European Business Environment

Doing Business in Europe

Frans Somers

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9781000035391
• Topic: Business
• Subtopic: Business General
• Index: Business

Doing business in Europe is increasingly becoming an everyday reality for many companies, not only large corporations, but also small and medium-sized enterprises. European Business Environment offers students a practical introduction to how to create, manage and develop business opportunities in the European Union.

Taking a multidisciplinary approach to doing business in the EU, this textbook focuses on the European dimensions of economics, marketing and law. With case studies presented throughout the book, the relationship between business and the political institutions, policies and regulations of the European Union are explored.

This is an essential introductory textbook for students at both undergraduate and graduate levels in a wide range of degree and professional programmes, including Economics, MBA, Law and Marketing. It is of particular relevance to students interested in the European context of these disciplines and can be used as a core textbook for courses in European Integration or Business and International Environment in Europe and other parts of the world.

1
The European integration proces

1 The changing European business environment

2 The theory of integration

3 The development of the European Union and its impact on business

4 The organization of the European Union

1
The changing European business environment

1.1 The single market

1.2 Aims of European integration

1.3 The background to European integration

Conclusions

Questions

CASE STUDY

'Selling to another country requires a strategy based on sound research.'

Interview with Frans Alting, Team leader for international trade, North Netherlands Chamber of Commerce

The North Netherlands Chamber of Commerce has a number of tasks. One of them is to support and advise companies planning to start or expand international operations. Originally, the focus was almost exclusively on supporting companies in the region with export activities related to goods. Recently attention has shifted to include other forms of international trade (services and imports). Frans Alting co-ordinates a team of five consultants in this field.

How important are exports these days for companies in the Netherlands, in particular for Small and Medium-sized Enterprises (SMEs)?

The percentage of SMEs involved in this form of international trade is relatively low: about 15% (excluding retail). But there are large variations around this average. For manufacturing industry it is about 40% and for wholesale about 25%. Service companies, on the other hand, are hardly involved in exports at all: only 2% of them.

The Dutch government aims at a percentage for all SMEs of 15% in the near future. This may not be easy to realize, because services are the most rapidly growing industries. That is why the Dutch Trade Board is very committed to promoting the export of services in particular. It is also a natural trend that the continuous growth and development of the service sector will lead to a further internationalization of services as well. Take for instance the IT business. IT companies were originally strongly focused on supporting local companies with the development and implementation of their computer systems. Today, software products are more and more sold internationally; in many cases these products require additional services in the field of implementation, including adaptation and tailoring to the needs of overseas customers.

Can selling to other countries in the EU still be considered as ‘exporting’? Or is this just entering another market?

From a customs point of view, only selling goods to non-EU countries is considered as exporting. The euro has made international operations easier and less risky. Nevertheless, from a company’s perspective, selling to other EU countries is still definitely exporting. Foreign markets – including foreign EU markets – are very different from the home market. Indeed, other cultures, languages, consumer preferences and distribution channels play a very important role in this. Normally, foreign companies lack sufficient knowledge of this new business environment. But on top of that there are still a lot of barriers related to differences in rules and regulations. In theory, these legal barriers should no longer exist according to the principles of the single market in Europe. The single market entails, among other things, mutual recognition of each other’s standards and product norms, and European Standards have been defined for a number of products ( CE marking).

In reality, there are many exceptions to the mutual recognition principle, however. And where an agreement has already been accepted for a specific group of products, countries are in many cases still allowed long transition periods before the arrangement comes into effect. A typical example could be the office chairs we are sitting on at the moment. Almost certainly this office furniture would not satisfy German ergonomic standards and hence cannot be sold in that country.

European Standards are only applicable to a limited number of products. Harmonization and standardization of product norms will not be easily achieved, even in Europe. Every country is inclined to use this kind of barrier to protect its own industry. Breaking them down involves tough negotiations. The single market is – despite the ‘1992 project’ which was supposed to achieve it – far from completed. It is an ongoing process. The obstacles in the field of services are far higher still.

A company wanting to install a special sealed floor in a petrol station in Belgium will almost certainly be confronted with all kinds of special rules and regulations, concerning for instance the environment and the employment of staff; rules which may be quite different from the Dutch ones.

Another example: a Dutch business which would like to sell dustbins to the Municipality of Hamburg. The order will be placed as a result of a public tender. The tender will probably have to be made in German and the product must satisfy specific German standards, unknown to the Dutch supplier. If it comes to a contract, it should be specified whether the agreement comes under Dutch or German law. The German client may have a strong preference for German law and even prefer the product to be supplied via a German subsidiary of the Dutch business.

Selling to a customer in another country – even within Europe – means that you have to enter a completely different market, previously unknown to your company. That requires a strategy based on sound research. For SMEs in particular, developing and implementing such a strategy is a long-term investment, costing time and substantial amounts of money. In many cases, large companies already have a marketing department dealing with this kind of research and strategy, meaning that less additional investment is needed and (part of) the knowledge is already available within the company.

What are the main markets for companies starting to export?

Most of the companies going abroad for the first time just go to the neigh-bouring countries. For the Netherlands, Germany is the most important export market (around twenty-five per cent), followed by Belgium (around fifteen per cent). If they are successful, they might turn to more distant countries.

