Welcome to euro cash

The lure of doing business in Europe sounds attractive - after all, the total value of the market runs into hundreds of billions. But what might sound like a good idea from the comfort of a boardroom in the heart of the English countryside could quickly turn into your worst nightmare.

Fly into any large European capital and there's a fair chance that the minute you hit the motorway, you'll be overcome by a sense of deja vu. It's invariably the offices lining the road into town - nondescript skyscrapers crowned with neon signs or billboards declaring the building's parent age, with the vast bulk of the real estate colonised by rival US and Far Eastern hi-tech giants.

Be they signs for Microsoft or Oracle, Hitachi or Sony, you could just as easily be on the M4 into London or on the autobahn heading for Berlin. But what the signs also underline is just how strategically important the European market is to IT vendors.

According to analysts IDC, the euro will account for a colossal $145 billion of spending power by European firms over the next seven years, with about 40 per cent of that going on IT and consulting services. Add to that the vast amounts that will continue to be channelled through existing currencies and it's easy to see why Europe represents the most important IT market outside of the US.

However, the problem for many UK innovators and distributors is how to get a piece of this lucrative European money cake. Home-grown companies are usually pre-empted from the 'big push' by the fact that US vendors with whom they're allied have already planted the Stars and Stripes in any vaguely worthwhile European market.

If, by some miracle, the technology was pioneered within these shores, the problem remains of finding sufficient funds to promote it abroad.

The City and Whitehall are both notorious for neglecting the UK's struggling IT industry, either through apathy or lack of understanding.

Take the case of Autonomy, based in Cambridge, a knowledge management specialist which develops software based on sonar warfare techniques that allows complex pattern analysis. Autonomy realised at the outset that it couldn't rely on the support of the City pinstripes if it wanted to expand into Europe and instead raised capital on Easdaq.

Dominic Johnson, marketing director at Autonomy, says: 'The decision to float the company in Europe was a very conscious one. We didn't bother with a London listing, the main reason being that the UK Stock Exchange still thinks technology begins and ends at selling computers. It just doesn't understand fundamental technology, but Easdaq does and we were able to get the investment base for long-term support, not just for Europe but elsewhere in the world.'

For other UK firms hoping to expand into Europe, which don't boast their own technology, the moral seems to be either get big or get niche. One company that has followed the latter path is RBR Networks, a Cisco-only distributor based in Cirencester. Unlike competitors such as Azlan and Ilion - which have tried in recent years to crack the European market and arguably had their fingers burned - RBR believes its business model is sufficiently portable to be exported abroad. It is currently in talks with Cisco to be the US vendor's distributor in Germany.

Joss White, marketing director at RBR, says this approach has enabled it to gauge very quickly the scale and growth rate of the German market and pitch for the distributor contract accordingly. 'When you're going in for this kind of deal, you have to be aware of each country's idiosyncrasies,' he says. 'For instance, Germans tend to be regional and companies in one area may be hostile to dealing with a supplier or Var based in another part.

'Some regions just refuse to talk to each other and it's important to know that, which is why we will always make a point of employing locals so that we know the lie of the land. But we're not so arrogant as to think our business model is so unique and foolproof that we can plonk it in any part of Europe and it will automatically succeed.'

While RBR subscribes to the niche approach of obtaining a foothold in Europe, others - particularly if they are into distributed IT services - inevitably have to think in terms of size if they are to survive.

Over at Computacenter, which floated in London in May last year and has a turnover of #1 billion, there is little doubt that size matters very much. Phil Williams, head of corporate marketing at Computacenter, claims the distributor is already the largest PC reseller in Europe, although that is mainly due to a strategy of providing leading customers with support on how to plan, maintain and manage their IT infrastructures.

Although Computacenter now boasts two European offshoots, in France and Germany, Williams admits the foray into the Continent has been a long haul that has not been helped by a skills shortage. He says: 'It's bad enough trying to recruit the right people in the UK, without trying to cope with different languages and cultures.'

Having said that, the distributor's French operation, opened in 1996, now has about 400 staff and is growing rapidly. The German division has only about a quarter of that number but only opened its doors for business in 1997.

