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2001 BW 50

SPRING 2002

EURO-TECH
By David Fairlamb

For U.S. Small Biz, Fertile Soil in Europe
An upswing in corporate spending is good news for nimble and nurturing American companies doing business on the Contintent


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Forget the terrible exchange rate, the Continent's predilection for red tape, and the increasingly bitter trade disputes between the European Union and the U.S. This year is turning out to be a bumper one for many small and midsize American companies selling to or operating in Europe -- especially high-tech companies. "We're very pleased with the way things are going," says Alastair Martin, a director in the Bracknell (Britain) office of Blue Martini Software, a San Mateo (Calif.) high-tech company. "We're seeing dramatic growth here. Much better than expected."

Small and midsize companies account for more than 60% of the annual $210 billion worth of goods the U.S. exports to the 15-nation European Union, and their share of the export pie continues to grow. Because they're nimbler than their bigger rivals, smaller businesses can more easily seize opportunities. "They sell more aggressively," says the head of purchasing for a large European chemicals company. "And they price more realistically."

Smaller companies also tend to be better at nurturing relationships than their bigger rivals, so they should benefit more than their larger compatriots from the current upswing in European corporate investment.

SHARED VISIONS.  One reason U.S. tech companies have done well despite Europe's economic slowdown is that they're less affected by the strong dollar. "People commit to a new technology because they share your vision of what it can do, not because of how much or little it costs," says Dan Bogue, the CEO of Command Audio Corp., a Redwood City (Calif.) company that specializes in digital radio systems. The exchange rate "makes little difference for us from a practical point of view."

Besides, most companies are now accustomed to working with the strong dollar. "It's not so much the level of the currency as unpredictable movements in it that cause problems," says Alison Holmes, head of British American Business Inc. (BABI), a London-based trade-promotion organization that includes many small businesses among its members. "And the exchange rate is fairly stable at present."

Finally, service companies tend to weather tough times better than manufacturers. Indeed, Blue Martini, which employs 60 people in Europe, recently signed up three new clients in Germany for its customer-relationship management services. "Demand is brisk," says Martin.

LESSONS LEARNED.  Other smaller U.S. high-tech companies are doing just as well. Take Tripwire, which provides data and networking security systems. In January, it beat out a host of rivals from Europe and the Far East to win a contract to supply its systems to Swedish telecommunications giant Ericsson.

Meanwhile, Internet systems security provider WatchGuard Technologies has almost doubled its staff in Europe, from 12 to 20 over the past six months. That's partly because Jeremy Butt, vice-president of the company's operations in Europe, the Middle East, and Africa, is applying lessons he learned in his previous job as head of Cisco Systems' distribution network. European companies "are spending heavily on security systems in the wake of September 11 and all the horror stories about viruses," Butt says.

Such growth prospects aren't universal. The lingering economic slowdown in Europe is hurting many nontech companies. Food and wine exporters from the U.S. to Europe are being hit by depressed consumer demand. Clothing and fashion companies -- from Fruit of the Loom to Gap -- are also languishing.

"DOUBLE BIND."  And the strength of the dollar doesn't help. "If you're manufacturing there and selling here, you're in a double bind given high U.S. costs and the strong dollar," says Christoph Oppenheim, head of C.M. Oppenheim, a Frankfurt-based headhunter that finds staff for the German subsidiaries of U.S. companies.

However, Oppenheim says the biggest problems facing small and midsize U.S. companies in Europe this year are the same ones facing their European counterparts: increasing red tape, restrictive labor practices, and an inflexible labor market. France's recent extension of the 35-hour work week to cover small businesses hurts the subsidiaries of U.S. companies just as badly as it does the locals.

So does Germany's insistence that its co-determination rules -- whereby workers get seats on companies' supervisory boards -- apply to small as well as large companies. "On top of that, the [German] government is responding to the country's economic problems in exactly the wrong way," says Oppenheim. "It gives too much influence to the labor unions and has created a climate that isn't conducive to entrepreneurship."

"LOOKING UP."  Another problem: The 15 countries joined in the EU -- 12 of which are now using the euro as hard currency -- each have their own regulatory requirements. That's enough to test the nerve and stretch the resources of IBM, let alone those of an entrepreneur.

Still, most small companies operating in or selling to Europe seem to think 2002 will be a good year, certainly better than 2001. "Confidence is on the rise," says BABI's Holmes. "You'd be surprised by just how many of these companies from the U.S. are now setting up shop here. Things are looking up."

For New Economy companies, the Old World may be the land of opportunity.


APRIL 1, 2002



Fairlamb covers European finance and business from BusinessWeek's Frankfurt bureau
Edited By Thane Peterson

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