Not so long ago, the EU was a formidable competitor on the world economic stage. But a lot has changed in the past five years. The real GDP growth rate for the 27 EU member countries stood at 3.2% in 2007. But following the economic crash in late 2008, EU GDP shrank by 4.3% in 2009. Things haven’t gotten much better since: according to Eurostat, the European Union’s statistics office, EU GDP is projected to grow by only 1.5% this year.
While many companies have been scared off by the dire economic numbers, a dynamic market is often easier to enter for companies looking to expand their global reach. At the same time, says Klaus Houben, a senior regional manager with Export Development Canada in Dusseldorf, Germany, it is important to remember that not all 27 EU member countries have been equally impacted by the debt crisis.
Market instability hasn’t stopped AeroMechanical Services Ltd., a Calgary-based company specializing in automated flight-information reporting systems, from ramping up its business in Europe. The company has had an office in Zurich for seven years and launched an office in Dublin three years ago, just as the debt crisis was beginning to crater the Irish economy.
Since AeroMechanical offers technology that will help airlines in Europe meet new regulations coming into effect in 2015, president and CEO Bill Tempany says, his business has not been impacted much by the European debt crisis. “Even during downturns, companies have to invest to comply with government regulations,” he says.
In fact, Tempany is so confident that he plans to add more staff to the Dublin office soon. “We’ve been able to get people at very reasonable pay rates in Ireland; there are lots of skilled, eager workers there right now,” says Tempany.
One of the hardest-hit countries in the EU, Ireland’s unemployment rate surged from 4.7% in January 2008 to a sky high 14.8% in January 2012, according to Eurostat. It was dubbed the Celtic Tiger in the ‘90s for its economic prowess, but now Ireland is being blamed for many of Europe’s economic woes—along with the EU’s other debt-ridden members, known collectively, and derisively, as the PIIGS: Portugal, Italy, Ireland, Greece and Spain.
Not surprisingly, similar unemployment situations exist in those countries. From a record-low unemployment rate of 5.7% in mid-2007, Italy’s unemployment had risen to 9.7% by the start of this year. In Greece, unemployment rose from 9.1% in the first quarter of 2007 to a high of 19.9% in December 2011. And Spain has faired worst of all, with unemployment rising from 8.3% in 2007, before the crisis hit, to a whopping 23.3% in January of this year. “There are also general labour advantages in eastern European countries,” says Houben.
The tough economic climate in the EU also has not deterred Glenn Johnson, CEO of Endurance Wind Power, a Surrey, B.C.-based manufacturer of wind-power applications, from expanding in Europe.
Endurance Wind Power launched in 2007, just ahead of the 2008 crash, yet things have only looked up for the company. Endurance currently does almost 65% of its business in the U.K., and the company recently inked deals to put up turbines in Italy, Greece and Germany.
“When people hear we do business in Europe, they feel bad for us, but in fact we’re growing,” says Johnson.
Endurance currently has to ship completed turbines to its overseas customers. But the demand for wind power is growing so much in eco-friendly Europe that the company now is planning to open a factory in the U.K. The environment remains a top concern for Europeans, and government commitments across the EU to cut greenhouse-gas emissions by at least 20% of 1990 levels by 2020 are helping firms like Endurance grow.
Houben says there are incentives available for companies looking to locate facilities in certain regions of the EU: “There are tax incentives, grants and subsidies; it differs from country to country.”
Meanwhile, cash-strapped governments and businesses throughout the EU are looking for ways to cut costs, creating an opening for companies offering products, technologies and services that allow organizations to do more with less. In addition, many European governments now are investing in infrastructure to create jobs, says Houben, and additional opportunities will spin off from these projects.
Houben says it also should get easier for Canadian companies to do business in Europe once the Canada/European Union Comprehensive Economic and Trade Agreement (CETA) is finalized, hopefully later this year. A recent study conducted by the Small and Medium-Sized Business Advisory Board and the Canadian Federation of Independent Business (CFIB) found that the main reasons cited by companies that no longer do business in Europe were cost (64%) and complexity (46%) rather than market instability.
However, the SME Advisory Board/CFIB study also found that 54% of SMEs surveyed plan to increase their business in Europe in the next three years.
And while it may take years for Europe’s economic and political systems to recover fully, Canada’s strong banks and stable political system have left us robust and poised to lap the Europeans.
Endurance Wind Power has raised capital for its European expansion from Canadian banks and private investors. AeroMechanical Services has a line of credit with a Canadian bank, but most of its funding has come from investors.
The story is quite different for European companies. “At this time, European companies have issues accessing financing, even major ones,” says Houben. “Banks across Europe have become more restrictive due to strategy changes and funding issues, while other banks have folded.”
In addition, Canadian companies should see less competition from Europe in emerging markets for some time, says David Roach, an associate professor at Dalhousie University’s Norman Newman Centre for Entrepreneurship. In the coming years, the BRIC countries—Brazil, Russia, India and China—will become increasingly important markets for Canadian businesses, Roach says: “Assuming things don’t get worse in Europe, Canadians have a two- to four-year head start.”
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