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8 Key Factors for European Companies Entering the USA Market

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JORDI RIERA
Partner at Active Development
12 February, 2015
 

The USA has always been considered a land of opportunities. This is true to some extent as we can see with success stories from European corporations that have been able to grow and diversify their revenues by expanding their business into the USA. There are plenty of successful examples from different industries: MERCEDES, TORRES, BOSCH, etc.

But CAN THE AVERAGE SMALL OR MID-SIZED COMPANY SURVIVE IN THE USA? Some of them manage to, but not all of them. There are several reasons why European companies expanding into the USA are unable to succeed: money, time, culture, understanding the market and/or product…. These are the ones I believe are critical:

1) UNDERSTANDING THE MARKET

Understanding the market means being fully aware of your competitors in the market, price points, offering, speed of the market, performance, market share, key players, and distribution channels.

Surprisingly, a lot of companies enter the USA market without fully understanding these key points. The USA market is a much faster and quicker decision making market, it operates at a completely different speed than Europe, and normally it has more distribution channels available to sell than in Europe. This has its advantages and disadvantages. One of the things that you need to understand is that in the USA your company will need to function at a faster speed than in Europe. In order to accomplish this, more money and resources are needed in order to deliver to your customers. Product lifecycles are very short, innovation is key and competition is extremely aggressive. These factors can generate “cultural” conflicts between the USA subsidiary and the headquarters. You cannot approach a market like the USA like you do markets in other countries in Europe.

2) UNDERSTANDING THE COST OF MARKETING AND SALES

The USA is a country filled with massive marketing. It is probably the best marketing business school you will ever find. Everything is driven by marketing. When you go to sell your product, nice looking presentations, final product samples with final packaging, catalogues, videos, a marketing plan, etc are the key factors to help you sell. Europe is more “product spec” driven. The USA market does not focus as much on the product, but more on how to sell it. Marketing and Sales departments are valued more and play a more crucial role. Advertising and promotions play a key role, much more important than in Europe, and a lot of European companies fall short when budgeting for Marketing.

Probably the first person that you will hire is the person responsible for Business Development (finding and closing accounts). For these functions, it is almost never a good choice to send someone from the European Headquarters, at least not when you are just starting your business in the USA. You need somebody that has marketing and sales experience in the USA.

3) UNDERSTANDING LABOR RELATIONS, BENEFITS, LEGAL AND TAX

You cannot ask certain personal questions in the USA during an interview (age, marital status, etc), this is considered illegal. You need to offer benefits, this is a “bonus” driven country, and these bonuses are more aggressive than in Europe. You cannot offer a VP of Sales a 10% bonus, you need to be more aggressive. You need to set clear objectives and reward employees when these objectives are accomplished. You also need to understand all the legal and tax aspects. It is highly recommended to work with a US legal advisor.

4) LACK OF VISION

A lot of companies come to the USA because they get a call from a potential customer, but they have no plan beyond that one customer. They make mistakes regarding business development, financial and human resources, etc. Having a plan in place, not based solely on one potential customer is key, as well as an “exit” plan that needs to take place if the objectives are not reached.

5) MONEY

Yes, entering the USA market and having significant sales takes time and money. That means that if your company has $100K available to make the USA adventure, think twice, $100K will not be sufficient to allow you to rent an office and have a sales person for your first year (salaries are normally much higher than in Europe). A lot of times, European companies underestimate the funding required to reach cash flow break even. It is critical for European companies that want to enter the USA market to seek advice about the costs and the funding required from someone who has experience in the USA market.

6) UNDERSTANDING CONSUMER DEMANDS

The product that you have and is selling well in Europe may or may not sell well in the USA. You might need to make changes to the product in order to be more competitive. The USA market is more a “price point” and “volume” driven market, and sometimes that means that your product might not fit in well. Big box stores will tell you that they need to retail your product at X$, they will make Y% margin, so they need to buy it at Z$, and if you want your product to sell in their storeS, you need to meet their requirements. A $149.99 retail price might allow you to sell 100,000 units and a $129.99 retail price might take you to the 200,000 units.

7) CULTURE

Cultures are different and unique, not only do they differ by countries, but also by states in the case of the USA. The culture aspect must be factored in as you build your team and must be understood way before entering the USA market. As an example, you will find that consumers in California are way different than those in Kentucky.

8) PRE-ENTERING ACTIVITIES

A lot of companies do not conduct enough pre-entry activities to know the right setup in which to enter the USA market. You need to do market research and validation before investing in expanding your business into the USA market. It is essential that you partner with consulting firms that can help you, talk to customers and potential partners, try to start selling on your own by flying to the USA, try to set up a virtual office to show commitment to the market, etc. There are several activities or “strategic moves” that you can do before setting up an office in the USA. These activities can give you clues about your product/service, market, pricing, potential customers or partnerships, etc.

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