Why Expanding Your Business to Europe Is a Wise Move

Part 1: What Does the Market Look Like?

When planning to expand your business, it’s up to you to conduct the proper due diligence to ensure that you’re making a wise decision to invest in whatever area in the world you’re prepared to move into. These days, we live in a highly globalized marketplace, where the barriers to entry into certain regions aren’t as tall or as challenging as they once were. This means that businesses far and wide are always prepared and are continually searching for new markets to exploit. With that in mind, we want to be here to provide you with the top-notch information, insight, and knowledge needed to make an informed decision when looking into business expansion.

In this 3-part series, we’re going to talk about the massive market of Europe and how it provides international businesses with tremendous opportunities for growth and expansion.

We’ll also get to the root of why expanding your business into Europe is a wise move. First, we’ll look at the market as a whole, which has undoubtedly taken a hit due to the COVID-19 pandemic. From there, we’ll talk about the potentialities of expansion, before finally moving into the various challenges that expanding businesses might face.

With that, let’s get into part 1. So, what exactly does the market in Europe look like?

The Market Is Precarious, But Not for Long

It’s safe to say that political fallout, economics, and global health issues have indeed plagued Europe’s economy over the last year. Brexit, the devastating financial effects of the COVID-19 pandemic, and other inter-regional economic issues certainly contributed to a weaker market than in years past. And while the market may appear to be precarious right now, the truth is that this won’t be for long.

As European countries continue to do what they can to rebound and come back from the COVID-19 pandemic, you can be sure that the markets will recover, and you will be able to leverage all of the benefits of expanding into Europe in due time. With that said, now is the perfect time to begin planning your expansion.

Europe Is Open

One of the most important things to consider regarding how the European market is structured is that it is virtually left entirely wide open. Remember, the EU is massive, and there are several countries within the EU that would provide an international business with a fantastic opportunity for expansion. Of those countries, you’ll have to determine which ones make sense for your own unique business.

Because the EU generally supports the free flow of goods, you’re not merely expanding into one country—you’re expanding into a wealth of opportunity because you’ll be able to lend your services and sell your goods/products in every country within the European Union—and that’s quite a unique opportunity.

Back in 1992, an agreement was signed called the European Economic Area Agreement that gave businesses the ability to sell their products across country lines. Today, you can even sell some goods and provide your services in 3 non-EU nations as well, including Iceland, Lichtenstein, and Norway.

The Markets Are Constructed Differently

When looking at different markets from around the world, say the US market or the Pacific market, there are unique characteristics that define each and the European market is no different.

In fact, one of the things that make the European market unique is that businesses are often positioned together in “clusters.” As JP Morgan says, “Clusters are groups of companies in related industries that operate in a concentrated area—based on demand, supply chain, and resources—and they form naturally as a result of spillover. Well-established across Europe, clusters can be beneficial at both the company and regional levels, and they often become areas of concentrated employment.”

In the US, the closest example might be Silicon Valley, but even that doesn’t exactly compare to the clusters seen throughout Europe. In fact, it would be a wise move for any international business expanding into Europe to keep your eye on a few potential clusters that might align with your industry. Clusters provide a wide range of benefits for expanding businesses, and they certainly shouldn’t be overlooked.

Part 2: The Potentialities of Expansion

Businesses don’t choose to expand because they believe it’ll hurt them. They expand because they believe it’ll help them. We like to call this phenomenon “potentialities” because there is always the potential for business success when it comes to business expansion. However, the level of success and the likelihood of success is based on due diligence, insight, and of course, execution. In this intensive 3-part series, our goal is to ensure that you have access to the due diligence research, the insight, and the execution strategies necessary to expand your business.

Expanding your business into Europe is a wise move. As we stated before, the market in Europe is currently in recovery mode. However, this shouldn’t scare you off. Virtually every market in the world is in recovery mode in the wake of the COVID-19 pandemic. However, Europe is in a bit of a different place due to the shocking exit of the UK from the EU, which occurred just a few weeks before the region went on lockdown in early 2020.

While there are some uncertainties with Brexit, it’s safe to say that the European economy will get back to where it once was, and it’ll likely only go up from there. Regardless, even if you choose not to expand into the UK, you have the entire EU (plus three non-EU countries) at your disposal. With that in mind, it should be clear that there is tremendous potential for expansion within Europe.

At the end of part 1, we introduced a unique market structure that much of the world isn’t all too familiar with. However, it’s a market structure that could provide expanding businesses with an excellent opportunity to hit the ground running. Market clusters in Europe are quite prominent and commonplace, and we believe knowing how to leverage the benefits of these clusters could provide an expanding business with a strategy for success.

Market Clusters in Europe

Market clusters are, according to JP Morgan, “groups of companies in related industries that operate in a concentrated area—based on demand, supply chain, and resources—and they form naturally as a result of spillover. Well- established across Europe, clusters can be beneficial at both the company and regional levels, and they often become areas of concentrated employment.”

