arvato accompagne les entreprises dans leur expansion en Europe
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This report provides guidance for U.S.-based technology companies seeking to expand into the European market, emphasizing the unique challenges and opportunities presented by the diverse regional landscape. Key considerations include understanding local regulations, market dynamics, and customer preferences, alongside strategic recommendations for market entry, pricing, and distribution channels. The report also underscores the importance of thorough market research and a flexible supply chain to succeed in the fragmented European B2B and B2C environments.
arvato accompagne les entreprises dans leur expansion en Europe
- 1. SCMSOLUTIONS GlobeX – A guide to expanding into Europe A report compiled by arvato SCM Solutions & SVG Partners
- 2. 2 Executive Summary This paper is aimed at people working in scaling technology companies based in the United States, who are planning on expanding into the European market. The insights and recommendations presented in this report focus on some of the potential stum- bling blocks when launching a product in Europe. The European B2C channel is growing fast and the B2B channel offers both great opportunities and presents challenges due to the many local market requirements and regulations. The legal set up and supply chain infrastructure that must be created in order to support a potential expansion is important to ensure success. Companies need to consider more than just their product when they are planning on expanding inter- nationally. This report covers these topics and more. We recommended that they are addressed for a quick and successful launch into the European market. Source: Bundesverband Onlinehandel e.V., “The 335 Marketplaces in Europe”. 01
- 3. 3 Regional Overview: Europe It is important to understand the differences between the U.S. and European market place when planning your expansion into Europe. For example, the retail share of sales in the U.S. is 93% while the retail shares in Europe are more varied. The European average for online sales per country for technical consumer goods is 20%, varying by country from 8-9% in Belgium and Italy up to 40% in the Czech Republic1 . The online spend per consumer per year also varies – from 1,008 € in Germany to 3,238 € in the UK. 1 Ecommerce Foundation, a report commissioned by Ecommerce Europe “European B2C E-commerce Report 2015”, www.ecommerce-europe.eu/stream/european-b2c-e-commerce-report-2015-light-20150615jklasdjkfljaklsdf.pdf Source: Ecommerce Foundation, “European B2C E-commerce Report 2015”. Source: Internetlivestats, Coface, eMarketer, May 2014 02 Market Population in million (2014) GDP per capita (2014) Internet users (2014) Online buyers in millions (2014) Online spend per customer p.a. (2014) USA 322 39,141 € 87% 208 2,007 ¤ CA 36 38,785 ¤ 93% 21 1,296 ¤ Germany 82 32,822 ¤ 87% 59 1,008 ¤ France 65 31,986 ¤ 86% 44 1,067 ¤ UK 63 29,605 ¤ 90% 50 3,238 ¤ Italy 61 25,570 ¤ 60% 17 1,295 ¤ Poland 38 10,152 ¤ 67% 13 485 ¤ Spain 47 21,746 ¤ 74% 20 1,099 ¤ United Kingdom 30.0% Germany 16.8%France 13.4%Russia 4.4% Spain 4.0% Netherlands 3.3% Italy 3.1% Switzerland 3.0% Austria 2.8% Norway 2.4% Sweden 2.3% Denmark 2.3% Rest of Europe 12.2% Source: Ecommerce Foundation, 2015 E-commerce powers The graph of the European B2C e-commerce market immediately shows the importance of the UK. After all, its market has a share of almost one third of the entire European e-commerce market. In addition, the share of the UK is more than twice as much as all the other countries outside the top 12 combined. The share of the top 12 countries in the total European B2C e- commerce (€372.7bn) markets is almost 90%. However, within the top 12 the difference between the top 3 and the rest is also significant. Together, the UK, Germany and France account for 60.2%, while the other nine countries combine for 27.6%. TOP 12 COUNTRIES SHARE OF EUROPEAN B2C E-COMMERCE MARKET Share of European B2C e-commerce market, 2014 Share of Top 12 Countries in B2C E-commerce Sales B2C E-commerce in Europe The differences between the nine smaller markets in the top 12 are almost negligible. The share of number four Russia (4.4%) is only 2.1% larger than that of number twelve Denmark (2.3%). United Kingdom 30.0% Germany 16.8%France 13.4%Russia 4.4% Spain 4.0% Netherlands 3.3% Italy 3.1% Switzerland 3.0% Austria 2.8% Norway 2.4% Sweden 2.3% Denmark 2.3% Rest of Europe 12.2% Source: Ecommerce Foundation, 2015 E-commerce powers The graph of the European B2C e-commerce market immediately shows the importance of the UK. After all, its market has a share of almost one third of the entire European e-commerce market. In addition, the share of the UK is more than twice as much as all the other countries outside the top 12 combined. The share of the top 12 countries in the total European B2C e- commerce (€372.7bn) markets is almost 90%. However, within the top 12 the difference between the top 3 and the rest is also significant. Together, the UK, Germany and France account for 60.2%, while the other nine countries combine for 27.6%. TOP 12 COUNTRIES SHARE OF EUROPEAN B2C E-COMMERCE MARKET Share of European B2C e-commerce market, 2014 Share of Top 12 Countries in B2C E-commerce Sales B2C E-commerce in Europe The differences between the nine smaller markets in the top 12 are almost negligible. The share of number four Russia (4.4%) is only 2.1% larger than that of number twelve Denmark (2.3%). 