By Globalization PartnersJuly 2020
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Your business has been growing in the U.S. by leaps and bounds – is it time for European expansion?
In some cases, introducing a new product line or service can be the most appropriate option to help you expand and grow your business. In other cases, the next logical step is to move into a new market. For many U.S.-based companies, that new market might be on the other side of the Atlantic Ocean, in Europe. Before you decide on a European expansion, it helps to weigh the pros and cons of doing so, examine the benefits of expanding your business to Europe, and consider the best European countries to expand your business to.
Benefits and Challenges of European Expansion
Business growth can offer many benefits to your company. As your company expands, you have the opportunity to increase revenue, reach new customers, and try new products and services. While the benefits of expansion can be immense, growing and moving into a new market, such as the European business market, does bring along some challenges.
Benefits of European Expansion
Opening a branch of your business in Europe can mean new customers and a new lease on life for your company’s products and services. A few of the benefits of expanding your business to Europe include:
- Creating new revenue streams: During a European expansion, you have the opportunity to gain new customers and develop strong ties with a new client base. Expansion can create new streams of revenue that wouldn’t exist otherwise.
- Getting access to top European talent: When your business moves into Europe, you will want to hire the best and brightest of people across the EU. While you can bring members of your team over as part of your expansion, it also makes sense to hire and work with top European talent. If you stayed stateside, your business would most likely not get access to the best in Europe.
- Giving your products and services a second chance: Trends, styles, and preferences vary considerably in the US and in Europe. What might be passé or outdated in the US might be all the rage on the other side of the Atlantic. Moving into Europe allows you to introduce your brand’s services or products to people who otherwise wouldn’t get a chance to purchase them.
- Setting your business apart from the competition: A European expansion is another way that your company can get or stay a step ahead of your competitors. If you’re one of the first US companies in your industry or market to break into Europe, you have the chance to gain a foothold before the market gets saturated.
- Saving money: In some cases, setting up shop in a European country can be a cost-cutting move. It might end up costing your business less to manufacture certain products in the EU or to have your headquarters or main office located in a European country compared to in the US. Having a home base for your business in the EU can also help you save on shipping and transportation.
Challenges of the European Business Market
It helps to be realistic about what you can expect when you expand to Europe. You might face some challenges or run into obstacles or roadblocks as your business grows internationally. Some potential challenges you might face include:
- Communication barriers: Although English is one of the EU’s official languages and one of three working languages of the European Commission, communication breakdowns can still occur when your business moves into the European market. Europeans have long looked at American business methods with bemusement, and there have been instances of American businesses offending their European counterparts. Having an understanding of the culture of the EU and of the specific norms and cultural preferences of the country you hope to move into will help your business avoid or minimize communication issues.
- Compliance issues and concerns: Setting up shop in a new country means following the rules of that country when it comes to business licenses, taxes, and other issues. The process of establishing a subsidiary company in the EU can be long and complex. If there’s an issue along the way, your business might face fines or even jail time. One way to work around compliance concerns is to work with a global professional employer organization (PEO), which allows you to hire employees in countries throughout the EU. Our solution acts as the employer of record for your European team. It will handle tax compliance, payroll issues, onboarding, and anything else your business might need to get started in Europe.
- Time zone issues: Depending on the location of your business and the location of your new location in Europe, your US offices can be four to 10 hours behind your European counterpart. The time zone differences can make it challenging to connect with Europe without a considerable amount of advanced planning, which can limit spontaneity. One potential challenge of working across time zones is that it can mean that your business needs to become more organized and on-the-ball.
- Reduced interaction and engagement: When employees are several time zones away, it can be difficult to connect with them directly. The reduced connection can mean reduced engagement. Your managers might need to go above and beyond to interact with your European team and to keep your employees engaged and excited about the work you’re doing abroad. One way to do that is to schedule video calls and virtual meetings. Another option is to have an “open door” policy that encourages employees to reach out to managers via email, chat, or text message whenever they have a concern.
Why Expand Your Business to Western Europe?
