December 1, 2008

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The Euro Effect

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The Euro Effect

Europe Opens a World of Business

Jane Gendron

December 1, 2008

For many Utah businesses, the land of opportunity lies across “the pond.” Europe, currently equipped with the Euro and a promise of continental unity, is becoming a global market of impressive stature. The good news for globally minded companies: Europeans are buying what Utah’s selling. “Historically, we have seen an exponential increase in international trade between Utah and Europe,” says Franz Kolb, regional director for international trade and diplomacy with the Governor’s Office of Economic Development. Last year, the state had a 14 percent increase in exports to Europe, according to Lew Cramer, president and CEO of World Trade Center Utah. Cramer adds that the state is currently on track for total international exports of $8.2 billion in 2008, which doesn’t include indirect exports (products traveling through other states before being shipped internationally) and intangibles such as film production and services. In short, Europe is Utah’s largest potential trading block in the world, says Cramer. Throw in a weak dollar, a not-so-border-intensive European Union (EU), a direct Salt Lake City-to-Paris flight and a Utah population of linguists and, voilà, European trade is looking good. From nutritional supplements to software, savvy Utah companies are riding that money train from London to Kiev. The European Appeal “With today’s Euro effect, we have an immediate 30 percent price advantage over our European competitors,” says Cramer. Conversely, it’s more expensive to open American offices abroad, so, as Kolb explains, it’s vital that an international strategy looks beyond the exchange rate. Utah businesses that have found success in Europe have done just that. Glen Jensen, CEO of Agel Enterprises, says his company does about a third of its sales in Europe. He explains that while the Euro has been “big for us lately,” several other factors contributed to the three-year-old company’s decision to launch a European expansion in 2006. Agel produces and sells single-serve gel packs of nutritional supplements, which are distributed in 50 countries through a direct sales model. So, sifting through fewer layers of regulatory procedure has its appeal for the young company. On some levels, the unity of the EU allows Agel to deal with more generalized regulations as opposed to each individual country’s regulations. Furthermore, with countries like Germany playing a bigger role in the industry, Agel simply saw a need for a European presence. Jensen adds that the direct sales model fits in well with cultural norms that exist in Europe. “In many of the European countries, people are used to buying products from a friend or a neighbor,” he says, estimating that more than 100,000 of the company’s 350,000 sales people are from Europe. For Randy Hales, CEO of Mity Enterprises, “The sheer size of the European market was interesting.” The opportunity in Europe, he says, is even larger than domestic markets. Aggregate international shipments are up 74 percent this year at Mity-Lite (a division of Mity Enterprises), says Hales. Mity-Lite has been shipping its lightweight and durable tables and chairs to Europe for several years and the company opened an office in Saarbrücken, Germany in June. “Some of the [EU-related] challenges we have to deal with—legal, banking, regulatory agencies, reporting requirements for various countries—that hasn’t gone away yet,” he says. “But, heck, there’s a common currency and the borders are open. It helps significantly.” Franz Kolb agrees that the EU has brought about significant change to business in Europe. For example, he explains that before the EU’s formation, a company would have to fill out 73 pieces of paper to transfer a truckload of goods from Sweden to Italy; today, that bureaucratic paperwork has been reduced to just five. Kolb, who grew up on the Austrian-German border also describes the dramatic shift in European borders. “They would shoot people in my lifetime. Today, there is no border anymore. It’s open. It’s like going from [Utah] to Idaho,” he says. The freedom of moving goods and workforce across borders, as well as mostly operating in a single, strong European currency also has its appeal for Hanko Kiessner, CEO of Packsize, LLC (a provider of innovative, corrugated packaging solutions). With a population of over 400 million, Europe’s potential is exciting, says Kiessner, adding that the European market also offers risk diversification. “We can offset slower growth rates here in the U.S. with faster growth rates over in Europe,” Kiessner explains. And should the balance tip in the United States’ favor, it will help counter slower international growth. Packsize’s European growth is up more than 300 percent over last year, which has outpaced the company’s domestic growth, according to Kiessner. While monetary exchange rates and relatively open borders might be part of that growth, he attributes his company’s success to the application of Packsize’s American model to European operations 18 months ago. “That is where we went from very level sales, to exponential sales development,” he says. European expansion has also resulted in exponential learning, says Kiessner. For example, he’s found that within three weeks of developing a solution for a German customer, the same request emerges in the U.S. marketplace and vice versa. Omniture, Inc., a Web analytics company, has also benefited from an international learning curve. Aside from tapping into the European market’s potential revenue, the infrastructure (in terms of people with extensive executive-level experience in technology) is remarkable, says CEO Josh James. He’s found that Europe, particularly Western Europe, is brimming with people that have headed-up European units of companies like IBM and Oracle. Plus, he says, Europeans are used to buying technology from American companies, which means these experienced executives understand the nuances and challenges of working with a company headquartered in the U.S. “When you want to go to Europe, you just lock and load. Boom. You’re done. You hire the people. They’ve done it 10 times before. They tell you how to do it. They tell you what you’re doing wrong,” says James. “Actually, because they’ve been at such big companies before, they can give you advice about how to run the global company.” According to James, Europe currently makes up the majority of the approximately $80 million Omniture does in overseas business on an annual basis. Pros and Cons Despite all the current perks of doing business in Europe, there are cultural, linguistic and logistical challenges involved. According to these executives and trade experts, the key to overcoming at least cultural and linguistic obstacles is “localization.” For logistical and regulatory woes, time, preparation and a good strategy are all vital, according to Kolb. Agel, Omniture, Packsize and Mity-Lite traverse cultural and language barriers by hiring talent in