72.0% 74.6% 75.6% 76.6% 80.9% 81.1% 88.2% 91.2% 91.8% 96.4% 60.5% 70.7% 74.0% 78.5% 81.3% 84.3% 28.0% 25.4% 24.4% 23.4% 19.1% 18.9% 11.8% 8.8% 8.2% 3.6% 39.5% 29.3% 26.0% 21.5% 18.7% 15.7% Traditional Sales Internet Sales Internet Sales 19.8% Traditional Sales 80.2% TECHNICAL CONSUMER GOODS B2C CHANNELS JAN 14 – DEC 14 WESTERN EUROPE EUROPEAN EUROPE CONSUMER CHANNELS Sales Value %, Jan 14 – Dec 14 nical consumer goods sales regard to purchases of Technical Consumer ds, people often choose to make them in ical stores. Around one fifth of sales in this gory was made through the Internet last year. rate is expected to increase in the near future, technical consumer goods are becoming asingly popular among e-shoppers. e countries mentioned in this study, the share nline sales within this category was highest in Czech Republic. Nearly 40% of the turnover of nical consumer goods was made through the net. B2C E-commerce in Europe Online and Offline Sales of Technical Consumer Goods e: GfK Point of Sales Tracking (excl. accessoires) ia, Belgium, Czech Republic, France, Germany, Hungary, Italy, Netherlands, , Portugal, Russia, Slovakia, Spain, Switzerland, UK and Ukraine
- 4. 4 Market research Full, detailed market research is the best way to increase a business’s chance of success when expanding its activities into new markets. With an appropriate level of research, organizations can benefit from the reduction of the number of unknowns inherent to with expanding into a new market. There are many instances of businesses that have not succeeded due to poor preparation. For example, Wal-Mart reportedly made a $1 billion pre-tax loss over 8 years in its attempt to become a major player in the German retail market before finally withdrawing. The reason for the failure was due to a lack of understanding of the culture, regulatory bodies and the expectations of shoppers. Companies can overcome the inherent disadvantage of being a foreign firm by perfor- ming research and partnering with the right organizations that have local knowledge in the market. The main areas to review during the market research are as follows: – Market analysis – Competitor analysis – Pricing levels – Marketing costs expectations – Local regulations and customs Market entry strategy Once a business has performed detailed research the next step is to decide how to approach the market. The information that has been gathered during the market research phase will strongly impact how to structure the business. The aim of course is to retain the USP that has allowed the business to grow so far, while also adapting to the local market requirements. Target countries A key decision is determining which countries should be targeted first. There will be a large desire to launch in a number of markets at once without factoring in the drain on budgets and resources. We suggest at first focusing on the small number of markets that are crucial to success and also provide a blueprint for further expansion at a later date. Market clusters within Europe should be reviewed as possible countries to enter, such as Germany, Austria, Switzerland known as DACH, the UK and Ireland and Benelux. These clusters are closely tied countries due to shared languages, cultural similarities, historical immigration or technical standards such as power plugs. By targeting these markets, companies maximize their marketing budgets while also ensuring the quality of service the customer receives. 03 04
- 5. 5 Target groups Appropriate review of the current target group for the product is necessary to ensure it is in line with the new market entry point. Businesses should review their research to decide if their existing model can be applied or if, due to local market dynamics, the product is categorized in a different way and therefore a different target group. This will have an impact on multiple areas such as customer support and marketing methods. Target pricing Deciding on the pricing for a product when entering a new region requires a detailed review of the existing market place. Prices are determined by the market which is being entered so it is inadvisable to simply convert existing pricing2 . An example of one such difference to the U.S. market is that in the B2C channel in Europe all sales prices are shown with VAT included, with rates differing by country. A recommended process for determining the price is to review similar products on the market in Europe and create a comparison. Cultural perceptions should be taken into account as product quality and pricing between the European markets varies. Germans