These clusters are essential for expanding businesses to consider because they offer easy and virtually direct and immediate access to a comprehensive supply chain explicitly built for their industry. Because the businesses within each specific cluster have already made headway within their respective markets, they’ve already established clear and effective supply chains that your expanding business could benefit from.

From there, you can leverage industrial specializations that could allow you to tap into a more developed, specialized, and highly experienced workforce overseas, ultimately helping you grow your business expansion faster and more effectively than ever before.

If you’re worried that market clusters won’t last because the model isn’t sustainable, you’d be sorely mistaken. In fact, the market clusters within the European markets are specifically built for longevity. Not only do they survive, but they also thrive. Market clusters are designed to adapt to changing conditions, which again goes back to our earlier assertion that the European markets will recover post-COVID.

Access to Local and Regional Partners

This is another critical benefit to consider. Unlike expanding into other regions where their borders limit countries, the European markets are quite open and accessible, especially and specifically within the European Union. Because member states support the open exchange of goods and services across borders virtually seamlessly, expanding businesses can take advantage of increased access to local and regional partnerships.

Every business owner knows that you’re only as strong as your partnerships, and when expanding into new territory, it can be challenging to make those connections right out of the gate. However, with Europe’s unique cluster-based market structure, in addition to the EU’s open border policies, it has become easier than ever before for international businesses to find their niche right from the start.

In speaking about developing partnerships within your new market, EDC.ca explains that it goes beyond the big, monumental decisions. It can even be something as simple as packaging and language translation. They say, “Packaging is a good example. Don’t assume the French text on your packaging translated in Canada will meet the standard. Nuanced language means it will need to be adapted for French-speaking customers in Europe. A local expert can help you identify these and other subtle differences or business requirements.”

Again, a point like this cannot be overstated. Building those regional partnerships and working with local businesses to help you navigate these new markets is critical. With clusters, you can work with local businesses that already know the ins and outs of your industry in that specific region.

As you can see, the potentialities for business expansion in Europe are there, and with the right moves, you will be able to leverage this potential in your quest for success. However, no business decision comes without some challenges, and that’s something we’ll move into in our next and final instalment of this 3-part series.

Part 3: The Challenges that Come Along with Expansion

In the international business world, every business leader understands that no decision comes without its challenges. In this final instalment, we’re going to talk a bit about the potential challenges that come along with business expansion.

While none of these challenges is detrimental, they are certainly something that should at least be considered for most businesses.

As we get into some of these potential challenges, please be aware that due to the complex nature of the European continent, these challenges are mostly general and could be more complex or arbitrary depending on your desired location of expansion.

Language Barriers

Europe is a collection of countries, each of which has its own heritage, culture, norms, and languages. Before the EU was formed, many of these countries had their own currencies. In fact, some within the EU still have their own currencies today.

But before we explore that point, we want to talk a bit about the language barriers that will undoubtedly exist for any business when expanding into Europe. While the UK and other countries in Western Europe can and often will be able to communicate in multiple languages, including English, you might find that other countries may be less inclined to do so, preferring to speak in their native tongue.

There are 24 different languages spoken throughout the European Union. Not only is this important to consider when looking to establish partnerships that help you facilitate your services like vendors, suppliers, distributors, etc., but it’s critically important when it comes to customers.

Perhaps the businesses you interact with might have a multi-lingual team member to help you engage with their services to facilitate your operations, but your potential customers will likely only speak their native language.

This means that you need to heavily consider where you plan to do business and offer your services or products. If you plan to offer your services or products in a country with a language different from your own, you may want to bring on some local staff members to aid you in those endeavours.

Taxes

Like it or not, you’re going to have to be willing to tackle taxes and tax compliance as you plan your expansion efforts. Europe is full of different tax requirements, each one seemingly more complicated than the next. For you to remain in compliance, you’ll need to have a thorough understanding of the tax laws not only in the region or country you plan on establishing your business expansion in, but also in the countries in which you sell your goods or services and hire your workforce.

Scalefast.com says, “When dealing with any European country, you need to account for what’s known as the Value Added Tax (VAT). A host of factors goes into accounting for VAT, including the types of quantities of goods sold, where the business is based and whom it’s selling to, and even the size of the company. Just as an example, books are ‘zero-rated’ in the UK and Ireland but have taxes elsewhere. In addition to the EU-wide VAT, there may be other local and national taxes, depending on where you’re selling.”

As you can see, remaining tax compliant in your respective country goes far beyond simple national and local income tax—VAT tax is a whole new concept that you’ve likely never dealt with before, and it can become quite complicated.

For that very reason, we believe that it would almost always be necessary to enlist the support of a local accounting firm or outsourcing company to help you understand your tax obligations not only locally/nationally, but regionally as well, especially if your expansion is within the European Union.