Moving into Europe might seem like a good option for your business, but you’re still not sure how to expand your business to Europe or which countries would be best to move into. You might be wondering if Europe is a strong market. For many companies, opening a branch or selling products to European countries makes good financial sense. There are a few reasons for European expansion:
There’s Demand From Customers
One major reason to plan a European expansion is if people there want your product. Thanks to ecommerce companies and other global marketplaces, it can be easier than ever for consumers to get their hands on products from around the world. But if a brand doesn’t have an official presence in a country, it can often be very cost-prohibitive for customers to buy its products. Shipping and mark-ups can make an in-demand US-based product incredibly expensive. Plus, when a product is only available in certain countries through third-party sellers or resellers, your business misses out on an opportunity for growth.
How can you tell if people in Europe want what your company has to offer? It’s likely they’ll let you know. People might write you emails or leave messages on your company’s social media pages. Since the world today is more connected than in the past, it’s easy for international customers to learn about your company and to get in touch with you if they wish.
There’s Lots of Top Talent
Nearly 450 million people live in the EU. More than 40% of Europeans between the ages of 30 and 34 have completed post-secondary education, and more than 80% of Europeans between the ages of 25 and 54 have completed secondary education. Several European cities, including Oslo, Stockholm, and Helsinki, are among the top 10 most educated cities in the world. Although no longer part of the EU, the UK is also home to two of the most educated cities in the world: London and Edinburgh. If your business decides to expand to a country in the EU, it’s very likely that you will find people who are talented and eager to work for your business.
The structure of the European Economic Area (EEA) also makes it somewhat easier for companies to find talent across the EU. The EEA allows for the free movement of capital, people, goods, and services across the EU and three additional countries — Norway, Iceland, and Liechtenstein. Your company can hire a French person to work at your office in Spain without having a work visa or additional permits for the employee.
European Economies Are Growing
Economies across Europe are expected to see some growth in the coming years. In the Eurozone has a whole, gross domestic product is expected to increase by 1.2% in 2021, up from 1% in 2020. Unemployment in the Eurozone has also decreased in recent years, from 11.6% in 2014 to 8.2% in 2018. In that time, the per capita GDP has increased from 30,562 to 34,393.
There’s a Common Currency
Many European countries use the same currency, the euro, and have done so since the beginning of the 21st century. The unified currency offers many benefits to companies that hope to expand to Europe. It helps to stabilize prices for consumers and for companies, leading to increased economic security. Using a single currency also eliminates the need for constant currency conversions and fluctuations. If your company starts out in one country, such as Spain, then decides to open a branch in France or Germany, each new location would still use the euro. It’s also easier for your company to trade and sell its products across most of the Eurozone when only one shared currency is involved.
Europe Has Clusters
Just as a US tech company might find plenty of opportunities if it were to get started in Silicon Valley, and an automotive company might have felt right at home in Detroit, Michigan, at one point, certain areas of Europe are hotspots for certain industries. The areas are known as clusters and are usually full of resources, potential employees, and other sources of support for certain industries.
Depending on your company’s industry and focus, you might find yourself right at home in certain areas of Europe. For example, the Ile-de-France region, which includes Paris, is the top R&D cluster in the EU. Moving your company to an area with an industry-specific cluster means you’ll have an easier time finding qualified employees and an easier time thriving in Europe.
What to Consider Before Expanding to Europe
European expansion isn’t as simple as renting an office and bringing on a few team members. Because of the cost of expansion and the time involved, it’s vital that your business looks before it leaps. Here are a few things to contemplate before you make your move.
Does Europe Want You?
One of the essential things to consider before you expand into Europe is whether there’s a demand for what your company offers in the EU. There are a few ways to see if there’s a demand for your product or service in the EU. One option is to look at your sales. If you offer online sales and you notice that a considerable percentage of those sales comes from people in Europe, expanding abroad can make sense. When you have locations in Europe, whether they are warehouses, retail stores, or offices, it becomes less costly for consumers to get your products or to use your services.
Another thing to consider when deciding whether Europeans will be happy to have your company is market saturation. Will you have lots of competition in the EU? If so, what features make your product or service stand out, and what can you do to make people choose you over other, more home-grown options? If there’s little to no competition for what you offer, how can you convince Europeans that you have what they need and want?