What are the most important reasons for companies to go abroad?

The most important reason is that companies want to grow. If the Dutch market is saturated, the obvious alternative would be exporting. Businesses considering exporting should have distinctive capabilities, meaning that they should have either a cost advantage or a superior product. In other words, they should have a competitive advantage which could also be leveraged to foreign markets. A good network, special products or superior logistics (e.g. in the case of import–export businesses) could contribute to such a competitive advantage.

Sometimes there is a clear link with trade. Suppose a company started by importing cheap Chinese products for the Dutch market. If you manage to find other markets in Europe for these products as well (transit trade), you might realize economies of scale. That means that you can negotiate lower purchasing prices, offer a wider range of models and demand exclusivity from your supplier. An example of this is the trade in artificial (plastic) Christmas trees made in China.

For manufacturing industry, scale is a crucial factor. Most producers cannot survive on small volumes, among other reasons because they must cover the costs of their investment in machinery and research & development.

A declining market can also be a good reason for exporting. If the business is going very well, there is no need for foreign adventures; on the other hand, if it is going very badly, there are normally no resources for going abroad. However, in an economic downturn such as we are facing today, businesses’ first reaction is to cut costs. The second might be to look for new markets abroad, in order to restore their previous sales level. For that reason, an economic recession could be an incentive for further internationalization.

How do companies start exporting?

In many cases by coincidence. An employee of the company meets someone at a business meeting or other event. It could also be a matter of strategy: most companies are not particularly interested in the mass production of standard products. Generally, they can make more money by making specialist products for a niche market. But a niche market could be very small in the Netherlands. That is why it makes sense to try to find similar markets abroad. In that way you can have both a differentiation strategy and a large market as well. This can be considered a logical and natural development.

Some companies must even internationalize right from the start, particularly if they make very specialized products. Typical examples are companies in advanced sectors, such as hi-tech, biochemistry or medical devices. The Dutch market is simply too small for them. In many cases these are start-ups linked to universities or other knowledge centres.

Can you tell something about the experiences of companies starting to internationalize? What are the pitfalls and what are the success factors? Failures are mostly related to bad preparation. Some companies just apply a kind of trial-and-error approach. They happen to meet a business contact: an agent, importer or company active in the same business. They do not really check it out and do not start with solid market research or a study of the different options. In the end, it turns out that they committed themselves to the wrong partner. The choice of the wrong distribution channel can also play a role. A key factor for success is the opposite approach: sound research and good preparation before you make any move. Good entrepreneurship is generally required.

International trade is mostly associated with exporting. What about importing? How important is importing for companies, in particular for SMEs?

Importing is of crucial importance in the Netherlands. In many cases, exporting and importing are linked. This is related to the Dutch trading spirit. Dutch companies import goods in order to resell them abroad (transit trade). This business only makes sense, however, if the Dutch company manages to give the products some added value, whether in terms of logistics, upgrading, marketing concept, packaging or other innovations.

The Netherlands is a trading nation. About sixty-five per cent of our national product is related to international trade. But we are only able to increase our exports if imports are growing too. That is another reason why the Chamber of Commerce has chosen a different approach for its consulting role: the former export advisers have become advisers on international trade.

Do companies in general look for support when starting international operations?

Many do, although some companies still just go it alone. For smaller companies particularly, this is not really a wise thing to do. Better would be to get some support from experienced organizations which have an overseas network. This can be obtained from (semi-)governmental organizations, such as the chambers of commerce, the Dutch Agency for International Business and Co-operation (EVD), investment and development agencies (such as NOM, the Investment and Development Agency for the Northern Netherlands) and organizations dealing with innovation (such as Syntens) or from private consultancy companies.

The North Netherlands Chamber of Commerce co-operates closely with the other (semi-)governmental organizations mentioned above, because many of their activities are linked. For instance, exporting is also a kind of innovation. On the other hand, if you are making innovative products, you have to go abroad anyway, because the market in the Netherlands is too small for your niche product. And, last but not least, if you are active abroad you may be confronted with new competitors, new ideas and other challenges. This could be an extra incentive to innovate further, in order to stay ahead of the competition. So in fact it is a kind of virtuous circle, where innovation leads to exporting and exporting to innovation.

That is also the main reason why the Chamber of Commerce has chosen an integral and comprehensive approach to its consultancy practice, and also to its organization and co-operation with external partners. You can no longer isolate international trade from a company’s other core activities these days.

In this chapter the background to European integration, the main issues and their relationship to the European business environment are explained and analysed. These issues are explored in more detail in the following chapters.

Section 1.1 focuses on the single market, which is considered to be the central element of European economic integration. Its main principles and its significance for business are explained. In section 1.2 the rationale for economic integration in Europe is discussed, including the assumed benefits and costs, from both economic and business points of view. Section 1.3 examines the background to European cooperation, including the political and economic aspects.

1.1 The single market

The European Union (EU) is of growing importance for the daily life of ordinary European citizens. Today, more than half of new rules and regulations come from ‘Brussels’. European citizens are free to travel and settl...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Introduction and study guide
• Part 1 The European integration proces
• Part 2 The single market and international business strategy
• List of abbreviations
• Glossary
• Web guide
• Index