting the full picture on transportation and logistics.
The solution: Consider the entire system, and how it fits together.
How will products — and clients, customers and employees — get to and from a new European location? Airports, seaports, rail, even public transportation, are all important factors when choosing a location. Of primary concern is a nearby international airport that is serviced by enough carriers to destinations important to the individual company.
For companies that will be importing or exporting goods, a location with a variety of shipping companies and 3PL providers is crucial. Compare modes of freight transportation in terms of size, reputation, capabilities and customs practices.
International airports should be evaluated by annual cargo tonnage, on time performance, customs efficiency and number of carriers. Consider, too, how well different transportation modes work together. For example, locations with a strong rail/seaport interface, or a superior highway system at the beginning or end of a cargo load’s journey, are advantageous when planning a logistics operation.
The Holland International Distribution Council (HIDC) helps international companies make a smooth transition into the European logistics market in the Netherlands. Eveline van den Bosch, senior manager, supply chain solutions North America and Europe, HIDC, says the combination of Holland’s strategic location and excellent infrastructure enables companies to “design and implement the optimal supply chain.
“In the Netherlands, a modern and well-maintained road system integrates seamlessly into the European highway network,” van den Bosch continues. “Barges, railroads, dedicated freight transport [Betuweroute], and short sea options to the south of Europe offer numerous supply chain solutions. These connections are all supported by modern e-customs and e-freight systems that ease European trade.”
*The mistake: Forgetting about quality of life.
The solution: Ask the question — “could you live here?”
A European office may mean North American-based executives and employees may spend a significant amount of time there. Many may even move with their families. This makes quality of life an important detail.
Ireland, the UK, the Netherlands and Germany are countries with similar cultures to the United States. American music, English-language movies and TV shows, and a large English-speaking population are easy to find. These countries also offer excellent educational and health care systems, dependable transportation and telecommunications networks, and a variety of entertainment, sports, cultural activities and living environments. In these countries, it is likely you’ll feel “right at home” — even if “home” is an ocean away.
Employees coming from outside the EU to work in the new European location may need a work permit. Some countries have made this process easier by cutting red tape, and helping these “expats” make a smooth transition. For example, the Netherlands offers four “expatcenters,” government organizations that offer accelerated procedures in arranging residency and municipal registration of highly skilled migrant workers and their families.
*The mistake: Only considering the local tax rate.
The solution: Understand how the overall tax and customs structure affects business.
Corporate tax rates in the EU vary greatly. But other tax considerations, such as the value added tax, and customs, payroll, and personal taxes should also be factors in the decision. Consider, too, deductions and allowances, and any treaties the location may have with other countries. This information can help determine additional implications for European operations set up as a subsidiary, branch or limited liability company.
In short, the best locations create favorable tax climates by simplifying rules, cutting red tape, and reducing administrative burdens on companies.
*The mistake: Everyone has the Internet.
The solution: Some locations are better connected than others.
Is there any place in Europe that doesn’t have voice, data and Internet connections? Probably not. But, certain locations are far better connected than others. Reliable communications with customers, overseas operations, and headquarters are essential to success. Research countries that have the highest quality technology infrastructures. Choose a location where citizens and businesses have instant access to advanced links, high-speed fiber optics, digital and cable systems. A wide array of service providers is also important because it increases competition and lowers rates. Technology and connectivity are especially important factors for sales and marketing, R&D or call center operations.
*The mistake: Thinking short term.
The solution: Think long term.
Often, a company’s first instinct is to locate its European operations in the center of its most successful market. That may be a mistake, simply because that market or location may not be ideal to handle future growth.
Take some time to consider how the chosen location will fit the company five years or 10 years from now. Proximity to a larger customer base, accessibility to additional markets, and cost and delivery times for products can all change dramatically as a business expands. Think strategically to choose a location that fits a growing business.
One final tip: rely on the economic development agencies of the countries under consideration. They can give a good overview of business practices, tax structure and lifestyle — guiding companies through an often confusing and overwhelming experience. These organizations offer a variety of confidential services: arranging in-person meetings, providing personal guidance, and providing matchmaking assistance for companies interested in a European partner. By doing some homework, and relying on the experts, a successful European expansion will be off to a good start.
Learn more about the Netherlands Foreign Investment Agency by visiting www.nfia.org.