Risk – new geographic market

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Key Points

The rules for a small U.S. business breaking into Europe are:

1. Start in the UK, unless there is a particularly good market reason for going elsewhere
2. Learn the complexities of EU law, multi-lingual communications and product differentiation before expanding onto continental Europe
3. Partner with local expertise, either as consultants, agents, distributors, joint marketers, joint venturers or merger & acquisitions
4. Expect to achieve higher prices, but with higher costs and potential adverse translation effects back into U.S. dollars
5. Do not go into Europe for want of a better strategy. If you do not plan to be a major multinational, it may be very much better to stay at home and export your products - the Internet makes this much easier nowadays

In more detail…..

All other things being equal, there is a great deal more risk moving into a new geographic market than confining yourself to an existing one, especially if the existing one is the size of the U.S..

Using a straight Ansoff analysis, entering a totally new market, and probably having to adapt your products and your way of doing business, is going to be something like 16 times more risky than staying where you are.

Of course, the potential pay-off may be worth it, either because you are endangered/restricted in your home market, or because there is a particularly strong potential demand for your products in the new market. But when your home market is as big as the U.S., you would need to be fairly ambitious as a small business to want to expand into Europe.

On the other hand, many emerging U.S. companies have done just that, in both products and services. Indeed, most U.S. companies in Europe did not wait until they were giants in the U.S. before they expanded into Europe. Typically, they found there was an opportunity to export to Europe, then to outpost a few people abroad, and then they set up one office, usually in the UK (possibly by acquisition), then others one-by-one. Almost every U.S. company in Europe worked that way.

The other problem for a small U.S. company entering Europe is that Europe is a cluster of very different markets in a way that the U.S. is not. There are variations, obviously, in the U.S. between say California, Texas, New York City and Minnesota, but the similarities outweigh the differences. In Europe, there are probably more similarities across countries than many country managers are prepared to admit, but there are some very real differences in communications, language and in ways of doing business. Hofstede did a great deal of work at Shell exploring the cultural diversity of Europe. He found that the UK was most like the U.S.; Scandinavia and the Netherlands were similar in their emphasis on the need for consensus; the Latin countries (France, Northern Italy, Spain) tended to be more hierarchical; Southern Italy and Greece were more paternalistic; and so on.

Germany is typically a very difficult market for U.S. companies to break into. Germany is the biggest market in Europe, but also the most competitive. German companies generally expect to get what they ask for, and often do not appreciate being offered something American, different and supposedly better. The UK is much easier for a U.S. company to penetrate, not least because the language is much the same, and being American is a relatively positive feature.

So the rules for a small U.S. business breaking into Europe are:

1. Start in the UK, unless there is a particularly good market reason for going elsewhere
2. Learn the complexities of EU law, multi-lingual communications and product differentiation before expanding onto continental Europe
3. Partner with local expertise, either as consultants, agents, distributors, joint marketers, joint venturers or merger & acquisitions
4. Expect to achieve higher prices, but with higher costs and potential adverse translation effects back into U.S. dollars
5. Do not go into Europe for want of a better strategy. If you do not plan to be a major multinational, it may be very much better to stay at home and export your products - the Internet makes this much easier nowadays

Luckily, you are just seconds away from some very smart brand marketing solutions. Click here!

For further information, please contact enquiries@mudvalley.co.uk

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