for example, are very price conscious, whereas the Scandinavian market might be more willing to pay a premium price for a unique product. Logistics service delivery Businesses should think about what level of service and support customers will expect. This can vary in Europe, so it needs to be balanced with the markets targeted for expansion. We will discuss this topic further in the supply chain strategy section later in the paper. Distribution and channel strategy The following channels are the most commonly used to sell products in Europe: B2B – Retailer – Via distributor B2C – Via an owned website – Via marketplaces Buying behavior varies per country, however we can see that only 19.8% of technical products were purchased online in Europe in 2014, whereas physical retail still accounts for 80% of sales. An e-commerce only strategy only addresses 20% of potential revenue sources. The larger, wealthier countries leading e-commerce adoption are the UK with 28% of sales of technical goods via online channels followed by Germany at 25.4% and the Netherlands at 24.4%3 . 2 Klaas-Jan Meijer, “Creating a successful market entry strategy”, blog Salesupply, Salesupply, November 15, 2015, accessed May 2016. 3 Ecommerce Foundation, a report commissioned by Ecommerce Europe “European B2C E-commerce Report 2015”, www.ecommerce-europe.eu/stream/european-b2c-e-commerce-report-2015-light-20150615jklasdjkfljaklsdf.pdf 05
- 6. 6 B2B retail The European B2B market place is very fragmented in comparison to the United States. The consequence of many local and international retailers is that companies have to deal with a large number of entities. For example, Europe‘s largest electronics retailer Media Markt, has over 350 stores in Germany with the majority run by independent franchisees. The below overview provides a snapshot of retail in Europe and the diffe- rences per country – all of these retailers account for over 3,500 retail outlets. When businesses are looking at launching their product through the B2B channel there are a number of topics to be aware of beforehand. The first area of analysis ensures that companies focus on the retailers that fit their product. As the retail market place is very diverse, it is difficult and time consuming to get to know the market. To support businesses expansion, arvato works with a partner company, Praesidium that helps businesses to navigate the marketplace and build its retail strategy. It is important to know that, from a supply chain perspective, serving European retail is challenging. Compared to the U.S., holding inventory can be more expensive in Europe which requires retailers to focus more on their inventory management. This results in greater pressure on companies servicing retailers in Europe to ensure that they ship more frequently and in smaller quantities. In addition, demand forecasting is a key focus in Europe as retailers monitor their stock holding closely throughout their supply chain, down to merchandising planning – all due to the complexity of the countries. There are several aspects to consider: – Retailers typically have a number of delivery requirements. This can include pre- labeling a product with the retailer’s barcode or only shipping one stock keeping unit (SKU) per pallet with serial shipping container code (SSCC) labels so that their systems can quickly inbound the products. An example of this is in the UK where the retailer Argos requires companies to ship orders to them within their specifically designed storage crates. – Depending on the commercial relationship between the retailer and the business, pre-sorting of deliveries for each retail store might be requested. Source: arvato distribution GmbH, “arvato direct ship locations”, May 2016. “Consumer Electronics Retailers in Europe” Veraart Research Group. Germany France UK / Ireland Austria / Switzerland Spain / Italy Nordics Place Retailer Turnover (billion Euro) HQ Country 1 Media Markt-Saturn 21 Germany 2 Euronics 18,4 Netherlands 3 Expert 18,3 Switzerland 4 Dixons Retail 8,8 UK 5 Argos 5,7 UK 6 Darty Group 2,7 France 7 HTM Group 1,9 France 8 Electronic Partner 1,6 Germany 9 FNAC Group 1,4 France 10 Telering 1,4 Germany
- 7. 7 – Some retailers have shipment requirements for new product introductions and require a specific process for this including color-coded labelling and segregation of the products in order to facilitate the product launch. – Marketing activities for product bundling or special price offers might require product-level reworks in order to prepare the products for the marketing activity. – As storage space within retail is limited, order delivery performance is closely monitored with associated penalties for missing the customer request arrival dates (CRAD) and assigned delivery booking slots. Penalties are typically contractually agreed and enforced when performance does not meet expectations. Due to these requirements, carrier management is crucial for a business to be successful at major retailers. – Multiple carriers need to be managed in order to balance