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Invest in Europe

The pros and cons of investing in Europe, and a look at the investment potential for Slovenia, one of the newest members of the European Union.

By Ellen James (with an introduction by Clem Chambers, CEO, ADVFN)

Introduction

Europe is a huge market—with a population of 380 million people living in the recently enlarged European Union (EU). Yet while there are ongoing moves to harmonize this wealthy zone, the underlying business proposition is fractured. Outside of the different legal frameworks in each country there are many other critical factors to consider.

The overriding factor is language. The impact on operations of working in two completely different languages is profound. The chances of communication breakdowns dramatically increase the risks and costs of setting up a business far away from headquarters. Yet much of Europe's member countries have a deep pool of language skills—many Scandinavians, for example, seem to speak better English than the English!

Selecting a location is the most important initial decision. Clearly the choices are different for different businesses. For companies looking to manufacture, a location like Poland, with its lower costs and proximity to Germany, is going to be appealing. For companies looking for a representative office, a rich node like London, Paris, Brussels, or some other prestige capital is more suitable.

What should never be underestimated is the red tape involved with starting a business in Europe. The U.S. and the UK tend to operate on a basis of "you can do it if it is not illegal," whereas mainland Europe operates on a basis of consent. The rule is: you need to get court permission for even the smallest formalities. This can be both expensive, frustrating and can slow down the process of opening up a European arm to a snail's pace.

Employment laws are another pitfall. France and Germany, for instance, give such protection to workers that most economists blame the huge unemployment problems there on the fact that companies are reluctant to hire anyone for fear of never being able to get rid of them. This culture can come as a shock to "hire and fire" U.S. companies.

While Europe may seem a single market, it does not yet operate like one. There are few trans-European enterprises—for instance, companies might sell in all markets, but they will most often do the bulk of their business in the European territory of their headquarters. While this is slowly changing, you should still consider basing yourself in the country you consider to be your key European territory.

—Clem Chambers is CEO of stocks and investment Web site ADVFN.

BIG POTENTIAL IN A SMALL PACKAGE

The country of Slovenia, part of the EU since May 2004, offers a hospitable business climate for foreign investors interested in a European locale. Nestled in Central Europe, Slovenia borders Italy, Austria, Croatia, and Hungary, and extends across the Swiss Alps, the Dinaric Alps, and the Pannonian Plain to the Mediterranean. With a population hovering around two million, Slovenia is about half the size of Switzerland land-wise. Described by some as a small transition economy, Slovenia had a GDP per capita of $13,849 in 2003. As one of the more developed members of the EU-10 (the 10 members admitted to the EU in May 2004), Slovenia's GDP per capita is closer to the EU average than that of Greece, and will exceed 90% of the EU average GDP by 2015, according to a forecast by the Vienna Institute for International Economic Studies (WIIW).

 

According to the 2004 Country Commercial Guide (CCG) for the Republic of Slovenia, a comprehensive analysis of Slovenia's commercial environment through economic, political, and market analysis put out by the U.S. & Foreign Commercial Service and U.S. Department of State, "Slovenia has been a star performer since its independence in 1991. It has registered dramatic gains in per capita and aggregate wealth, established a stable and well-functioning democracy, and raised the standard of living for Slovenes to a level on par with the smaller Western European economies."

The majority of inward investment in the country currently comes from European sources: Austria (24%) and Switzerland (22%). According to the 2004 CCG for the Republic of Slovenia, U.S. foreign direct investment (FDI) in Slovenia is relatively small at approximately 10% of the total FDI amount, or roughly $450-500 million. (The Bank of Slovenia, in its official data, lists U.S. FDI at slightly less than $83 million, or $93.5 million at 2003 exchange rates. However, this amount does not take into account significant investments by U.S. firms, notably Goodyear and Western Wireless.) In 2002, there were a total of 69 American foreign direct investments, of which 41 were on greenfield (undeveloped) sites. In 2003, there were an additional 63 American investments, of which 38 were greenfield. The number of U.S. companies present in Slovenia is steadily increasing. In 1998 there were 46 U.S. affiliates in Slovenia; by the end of 2003 the number had reached 72. Some major U.S. companies that have already set up shop in the country are Pfizer, Eli Lilly, Schering-Plough, IBM, Microsoft, Ernst & Young, and Motorola.

Pomurje Region

In the northeast corner of Slovenia lies the region of Pomurje. Its attractive position (to the north it borders Austria, to the east Hungary, and to the south Croatia) has connected this region economically, developmentally, and culturally to its neighboring countries. Economic cooperation with these countries gives Pomurje invaluable advantages and possibilities for interregional cooperation and new business contacts. Because of its location, the cultural diversity and familiarity with various national perceptions are unique to this area as well. People in the Pomurje region are often multilingual, with German and English being the more popular second languages spoken.

Generally, the local communities in Slovenia can't offer tax incentives. What they can do, though, is help to speed up different processes, and—in some cases—offer additional help with such things as infrastructure upgrades. The regional development agency known as Mura, in cooperation with local development agencies and the Business Incubators Network in Pomurje, offers a range of support programs and measures to help newly established companies in the region.

Regional Business Opportunities

Value-added processing activities represent the Pomurje region's principal economic activity, comprised of four industries: textile, food and drink, oil, and chemical. The metal processing industry and trade also plays a significant role in the history of this region, while the transport/logistics and the building sectors represent great development potential for the future.

Pomurje offers five industrial/business areas, located in the cities of Murska Sobota, Lendava, Gornja Radgona, and Ljutomer. These business areas are already equipped with infrastructure facilities such as water and electricity supply systems, telecommunications, and fiber optic cables; they are also connected to water purification plants, which are designed to meet all EU ecological standards. These areas allow for quick startup of construction work, with a streamlined building permit process. The areas are also conveniently located alongside the main network of roads and railroads, enabling an uninterrupted movement of goods to virtually all areas of the EU. A connection to the motorway network, which is a part of European Corridor V (Barcelona-Kiev), is now under construction, slated for completion in 2006.

One of these business areas—the Lendava Business Park—covers 460 acres, with 1.7 million square feet of land for development, and the possibility of another 5.4 million square feet for development. A business incubator that operates in the park offers production facilities in a building owned by the Development Public Fund of Lendava. Today there are 20 companies operating in the Lendava Business Park.

Another major business area is in the municipality of Murska Sobota. The park is currently under construction, and is anticipated to span 124 acres. A bypass providing access to the industrial zone is planned, as well as a railway line extension. Construction of the zone will take place in two phases. In recent years, the regional center of Murska Sobota has progressed considerably due to the concentration of the region's economic activities in the town, which offers excellent prospects for successful companies. Companies arriving in the region are offered excellent conditions for construction in the newly created industrial zone and the development friendly climate in the Enterprise incubator.

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