Export opportunities in Europe have been overshadowed in the rush towards Asia, but it’s time to give that region another look. Conditions are converging that give Europe an edge as an American export market.

“The EU is weathering the recession in decent shape,” Larry Harding founder and CEO, High Street Partners, points out. He predicts that Europe will exit the recession sometime in 2010 and will resume spending, but that the U.S. dollar (at 0.66 euros in early December) will remain weak, giving American companies an edge over European competitors. And, because the EU represents a pan-continental market, U.S. exporters can access it easily, with fewer regulations than before unification. “That’s a tremendous boon to American companies,” insists Dan Hamilton, professor, Johns Hopkins University and director of the Center for Transatlantic Relations.

Throughout Europe, “The year 2010 will be tough because some governmental programs…initiated to get through the crisis will end,” predicts Guido Quelle, managing partner, Mandat Managementberatung GmbH in Dortmund, Germany. “However, there are still a tremendous lot of business opportunities.”

Traditionally, the UK, France, and Spain have been our strongest export markets, but prospects in other countries are increasing as economies strengthen. Germany, Scandinavia, and Eastern Europe, in particular, are growing—the latter at rates comparable to Brazil, Russia, India, and China.

Based in Budapest, Kevin Connor, regional coordinator for Central Europe, for Squire, Sanders & Dempsey, has lived and worked in Central Europe for 18 years. He notes, “The recession has had an impact, but it didn’t hit Poland as hard as some other European countries.” The Czech Republic and Slovakia also are doing well economically.

Not all of Eastern Europe is booming, however. “The Baltics are suffering,” Connor says, and Harding notes that Russia’s economy hasn’t yet returned to the heyday of $140 per barrel oil. The quality of Russian goods has improved, he continued, but, “The real competition is Asia.” China and Japan both have a presence in Central Europe. “They’re getting stronger,” Connor acknowledged.

In Central and Eastern Europe, since the fall of the Iron Curtain, “a lot has changed, but there’s a long way to go,” Connor adds. Consequently, governments are continuing to invest in necessary projects. There are continuing needs to replace infrastructure, and modernize or expand factories. “The main interest is cost and value, and U.S. products are cheap right now,” he underscored.

The tendency of developing regions to leapfrog technology spells opportunity for high-tech companies, especially in mobile and wireless communications, Harding says. He recommends tapping into convergence trends. For example, “Cell phones are more than phones. They’re morphing the way people work.” Solutions that support that convergence are in demand. Although the U.S. may lag in wireless communications, this presents an opportunity for innovative U.S. firms to sell their leading edge concepts while the U.S. market emerges.

“Companies that focus on the interfaces between supply chain processes will always be in demand,” Quelle says. He suggests that millions of dollars can be made in those interfaces, yet few are aware of the opportunities. Similar innovations that enhance collaborations’ efficacy globally or throughout groups are always well received, he continues. Also, the European healthcare business is still growing. Western Europe is focusing on enhancing efficiency and containing costs, while Eastern Europe is addressing its pent-up demand for healthcare services.

Another high-demand export is services. “U.S. service sector exports to the EU have tripled since 1995, reaching $198 billion in 2008, $62 billion more than to the Asia-Pacific region,” Hamilton says. “Even with a trade deficit, U.S. services exports are in surplus.”

In terms of cultural exports, American movies and TV series are particularly well liked in Greece, Hungary, and the Netherlands. Sports were most favored in France and the Czech Republic, and music was popular in Switzerland, Sweden, and Belgium, according to a GfK Custom Research survey.

Good export candidates needn’t be high-tech, industrial, or cultural to find a ready European market, however. Big Feet Pajama Co. entered Europe through its e-commerce site and gained attention when a competitor on the reality show “Big Brother” wore the footed pajama. In early 2010, the company will supply its wholesale and retail customers through a British distributor, according to founder and CEO Valerie Johnson. “Transit time and cost had limited our business,” Johnson explains. However, having a UK distributor lets Johnson ship product directly to the distributor from the Asian factory, saving time and expense for customers.

Homework

To identify opportunities for individual industries or regions, companies should contact the U.S. Commercial Service (www.buyusa.gov). Largely underutilized, this service has 130 international offices to help U.S. companies enter foreign markets. The resource is particularly adept at identifying potential partners and resources, and researching the market, Harding commented.

Additionally, “The commercial attachés attached to U.S. embassies are very, very helpful,” Connor says. The American Chambers of Commerce abroad also can be excellent resources in terms of locating opportunities and cultivating contacts internationally.