cost constraints and the wide range of retail requirements such as parcel services to retail outlets and using groupage or full truck load deliveries for retail distribution centers – all subject to negotiation. – Proof of delivery (POD) information needs to be stored as it is very common for retailers to make claims about the quantities and condition of deliveries. – When it comes to order management, local language support is a minimum requirement for the large markets such as France, Germany, Italy and Spain. In addition, businesses need to be able to receive a large number of individual outlet level orders which are still commonly sent via fax. To get around this additional administration, where possible, businesses should try to set up EDI connections with major retailers allowing for the quick processing of orders and invoice collection. This will drive workload and complexity, arvato’s retail partner Praesidium can help to manage this area. In order to provide a strategic advantage, a business’s supply chain should be set up to be flexible enough to manage these requirements as they change depending on the retailer and country. As shown in the earlier table, there is not one large dominating retail player across Europe as is the case in the U.S. market. The retail channel is more complex and diverse. Due to the many requirements, understanding the retail cost is important in order to manage margins and cost structure. arvato works with many companies who measure cost to serve at store and product level to help them to decide on their channel stra- tegy and support negotiations with retailers. The final topic is that as the European market is so diverse it has an impact on the level of sales activities which can be necessary. It has become common practice to partner with a local service provider to fulfill merchandising, product information materials and catalog management at the store level. Using these providers allows businesses to minimize their dedicated resources while maximizing the level of native language support to retailers. B2B distributors Many companies planning to expand to Europe choose to use the distributor channel – this marketplace is dominated by a few large companies such as Ingram Micro and Tech Data. These companies typically act as a reseller and provide services such as logistics, warehousing, catalog management, promotion management and delivery into retail. Companies can negotiate these services with a distributor and in turn get access to the retail channel.
- 8. 8 Every company expanding into Europe has to decide on how to approach retail: – Ignore it and accept that 80% of the market cannot be reached – Select a distributor for expansion into retail – Decide to go directly to retail The cost difference between using a distributor or direct to retail depends on factors such as: – The potential of the company and product – do you have an innovative product that will drive traffic to the retail outlets? – Do you have partners that can help with going into retail directly and that know how to navigate the diversified retail landscape in Europe? – Distributors charge for their services – can you manage to perform these services with partners and be more cost efficient? While arvato cannot advise a business on whether it should use a distributor or go direct to retail, we can however support companies with making this decision. This is done by introducing companies to partners such as Praesidium that can build a retail strategy and help navigate the retail landscape through their extensive knowledge of the European retail channel. Trends in retail – Omni-channel While arvato observes massive growth in the online channel, we also see a clear trend towards an omni-channel strategy – where online channels and retail channels are fully integrated and provide a consistent customer experience. For many companies who are planning on European expansion such an omni-channel set up is too early. However, there is value to understanding the omni-channel approach as it can be expected that in the future businesses will have to compete in an omni-channel environment. arvato has created omni-channel solutions for many clients and can create one for you in future. Source: arvato distribution GmbH “From Single Channel to Omni-channel Retailers in Europe” Veraart Research Group. Single Channel Multi-channel Cross-channel Omni-channel Up to 1990 Retailers generally made use of one channel only: either stores or catalogs Up to 2000 Channels were stand-alone. Different ranges of products, prices and deals were the result. Systems were isolated. Today Alignment of brand experience, range of product, prices etc. However, organization, systems, processes and data are only partially integrated in order to enable cross-channel services like Click Collect. The future Consistent customer experience across all channels. Fully integ- rated systems allow a seamless experience and disappearing boundaries. Cross channel shop- ping according to individual needs, regardless of time or place.
