Brexit was a major global economic shift not just for Europe. At the time, we couldn’t believe it was happening — and then we all had a good laugh about people Googling “what is EU?” that night — but when the dust settled, it was very real. We don’t know exactly how Brexit will play out and what it might look like in five years, but we do know one basic fact. Let me run through a quick scenario.
18 months ago, if you went to a U.S. company looking to expand into Europe, where do you think they might try to base their European headquarters? In probably 70 percent or more of cases (this is relative to industry, yes), the answer would be London or near London. That’s very different now. First of all, the United States is dealing with some of their own issues — while it seems less and less likely that Donald Trump will win the Presidential election, it’s not over yet. A Trump victory could send a lot of U.S. companies looking for a foothold in the European market — because it would potentially create market instability at home — or it could have the opposite effect. Again, we don’t know 100 percent yet.
When you look at the post-Brexit landscape, though, the first opportunity that jumps out for a U.S. business is to establish HQ roots in Germany. The U.S. and Germany are very different business cultures, yes, but Germany is by far the biggest economy in Europe — the United Kingdom is No. 2 and France is No. 3, and Germany’s nominal GDP is nearly double France’s. There have been recent concerns about the German economy here and there, but it’s picking up of late — German business confidence among executives is at a two-year high, and manufacturing jobs are seemingly back.
Here’s another quick factor on Germany: if you are trying to gain a foothold in the European market, German is extremely central. It’s about a 1-hour flight from the United Kingdom, and it’s near Zurich as well (a major international banking hub, of course).
But now for the real secret. Entering the German market from abroad (even from London) can be tough; German culture, while currently (for better or worse) extremely open to refugees, can be hard to crack from the outside in a business sense.
Now, what should any good entrepreneur do with any aspect of their business?
Test, test, test. Iterate, iterate, iterate. That’s how you grow.
Here’s how you “test” the German market: you enter through Austria. Austria has dozens of competitive advantages for global business partners ultimately looking for a German foothold. Some include:
- Proximity to Germany
- Political stability
- Skilled labor
- High productivity
- International competitiveness
- High-quality telecommunications infrastructure
- 80 percent of major businesses located in Vienna (reduced travel costs; ease of scheduling appointments)
There are already about 330 U.S. firms invested in Austria in some capacity. While I don’t know each founder of each firm first-hand, I’d almost guarantee you over 60 percent of them are in Austria with an eye towards the broader German market.
So there’s your post-Brexit strategic play for EU expansion: pass on London (too much uncertainty) with an eye towards Germany (the big fish), but begin your German approach in Vienna.