Not long ago, expanding to Europe was a natural progression for growing and ambitious U.S. tech and life science companies. An office location in Zurich, Amsterdam or London has become the standard for expanding American startups. However, 2020 brought an abrupt halt to those expansions. Facing a global pandemic, broad travel restrictions and rapidly shifting consumer and investor priorities, U.S. companies are currently reevaluating their options, questioning the conventional way of expansion. EY expects that Covid-19 is likely to reset investors’ perceptions about which countries and cities in Europe are considered attractive (EY European Attractiveness Survey, July 2020). Businesses might start to favor European countries less affected by the first wave of COVID-19 such as Switzerland or Germany, at the expense of the more affected countries such as Spain or Italy. According to EY, Covid-19 might even reverse the fortunes of Europe’s major cities such as London and Paris, with those that are more vulnerable to global crises such as a pandemic, potentially becoming less attractive in the future.
Expanding in times of Covid-19
Making the decision to expand to Europe is never easy. Any company that wants to succeed in Europe needs to find the best location to lay the foundations for growth. This process involves various decisions and considerations, from talent availability to salaries and labor laws to tax rates and just about everything in between. The global pandemic adds a new layer of complexity to this process. However, the complexity and the ongoing global pandemic should not hide the fact that Europe presents a key growth opportunity for most U.S. companies. With close to 750 million people and a combined GDP exceeding that of the U.S., Europe was, is and will be the single-most important market for U.S. tech in the next decade.
The inability to travel has made many U.S. companies delay their expansion projects. Most of our active projects were put on ice by the end of March 2020. Since then, only a handful have materialized but none of the projects can be considered obsolete. Interestingly enough, in the last few months the number of U.S. companies that conduct due-diligence for an upcoming European expansion has risen to the levels of previous years. Virtually all of the latest requests are from life sciences companies or companies servicing the life science sector.
Having a closer look at successful expansion projects from the U.S. into the Zurich region since the beginning of the pandemic, one might expect that you’ll find companies with a global footprint or unicorns on the list. Surprisingly, none of those types of companies are on the list but fast growing startups with truly decentralized company structures are setting up shop. What those startups have in common is the fact that their European expansion follows technical talent and that they feel comfortable having their engineers working remotely. According to Frontline VC’s recent report, the Bay Area bottleneck has driven countless startups to look globally for technical talents and Covid-19 will accelerate this trend (Frontline VC, Global Ambition 2020 Edition, June 2020). Considering the complexity of Europe with different tax systems and labor laws across the continent, companies might avoid having engineers spread out in Europe anytime soon. Frontline VC expects that over time, as American companies experiment with truly distributed workforces in the U.S., this trend will come to Europe and further increase the interest in technical talent.
While there is no single playbook to expand from the U.S. to Europe during and after the Covid-19 crisis, the current crisis is a wake-up call to companies that the global environment can change from one day to the next. Strategic foresight and improved site selection strategies are paramount these days. The competition among jurisdictions and companies will be fierce once our economies open back up again. Until then, the backlog of U.S. companies ready to expand will be growing.
About the author
Lukas Sieber is Executive Director USA at Greater Zurich Area (GZA). Prior to GZA, he worked at Burson-Marsteller Switzerland as digital strategist, developing digital and social media campaigns for national and international clients in the EMEA region. Previous to Lukas’ position at Burson-Marsteller, he worked at the Embassy of Switzerland in Washington, D.C., and was responsible for all public diplomacy activities and programs for the Swiss government throughout the United States. Lukas hold a master’s degree from the University of Zurich in Political Science and Geography and earned a postgraduate certificate in International Business Management from Georgetown University.
This article was first published by Anker Ventures LLC.