- 9. 9 B2C via an owned website When a business plans to expand to Europe it is likely that it would already have its own online marketplace. Localizing this to the European market is logical but the com- plexity and specific requirements of the different countries needs to be understood and managed. Topics such as country specific expectations on payment methods, shop language and local carriers need to be researched. Once this is understood, a market entry plan should be designed accordingly. Source: arvato distribution GmbH, “arvato e-Commerce Characteristics Analysis”, “EF English Proficiency Index 2014”, Education First. Operationally the following requirements should be considered: Customer order support. Local language support is expected and the language complexi- ty quickly drives resource investment. We do not advise investing into using your own employees to provide customer order support as this is available from a number of providers. arvato works with partners such as Salesupply who provide these services for many expanding companies and are able to quickly onboard a company’s shop requirements and support its customers. Fulfillment of orders. Typically expanding companies select one provider for these services. The difference to retail distribution is that in an online market place a typical order is 1 unit whereas in retail, master packs and full pallets are more prevalent. Returns. Customers expect an in country return address. When a business is too small (from a volume perspective) to negotiate its own competitive deal with a returns pro- vider arvato can offer the possibility of using the returns management set up from Salesupply, which leverages its customer order support infrastructure. This solution, which offers a business’s customers an in-country return process, works well during the initial expanding phase. After a business has successfully scaled, it can further optimize its returns logistics set up. Market Currency Shop Languages English Profiency 1 Payment Methods (Top 3) Local Carries Further Specifics DE ¤ German Invoice, CC, PayPal DHL, Hermes, DPD - FR ¤ French CC, PayPal, Carte Bleue LaPoste, Kiala Sales seasons UK £ English CC, PayPal, Debit Card Parcelforce, UPS - NL ¤ Dutch CC, iDeal, PayPal PostNL, Kiala - IT ¤ Italian CC, PayPal, COD DHL Codice Fiscale CH CHF German, Frensh CC, PayPal, Invoice SwissPost Customs NO KR Norwegian CC, Nordea, Klarna Post Nord Customs ES ¤ Spanish CC, PayPal, COD Correos - US $ English CC, PayPal, Digital wallets FedEx, UPS, USPS - CA CAD English CC, PayPal, Digital wallets FedEx, UPS, CP - 1) EF EP: English Proficiency Index EPI 65 55 EPI 65 EPI 55
- 10. 10 B2C connecting marketplaces Within Europe there are over 335 online marketplaces operated by 75 different companies which can be used to sell a business’s product4 . This provides a challenge to businesses which want to reach a large audience. There are key pan-European players, such as Amazon, in the market which can be used to create a large number of customer touch points. Organizations which want to launch into Europe can create a storefront on one of these marketplaces as a channel to expand with lower business risk then setting up a dedicated online shop5 . By choosing to use one, a marketplace offers companies an opportunity to grow sales and to build knowledge of consumers’ buying habits within the European region. Amazon is the leading marketplace both in Europe and worldwide which has allowed it to become a one stop shop for all consumer products. Google searches for almost any consumer product normally provide a link to Amazon within the first 10 links and it has become ubiquitous among consumers for price comparison and consumer-driven product reviews6 . Setting up on Amazon means being able to tap into their Prime customers who receive free shipping on many items which is a key decision factor for European consumers. There is also the fulfillment by Amazon (FBA) option where Amazon takes responsibility for the storage, delivery and customer support for a company’s product. When reviewing the opportunity of setting up on Amazon, it is important for businesses to understand that it will be giving away some control over their brand. In addition, it means playing by their rules in relation to the transaction costs applied to each sale and the infrastructure requirements. For example, Amazon insists that sellers have a local address within the market they are selling. Source: Bundesverband Onlinehandel e.V., “The 335 Marketplaces in Europe”, accessed May 2016. 4 Bundesverband Onlinehandel e.V., “The 335 Marketplaces in Europe”, Ecommerce Foundation, a report commissioned by Ecommerce Europe “European B2C E-commerce Report 2015”, www.ecommerce-europe.eu/stream/european-b2c-e-commerce-report-2015-light-20150615jklasdjkfljaklsdf.pdf, accessed May 2016. 