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Why it's so challenging for American companies.
Janet Kersnar, CFO Magazine
December 1, 2005
In 1967, Le Defi Americain (The American Challenge) shot up the best-sellers' list in France. Its author, the flamboyant intellectual Jean-Jacques Servan-Schreiber, predicted that a growing number of U.S. multinationals crossing the Atlantic would use their superior management techniques, technology, and innovation to outclass European rivals and dominate business.
In many ways he was right. The United States is now among the dominant foreign investors in every country in the 25-member European Union. Transatlantic flows of trade and investment amount to around $1 billion a day, accounting for roughly 40 percent of the world economy, says the U.S. Chamber of Commerce to the EU.
So why does it seem to be getting harder rather than easier for Americans to do business in this giant single market? A study by Bain & Co. found that from 1988 to 2004, 40 percent of all expansion efforts by U.S. retailers in Europe failed. Part of the explanation lies with flawed strategy. But another problem is the stubborn belief that what works, say, in Milwaukee will also work in Madrid. Even almighty Wal-Mart has struggled to conquer Germany's fiercely competitive discount market, and stumbled in the UK with the Asda chain, which it acquired in the late 1990s. This hasn't put an end to the company's growth plans, but it has certainly slowed them down.
The truth is, Europe isn't the single market Americans would like it to be. Although the European Commission recently said that it wants to reduce red tape for businesses by scrapping hundreds of EU laws, overregulation remains a big problem, not only at the EU level, but also throughout each member state. As one American CFO of a U.S. subsidiary put it: "You can't come over here thinking you can put in a one-size-fits-all model."
It's not just tax or accounting issues that confuse American CFOs. Arguably the trickiest part of the European equation for American companies to grasp is the labor environment. First, labor unions wield enormous clout and expect face time with senior executives. Also, many laws favor employees, not employers. That's clear from the World Bank's revelation that it costs an EU company more than 30 weeks of wages, on average, when it lets an employee go. In the United States? Zero.
Consolation comes, in fact, from Servan-Schreiber. He observed that U.S. firms make far more mistakes than their European rivals, but a big advantage of the Americans is that they're fast, adaptable, and willing to learn. And besides, he wrote, with a French intellectual's nonchalance, "Growth never comes without a challenge."
Janet Kersnar is editor-in-chief of CFO Europe.