Financiers are another font of information. Because venture capitalists and investment bankers often specialize in particular industries or regions, they have detailed knowledge of opportunities and conditions in those industries and regions. Regional or industry specific trade organizations, like Michigan’s Center for Automotive Research, are another good resource regarding trends and markets.  

Caveats

Although it helps to have a local partner to provide a local face and perspective, in Europe, unlike much of Asia, it isn’t required. Manufacturers have found, however, that producing some components locally builds goodwill in those communities.

“The EU is a pretty open market,” Hamilton says, with few tariff barriers (with the notable exception of agriculture.) However, Harding stresses, “There are two things every American company exporting products needs to understand: employment compliance and contracts, and VAT (Value Added Tax) ramifications of transactions.” 

“Europe has a much different approach to employment compliance and contracts,” Harding emphasizes. They are expensive, complex, and very different from U.S. practices. Regarding the VAT, he strongly advises knowing how it is billed—retail or wholesale value, for instance—and how to actually bring goods into the EU to minimize VAT assessments. For example, he asks, “Do you need an importer? If the U.S. company is the importer, do you need to register in the country?” How these questions are answered determines how the VAT, which can equal up to 33 percent of the goods value, is assessed.

Financing

Traditional bank financing is more challenging than in the past, Harding says. Therefore, potential exporters may want to investigate financing options through the Export-Import Bank of the U.S. (www.exim.gov), the Overseas Private Investment Corporation (www.opic.gov), venture capitalists, investment banks, and host country options.

“Ex-Im is spectacular at getting letters of credit in place,” Harding said. It also provides working capital guarantees, export credit insurance, loan guarantees, and direct loans. OPIC specializes in direct loans, loan guarantees, and insurance in emerging markets and developing countries, including parts of Europe and Eurasia. For capital projects, such as building sewers, roads or airports, “The host countries may provide various financial options,” Connor added.

Additionally, there are many venture capital (VC) firms in the U.S. and the EU that can arrange financing. Atlas Ventures, for one, focuses on U.S. companies interested in selling information technology and life sciences products to European markets. “In Europe, the VC market is bigger than people realize,” Harding comments. He suggests Series A financing may be available this year because many funds haven’t yet been committed as investors wait out the recession.

Attitude

“Central and Eastern Europe is a very pro-U.S. region,” Connor points out. A recent GfK Roper Public Affairs & Media survey indicates that the pro-American sentiment is spreading. “Brand America is now ranked number one,” GfK’s 20-nation survey reported; up from number seven one year ago.

Whether that will translate into more sales of U.S. goods, however, is debatable. “Perceptions of the U.S. don’t translate into trade policy,” Hamilton emphasizes, and international leaders remain concerned about the U.S. and, in particular, the “Buy American” push by Congress.

Political wranglings aside, gaining access to the European market requires executives to take a long-term approach, Quelle insisted. “Short-term thinking leads to opportunistic behavior, eroding ethical standards, high employee turnover, decreasing market share, decreasing profit, and decreasing shareholder value (and an affront to European sensibilities).” Therefore, “An executive who wants to establish a business connection abroad is well-advised to build a trusting relationship with his counterpart on the other side. Take the time to build this relationship rather than to try hard to close the deal. It is more a matter of people than a matter of products.” wt



Contributing writer Gail Dutton specializes in reporting on the intersection of business and technology.

Sidebar: European Logistics on the Move

Europe’s mature, fully functional distribution network is a huge advantage when compared to the disjointed approach in much of Asia. And, upgrades are underway now to continue to improve and coordinate the transportation network. Here are some highlights:

•    Phase II of the Open Skies agreement is set for completion in 2010, increasing airline completion. It is expected to increase economic output by approximately $9 billion per year.

•    State-owned railways are opening to competition, and rail technologies are being standardized.

•    Six major freight routes will be upgraded by 2015, and freight-only corridors developed by 2012.



Economically hard-hit ports are scrambling to improve services and attract new business. For example:



Antwerp

•    Port dues and concession fees are frozen for 2010, and dues for transshipment of conventional/breakbulk cargo were lowered 10 percent.



Rotterdam

•    Feeder service links the port to Hamburg and Bremerhaven.

•    Rail services were launched between Rotterdam and Oslo.

•    A new container terminal is under construction, part of the Maasvlakte2 island project.

•    A 7 percent, one-time-only crisis rebate on tariffs for sea and inland harbor dues will be given in 2010.



Felixstowe

•    Rail improvements are underway for the South Rail Terminal and the Felixstowe Branch Line, connecting the port to the national rail network, increasing capacity.

•    Expansion continues, with the first 440 meters of a deep-water container quay expected to be available this April.