5 Salesupply, “How to sell on Amazon US”, http://www.Salesupply.com/Salesupply_2015_How_to_sell_on_Amazon_US.pdf accessed May 2016. 6 Salesupply, “How to sell on Amazon US”, http://www.Salesupply.com/Salesupply_2015_How_to_sell_on_Amazon_US.pdf accessed May 2016. Place Website Market Core focus Type of Marketplace Owner Country 1 amazon.de German Seller Transaction Amazon United States 2 amazon.co.uk UK Seller Transaction Amazon United States 3 ebay.de Germany Neutral Transaction eBay United States 4 ebay.co.uk UK Neutral Transaction eBay United States 5 allegro.pl Poland Neutral Transaction Allegro Poland 6 amazon.fr France Seller Transaction Amazon United States 7 leboncoin.fr France Neutral Classified Leboncoin France 8 amazon.it Italy Seller Transaction Amazon United States 9 ebay-kleinanzeigen.de Germany Neutral Classified eBay United States 10 amazon.es Spain Seller Transaction Amazon United States
- 11. 11 Supply chain strategy When companies enter Europe, it is important to design a supply chain that meets both the current and future business needs. As detailed earlier in the paper, the channel which a business is planning to enter will have a large impact on the supply chain require- ments. The following factors should be taken into account when defining the supply chain strategy: Make or buy – Businesses need to review whether they should perform logistics them- selves or use an outsourcing partner. When scaling to Europe the existing model which has made a business successful will most likely be used again to service the European market. Selection of a SCM partner – If a business currently uses an outsourcing supply chain partner within the U.S., a key decision area will be to review if the same provider offers a similar level of service within Europe. Existing partners should be evaluated based on their knowledge of the local market requirements and their ability to scale to a business’s growing needs. Location – A key topic to review is where is the best location to base a warehouse (either in-house or outsourced). We cover this area in more detail later in the paper. Cut-off times and lead times – When a business is planning on entering the B2C channel it needs to consider the order cut-off times for the target markets. Next day delivery is common in Western Europe so to support this businesses need a facility to have late order cut off times to service the marketplace Cross-border shipping – When a business is planning on using a central warehouse to ship products across borders, special attention should be focused on the freight rates which will be charged. Due to the number of local providers which are required to meet market requirements, freight costs within Europe can affect a business’s operational costs. Retail compliance – As discussed earlier in the paper, Retailers can have strict requi- rements in relation to the delivery service they expect. These requirements differ by retailer and cover topics such as pallet configuration/sortation, specific labelling/tagging, order management, delivery booking and paperwork. Location Typically, technology companies distribute their hardware into Europe using a stra- tegy where they select one warehouse location. The reason for this is that inventory is kept to a minimum while businesses try to keep your production process at the Contract Manufacturer (CM) under tight quality control. Additionally, it reduces the risk of inventory reworking or stock balancing between locations when there is limited forecast data and businesses are learning the European market. Inbound freight from the CM is typically a mix of sea and air which is primarily driven by the life cycle phase of the product and the product cost. 06
- 12. 12 When the warehouse locations for many businesses are reviewed it shows that Benelux/ western Germany is the clear winner with a hot spot within the Venlo-Cologne-Antwerp region7 . This area has close proximity to the sea harbors of Rotterdam, Antwerp, Hamburg and close proximity to freight airports such as Cologne, Luxembourg, Amsterdam and Frankfurt. A third transport option is provided by a freight train from Chongqing in southwest China to Duisburg (Germany). The lead time (exclusive of pre- and post-carriage) for this transport is currently 13-14 days, but it will be shortened to 12 days in 2017. Out of this hotspot, businesses can reach most of European consumers within 24-48 hours lead time in both B2B and B2C. 2 EUROPE’S MOST DESIRABLE LOGISTICS LOCATIONS | JULy 2013 ProLogis research MOST DESIRABLE LOCATIONS Introduction Participants were asked to score 100 logistics locations around europe against 13 criteria, which were grouped into four