Expanding to Europe: What Should Go Into the ‘Where’ Decision

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Sep 13, 2019

The authors of a study published in Management International Review in June point out that the “trend towards globalization and intense global competition emphasizes the need for [firms] to develop and deliver a continuous stream of innovations.“

A strong way to support ongoing innovation is through international diversity. Expanding beyond a current location to staff teams in other regions means having perspectives from outside the home country. Workers with these perspectives are seen as having a leg up when it comes to addressing strategic and organizational hurdles. Their “ability to leverage dispersed knowledge” is seen as an important competitive advantage. Setting up a foreign office can also help companies staff up quickly and service customers in other geographies as well as jump ahead of their competition.

Traditionally companies reached a certain number of employees or a certain size balance sheet before considering expansion. That’s changed, however, with most companies being online from day one. Often companies have overseas customers when they are still quite small. Today, firms whose operations are not large in the traditional sense — companies with as few as 20 to 50 people — have a need to be international and are not waiting.

Once the decision to have an on-the-ground presence in another location has been made, it helps to be aware of key elements that support effective and sustainable expansion. For many US companies looking to expand, Europe, with its population of 550 million people and access to Africa and the Middle East is a logical first step. Here are some considerations companies should think about when looking to expand to Europe.

A steady supply of talent

Environments which attract and retain sought-after talent are diverse and multicultural with a competitive cost of living. They also have a high percentage of individuals with advanced educational backgrounds in science, technology, engineering and math. As you consider countries that are seen as desirable for sought-after workers, also look at ease of employment in those nations.

Europe has a working population of 250 million, and countries in the European Economic Area (EEA) do not require individuals from these EEA nations to obtain work permits. There’s unimpeded movement of labor among the Eurozone nations. That benefits workers and supports the goal of assuring a steady supply of talent. Most European cities such as Barcelona or Milan have a high percentage of non-native workers.

If the candidate country’s employment permit system has rapid work permit processing for nationals from non-EU members, it helps assure staffing takes place without hitches. National sentiment to inbound talent is increasingly important; people should feel welcomed.

A business-friendly environment

Consider the details that comprise the smooth flow of business such as hiring, data regulations and taxes. Certainly, countries that see regulations through a business-friendly lens are more natural places to set up offices and ramp up staff quickly. For example, with regard to employment law, the ability to ramp up and down teams and transform your workforce as business evolves is crucial. Customers’ data privacy concerns are at the forefront of business in Europe, and companies need to comply with General Data Protection Regulation (GDPR), which ensures privacy of your customer and employee data. You need to determine the location of your main establishment for cross-border data processing.

In some nations there is also strong funding and government support for cluster organizations. These take a synergistic approach to collaboration on solutions around cybersecurity, for example. They bring together industry, academia, and government. Businesses, including US and other multinationals with locations in the country, can then collectively voice concerns about key challenges. Cyber Ireland is a great example of a cluster organization where academia and government have reached out to US corporations to guarantee them a steady supply of cyber security graduates.

Ex-pats or locals first?

Talent deployment at your selected location won’t happen in a one-size-fits-all manner. Engineering-focused companies that need to scale overseas operations at a competitive pace may decide on a landing team approach. They would then send a small group of people from the head office to the new location to set up an office, bringing the company culture and ways of working with them. This is often done in order to set up clear leadership, site remit, and reporting lines back to HQ.

However, the business climate and talent pool strength should provide companies with the flexibility to take other approaches as well. For example, some firms hire country managers as the very first employee in order to shape local strategy. Autodesk took this approach when it moved its EMEA headquarters to Ireland from Switzerland, with very positive results. Fully functional in under a year, Autodesk’s new EMEA HQ in Dublin has more than 180 individuals across a range of professions and representing more than two dozen nationalities.

Relying neither solely on employees sent from the home office nor solely on local talent is recommended. This balanced approach creates a foundation for lasting rapport and integrates the new office with your company’s headquarters. When this is achieved, international offices have the best chance of growing organically. This happened when Hubspot chose Ireland for its EMEA base. HubSpot brought the first 10 Irish nationals to Cambridge, Massachusetts for a month to get steeped in HubSpot’s culture and mission. That team returned with a half-dozen longer-time HubSpotters, striking the balance between new employees and seasoned ones.

Collaborative grouping

If companies are operating within a certain sector such as fintech, pharma or medtech it pays to set up in a location where other businesses of the same type operate. In Europe, the European Banking Authority (EBA) is based in Paris where there is a range of support services. Similarly tech hubs have the benefit of collaborating together on projects such as AI, energy or pharmaceutical R&D. Blockchain Ireland is a combined effort of government and companies based in Ireland to share information and best practices on blockchain as well as brainstorm industry challenges. Companies who would not normally collaborate in their home country find themselves coming together in user groups when abroad.

Setting up in a country that’s stable can’t be underestimated. Governmental commitment to robust opportunities and openness presents companies with a location to scale their EMEA business over the long term.

Finally, it’s important to analyze whether government and public support, a generous talent pool, and a pro-business climate in the country you are considering for your overseas operations has led to positive outcomes for the multinationals there.