the nations where they’re doing business. According to Hales’ experience, most international business executives are comfortable with English. However, it helps to have employees that are hip to the nuances of each nation. Some nations are trickier to immerse one’s business in than others. “You have to be somewhat familiar with local languages,” says Kiessner. “Take France. You better know French to do business there.” While all agree that localization is important, James points out that the company’s mindset must shift along with hiring international employees. For example, he says that sending out company-wide e-mails with jokes that only Americans will understand most likely will backfire. “Not only do [international employees] not get it, they’re offended because you act like they don’t exist,” he says. So, being cognizant of international differences within an American-based company is important to employee retention. To supplement or precede the hiring of local talent, Utah businesses have the distinct advantage of being surrounded by a well-traveled, multilingual pool of fellow Utahns. On top of hiring abroad and at home, Jensen, Hales, James and Kiessner all travel—and they travel a lot. “If you’re going to run a global company, you’ve got to be globally minded. You have to be there. You have to go and see it, feel it and touch it,” explains James. You also have to do your homework. As Jensen explains, “Although the EU is supposed to be an organized union, it’s not.” Yes, there are general regulations that apply to all EU countries, but some nations have their own regulatory processes on top of what the EU demands. And not all European nations have embraced the EU wholeheartedly. Sweden, for example, sticks to its own currency and its neighbor, Norway, hasn’t joined the union at all. Jensen stresses the importance of understanding each nation’s laws and regulations. In France and Italy, for example, there are specific steps a company like Agel must take to ensure that its independent salespeople are not considered employees. If they neglect those steps and independent salespeople are classified as employees, the company may end up paying a year’s worth of severance—even to someone who sold the products for a short time, he says. While expensive pitfalls can be avoided through research, the strong Euro does translate into upfront spending, in most cases. Other than the obvious costs involved with setting up shop abroad, most of these companies have to translate packaging and software into several languages. Packsize, for instance, has developed software in eight languages. In Agel’s case, the company has developed a different formula for Europe than what it sells in the United States marketplace; the formula for Asia also differs from the other global regions. “Companies have to have a strategic plan and they have to have a little bit of time to grow the business,” Kolb says. How a company goes about global expansion is specific to each business. Some may start in Canada to get their feet wet. Others may be better suited to pursue “tier one” European markets like Great Britain, France or Germany. Both Kolb and Cramer see it as their respective entities’ role to help forge relationships, solve logistical issues and open doors for Utah businesses abroad as well as international businesses at home. By establishing customer and employee relations, the idea is that business will remain strong once the economic playing field levels out. “There are a lot of Utah companies that are doing well in Europe and our job is to see that more do so. The Euro won’t always be where it is. Relationships built up over the years will be,” says Cramer. Into the East Western Europe tends to be the starting point for most Utah companies that tackle European expansion; however, none of these businesses are discounting Eastern Europe. According to Cramer, the United Kingdom weighs in as the heaviest hitter, boasting 31 percent of Utah’s international exports. That figure is most likely skewed by the value of the products, such as gold, being shipped, explains Kolb. Britain’s neighbors, such as Germany, Switzerland and Belgium, are becoming more prominent trading partners with the Beehive State, explain Cramer and Kolb. Mity-Lite chose Saarbrücken, Germany in part for its centralized location with easy rail access to the rest of Europe. A value added tax position relative to other EU countries also made Germany a good spot, according to Hales. Agel, on the other hand, has European offices in the west and the east: the Netherlands, France, Ukraine, Kazakhstan and Russia. Packsize has two main European offices, one in Germany and the other in Sweden, and Omniture has European offices in London, Paris, Munich, Copenhagen and Stockholm. “Europe is like one country now in terms of organizing and running a business. You don’t have to have facilities and offices in each of the countries,” explains Kiessner. He says that some of the strongest growth is occurring in the former eastern block countries: Poland, Romania, the former Baltic republics and parts of Russia. The bottom line: global expansion, wherever it takes a Utah business, has the potential to be profitable. Citing Novell as an example, Kolb says that a few years ago, the Utah company did more than 50 percent of its $1 billion in sales in international exporting. “This is truly serious business,” he says. “There are wonderful business opportunities abroad, but that doesn’t mean that there aren’t any failures.” In other words, just because Uncle Joey thought you could sell your widget in Paris, doesn’t mean you should. The Utah effect So, what does all this shipping off to distant lands mean for the folks at home? Monies earned through European exports of companies like Agel, Omniture, Packsize and Mity-Lite are repatriated into the Utah economy. Some jobs go abroad, some are created here. And as the expansion continues, so do the profits and the volume of manufacturing (much of which is done in Utah as well as locations around the world). Exposure to European markets also means learning. Increasingly, Utahns from bankers to lawyers to software developers are becoming sophisticated in the ways of international trade. And with the dollar devalued and the economy stagnant, the “Euro Effect” also means that Europeans are investing in Uncle Sam’s backyard. “Utah is on sale,” explains Cramer. Companies like France’s Sephora and Findland’s Amer Sports, for example, are taking advantage of the discounted wild West. The Euro Effect isn’t a perfect storm of exchange rate roulette. Yes, a weak dollar gives American business a competitive edge — for now. Anyone who’s opened a newspaper in the past few months knows that these are volatile times in domestic and world markets and no one is working in a protected vacuum. What this new land of opportunity presents is just that: opportunity. Sure, there’s bureaucracy and cultural differences, but Utahns are rising to the challenge, taking their tidy profits and boarding that direct flight back to Salt Lake City with a heartfelt “merci.”
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