categories; 1) Proximity to customers and suppliers, 2) Labor government, 3) real estate, and 4) infrastructure. the most desirable locations today and in 2018 were determined based on these criteria. Top 10 Most Desirable Locations in 2013 the Benelux is the clear winner with three markets in the top three locations: venlo, antwerp-Brussels and rotterdam. With the exception of two markets, Madrid and Pan-regional romania, all markets are in continental Western europe (Benelux, germany and France).the top four markets are among the most attractive for pan-european distribution, and therefore include a larger number of european Distribution centers (eDcs) as a result. Eight of the ‘top ten’ locations are inWestern Europe We segmented the top 10 markets into three clusters. the first is one market - venlo, with a total score almost 1.5 times greater than runner-up, antwerp- Brussels.the second comprises antwerp-Brussels, rotterdam and rhein-ruhr (excluding Düsseldorf), which have relatively similar scores.the third includes locations ranked from fifth place (Madrid) to tenth place (Düsseldorf).the spread in terms of scores between these six locations is only 11 points. among the broader 100 locations, there are common findings among each quartile1 . outside the top 10, the first quartile includes Frankfurt am Main, Prague, schiphol airport and central Poland.the second includes Munich, hamburg,West Midlands, Barcelona, Warsaw and Upper silesia.the third includes Lyon, stuttgart andWest of england Wales. Locations in the fourth are in the european periphery and don’t play a major role in the european logistics network. Figure 2 Heatmap: Europe’s most desirable logistics locations 1) ranked set of data which is divided into four equal groups Source: EFT Prologis, “Europe’s most desirable logistics location 2013”. arvato’s presence in the logistics hotspot area Over the last years, arvato has established a substantial presence in this hotspot area for many clients arvato Gennep – 300,000 ft2 with 200,000 ft2 in planning SCM for technology and healthcare clients arvato Dorsten – 300,000 ft2 in planning + 700,000 ft2 expansion 30,000,000 € investment into a state-of-the-art SCM center arvato Dortmund – 330,000 ft2 SCM for consumer clients 1,200 CRM seats for technology and consumer clients arvato Venray – 235,000 ft2 SCM for technology clients arvato Venlo – 500 seats CRM for technology, banking and consumer clients arvato Maastricht – 200 seats CRM for consumer clients arvato Düren – 800,000 ft2 SCM for technology and consumer clients Source: arvato distribution GmbH, “arvato locations 2016,” Google Maps. 7 EFT Prologis, “Europe’s most desirable logistics locations”, http://events.eft.com/eu3pl/pdf/WinningLocationsEurope.pdf, accessed May 2016.
- 13. 13 During the analysis stage of entering into the European market, we would review your requirements in a workshop and propose the best solution to fit your business needs. Often arvato receives inquiries from clients about a warehouse location in other regions: Eastern Europe – A presence in Eastern Europe yields benefits when a business’s total SCM cost are driven by a higher share of labor intensive in region value add activities. The labor cost difference between Western and Eastern European Countries is still sig- nificant. An increase in transportation cost (from the sea harbors) to Eastern Europe and back to the main markets is compensated by a decrease in labor cost. Southern Europe – A presence in southern Europe makes sense when a business’s main markets are in this region. Otherwise absence of infrastructure, real estate and lack of labor flexibility make it difficult to be competitive. Returns logistics Especially in the B2C market, consumers expect to be able to return the product in country, as free returns are becoming the standard, driven by amazon. Cross-border returns are expensive and will result in a negative customer experience. Using a partner, arvato is able to provide a low cost, in country, return management solution which is set up for volumes of up to 100-200 units per month/country. These returns can then be consolidated and shipped back to the central arvato location where further returns processes can take place and the products shipped back to a business’s repair partners or factories. Express parcel network Standard parcel and road network Depending on the specific requirements of the company, arvato can perform SCM services from a number of locations in this area. arvato is also connected to several carriers (DHL, UPS, DPD and many others). The below overview provides an indication of the lead times out of this logistics hot spot and the carriers arvato is currently using. Source: arvato distribution GmbH “arvato Düren lead times 2016”.