Aside from concerns about the euro, what binds UK companies such as Computacenter and RBR Networks with their channel counterparts on the Continent are issues relating to EC law and, in particular, the European Social Chapter which is being launched across Europe, with or without the UK's acquiescence.

Directives issued under the chapter, with apparently increasing frequency, aim to create a level playing field on employment terms and conditions for workers and bosses alike. But for UK firms unfamiliar with such a level of 'outside interference', such demands can be onerous - to the point of undermining the viability of any expansion plans.

Even Tony Blair has balked at some of the EC's proposed constraints, calling for a lengthy transitional period before UK companies have to comply. Even so, directives relating to working hours, the right to unpaid paternity leave and the requirement for multinationals to set up work councils involving employees, are already starting to bite. UK dealers and resellers hoping to conquer Europe ignore such rules at their peril.

For IT entrepreneurs, the costs of complying with the directives can be high. Recent figures reveal that the state add-on cost to employers for every #100 of wages paid is only #15 in Britain. If they were to create similar operations in Germany, the bill in terms of national insurance, pension provisions and sickness entitlements - to name but three - would double. In Italy, the cost would triple.

When working out the figures for expanding into Europe, would-be UK entrepreneurs should also take into account the fact that Germans tend to work only 1,525 hours a year compared with Brits who work 1,875, while the French generally enjoy a 35-hour week. Two-hour Parisian lunch breaks might be good for bonhomie, but any reseller setting up a division in France should question its benefits.

It's not just the minefields of employment law and extraneous, non-wage costs that pioneers must take into account. RBR's White agrees that cultural issues can muddy the waters just as much as fiscal ones. 'The French hate companies that aren't French,' he contends. 'But you have to tackle these problems as you come across them.'

Autonomy's gambit for dealing with cultural and linguistic headaches was to appoint an Italian dealer, who was fluent in four other languages.

But the strategy didn't allow for the fact that cultural differences can be reflected in the way people use IT to work with each other, in the same way they can lead to problems on a more general business level.

Johnson adds: 'Because we're involved in knowledge management, we were fascinated to find that in Sweden, for instance, IT is used primarily to empower the individual. But in Germany, the emphasis is on corporate control. Not only that, but Germany has legislation that prohibits you from building up profiles of, say, how people use the internet, beyond more than one session on a single server. In our case, this meant configuring Autonomy's software so that users owned their own profile information until it could legally be pulled together in a single database.

'When you're pitching to a potential customer in Europe, understanding the cultural drivers and the nuances of law can make the difference between winning or losing the business.'

Sometimes, even the most innocent decision can result in a business or cultural faux pas. One top UK distributor is reported to have seriously dented relations with its French operation by appointing a Belgian managing director.

Williams adds: 'The trick is to make sure you have the right people to deal with the cultural problems.

There were headaches when we set up the French offshoot, particularly as we were an English company. But now we have someone who heads the French office and has been there for 10 years. He is bilingual and commutes every week between England and France. It's a strategy that pays off.

'My advice to anyone who is thinking of expanding into Europe is to research the market extensively, make sure you have the right people in place and, above all - if you haven't got a particular niche market or the scale of operation to carry you through - be nervous. In fact, be very, very nervous.'

IS BRIT WORTH IT?
A recent survey of 15 EU member states conducted by The Times revealed that the UK is one of the most expensive and demanding countries in which to work and live. For example, to drive a Fiat Punto off a garage forecourt costs the UK consumer #7,834. In Spain the price tag drops to #7,000 and in Italy #6,200. Cheapest of all are Germany and France, where the Punto sells for about #5,400 - almost #2,500 cheaper than in the UK.

But it doesn't stop there. While a pair of Levi's will set the UK consumer back #50 on average, the French can pick up the same pair for #47. Next comes Spain at #45, followed by Germany at #43. Cheapest of all is Italy, where a pair of 501s will set you back just #32.

And not only do we pay more for goods and services, but we also work longer hours, concludes the report. A solicitor in the UK can expect to work between 50 and 60 hours a week, compared with 35 hours a week in Germany and 36 hours in Italy.