Once your company grows to the extent that a global presence is being considered, crossing that threshold often takes some level-headed thinking. And if it is going to be successful, the first step is a strategic one.
“It is really important to have a defined strategy before entering the market,” says Rita Hook, PHR, European Development Director, Sequent. “Companies need to have done their homework: Where is their market? What is the market potential? Do people really need and/or want their product? It also requires a rather extensive boots-on-the-ground marketing plan in the geographic area that best fits, so your strategic approach is really important.”
Smart Business spoke with Hook on how to overcome the barriers to launching a European presence.
My company wants to expand to Europe, but how long does such a project take?
It’s not a two- three- or four-month endeavor. It is more like an 18-month endeavor. You have to make that commitment. More U.S. companies fail to get established in Europe because they didn’t plan properly.
So in terms of that success rate, they may think, “We should go to Poland, we should go to France” There are many more employer friendly countries. In fact, many Europeans would advise against setting up in France.
However, with an understanding of your niche market and access to distribution, with preparation, you can avoid the potential of failure. An example of the importance of understanding your market is this point: employment contracts in particular countries must be provided to your job candidate in his or her native language as well as in English.
What can be the risks and the complexities of such a venture?
The notion is probably correct that you can expand your foothold in the European market, but there is a lot more planning needed than if you were to expand your market locally.
Americans also think there’s only going to be a little bit of a language barrier … doesn’t everybody speak English? They may, but the rules and regulations are much more complex and are not very employer friendly.
So make sure that you have your HR structure set up properly. It is important to plan your exit when the time comes to unwind your project or support with employees in Europe, so you are in a better position to avoid undue financial hardship. You can avoid foreign pitfalls by setting up the project correctly from the get-go.
What should I know about building my own plant in Europe?
We met with a company recently that felt it really needed to go to Poland to set up a manufacturing plant because it had an interested client. Our advice, before it invested $500,000-plus to set up a small plant, was to see if there was a more cost effective way to get into that niche market.
Often there’s no need to set up a costly permanent entity. An HR B.V. is an alternative to setting up a permanent structure, and you can establish an HR B.V. in Western Europe that represents an American company.
Consider incorporating in the Netherlands. It is more akin to crossing state lines to conduct business than it is to say, “We are going to cross the pond.”
An HR B.V. would be comparable to setting up a corporation in the U.S. like an LLC. We recommend that everybody base that out of the Netherlands. The employment rules there are a little bit friendlier than they are in France or some other regions.
Any other differences should I be aware of?
In France, for example, employees expect a meal ticket, and they are allowed an extended time to go to lunch.
In European countries, it is not unusual for a new mother to get a two-year paid maternity leave. Most U.S. companies are not familiar with such practices.
You don’t want to be surprised that you didn’t know about those matters. The major benefit of partnering with a shared services organization is that when it comes to setting up employment, this inside knowledge can be crucial to a successful global presence.
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