Do You Understand European Customers and Customs?
Another thing to keep in mind when expanding to Europe is cultural differences. American consumers’ expectations are considerably different from the expectations of European consumers. The American way of shopping and doing business is also different from the European way. Work hours and days are also notably different.
For example, in the US, it can seem as if retailers mark items down, offer discounts, or create sales every single week. American shoppers are often always on the hunt for a possible sale or discount. Things are a little different in the EU. In France, for example, there are two main sales each year. “Les Soldes” are four-week periods during which French stores mark down the prices on items. The retailers themselves don’t set the sale dates — the local government does. Outside of those sale periods, shoppers aren’t really going to be looking for or expecting discounts.
There are also notable differences between the American workweek and the European workweek. While the US does have labor laws that regulate how much people get paid at a minimum and what happens when they work more than 40 hours in a week, it doesn’t limit total hours worked, nor does it require employers to provide paid time off for holidays or illness. Although exact rules vary from country to country within the EU, generally speaking, employees can’t work more than 48 hours per week. European countries also require employers to offer paid time off.
Do You Understand European Taxes?
Taxes in Europe take several forms. There’s the value-added tax (VAT), which gets tacked on to items and services sold in the EU for consumption in the EU. The VAT is charged to the customer by the business making the sale, and paid to the government by businesses. Although your company isn’t responsible for paying VAT out of its own pockets, if you sell products or services in the EU, you are responsible for making sure the government receives VAT.
There are also income taxes to consider. Business income tax rates vary from country to country in Europe. Some countries, such as The Netherlands, have a competitive income tax rate for businesses. They hope to attract new companies by keeping taxes relatively low — between 20 and 25% of profits, based on income. Researching business tax rates in each country is a smart idea before you decide where to move.
How Will You Handle Language Differences?
Although English is one of the main languages in the EU, and although many Europeans speak English as either their first or second language, it’s important to understand that English isn’t the only language in Europe. European consumers are going to be looking for products packaged or advertised to them in their native languages.
For that reason, your company should have a plan in place to manage translations and minimize any potential language-based packaging issues. Getting the language right is particularly critical if a package is going to include directions. You don’t want to offer unclear or inaccurate directions that cause difficulties when using the product.
Are You Financially Ready to Expand?
Whether at home or abroad, it costs money to grow your business. It’s essential that your company has enough money to support an expansion before you move forward. How much you’ll need depends on what you plan on doing and how complex the process will be. Generally speaking, you’ll want to have at least a few years of being in the black or earning a profit before you decide to make a move. It’s also a good idea to find financial backers, whether investors or lenders, to provide financing to help you through the expansion process.
Do You Have a Team in Place?
Along with having the financial means to expand, it’s also critical that your company has the right team in place to help you through the expansion. One option is to work with a professional employer organization as your business makes moves into a new country. The Global Expansion Platform™ offered by Globalization Partners provides your company with the support it needs as it expands. The platform allows you to operate your business in-country, without you having to set up an international subsidiary or go through the complicated process of establishing international payroll. As a PEO, Globalization Partners acts as the employer on record for your European team. We handle everything from human resources to taxes, making sure your business complies with the rules and regulations of your new location.
Is the Country You’re Considering a Good Fit?
One last thing to consider before you take your business to Europe: Does the country you’re considering expanding to first make sense for your business? Some countries might be a better fit for certain industries than others. When it comes to culture, some countries are more similar to the US than others. Additionally, some European countries are taking extra steps to welcome foreign businesses and might offer special programs or incentives for companies looking to making inroads there.
Work With Globalization Partners as You Expand Into Europe
Expanding internationally can be a complex process, but it can also be the best decision you’ll ever make for your company. Fortunately, you don’t have to do things on your own. Globalization Partners will work with you, acting as the employer of record for your European team and providing support on everything from onboarding to payroll. To learn more about our services and how we can help you as you grow your business, get in touch with us today.
For more information regarding European expansion, download our eBook 10 International Expansion Mistakes to Avoid.