- 14. 14 Legal set-up When a business expands into the EU they must make a decision on how they want to perform their sales, either through a local entity or selling direct from the United States. These discussions are advisable to be taken after consulting with legal counsel both in the United States and the country it is wished to set up within. If a business is looking to set up an entity in Europe, a good starting point is to review where there are current clusters of businesses already set up. For the technology indus- try, countries like Ireland have become hubs for U.S. companies looking for a beach- head market to expand from, including Facebook, Twitter and Google, all basing their operations HQs there. Having a country with a similar time zone, language and culture can provide businesses with a head start in their expansion. Furthermore, Ireland offers a young and well educated workforce. From a supply chain perspective, typically the decision for a logistic site is driven by the location and distribution of the customer base across Europe. Choosing the best location would consider both floor space and labor costs while also factoring the proximity to customers, aiming to minimize trans- portation cost and lead times. VAT and customs duties For any company planning on entering the EU from the United States, the various tax systems can be a daunting task to ensure that the correct set up is chosen. Similar to the creation of a legal entity, it is crucial to get the right advice from a European tax consultant that can guide a business through the process and provide the best options. arvato has a partner, FocusOnVat, which can consult and provide services which take the burden of these requirements off businesses. For this paper we will provide an out- line of the considerations which should be taken into account. The first area to review is which country to import goods through. There are a number of options but a popular market is the Netherlands due to its excellent port infra- structure and business friendly legal framework. When importing goods through the Netherlands, non EU companies have the opportunity to defer paying import VAT by using an article 23 license. This provides a cash flow advantage by not tying up nee- ded funds which could be used elsewhere to support expansion. By appointing a fiscal representative that has disposal of an article 23 import deferment license, companies can take advantage of the scheme without setting up their own VAT number. In addi- tion there are also other markets which offer similar schemes such as Belgium, the UK and Germany. The second area to be aware of is the different VAT structures and rules depending on the market and channel which goods are sold in and through. B2B – For B2B sales, there is no VAT applied when selling or moving goods within the EU provided the customer has a valid VAT number and a POD is available. When ship- ping goods from the Netherlands to customers outside the EU, no VAT is due if valid export documents are available. B2C – When clearing customs in the Netherlands and selling into the B2C market, 21% VAT is applied to the sales transaction. Paying import VAT can be avoided by appointing 07
- 15. 15 a fiscal representative and goods can be stored without VAT for an unlimited time. Only at the moment of the actual sale does VAT become due. If an alternative set-up was designed whereby goods cleared customs in the Netherlands but were stored in Germany, the German VAT rate of 19% must be charged to B2C customers. Once a company starts selling B2C to other EU markets, country specific thresholds must be considered. When these thresholds are exceeded VAT within the country the product is shipping to must be applied instead of the country where the goods are stored. Each country defines their threshold level and it varies from 35,000 € to 100,000 €. For example, in France the level is 35,000 € so when a business’s annual sales volume exceeds this amount the company must charge French VAT to the French customers and have a French VAT number to report the sales. As mentioned earlier, it is important for scaling companies to get the right advice when reviewing their tax responsibilities. There are a number of ways to do this and there are specialized tax consultants, such as FocusOnVat, who can assist in this area. By utilizing these service providers, companies can lower the compliance burden in all EU markets allowing them to focus on their core business of developing and selling products.
- 16. 16 Product set-up considerations Technology products are typically not “culturally sensitive”, in that the products are being used independent of culture. In some cases culture can have an influence on the scalability of the product into different markets. An interesting example is the “nest” thermostat. Heating technology and the market for the installation of the equipment differs throughout Europe. This made it impossible for “nest” to expand into the European market with a single product. When configuring a product for launch in the EU companies are advised to take the appropriate amount of time to ensure the key regulations and product set up areas are addressed before launch, rather than completing a costly retrofit afterwards. This section covers some of the key areas to be addressed and provides suggestions as to where to find further information. EAN UPC barcodes EAN stands for European article number and is based on the Universal Product Code (UPC) system of 12 digits with an additional digit added. Before products can be sold at major European retailers, products must have a corresponding EAN code. The codes can be generated cheaply. By using the GS1 standard the codes can be used on pro- ducts sold worldwide. CE markings The CE mark is used to ensure that the products sold in the EU meet health, safety and environmental protection requirements. The symbol forms a key part of the framework which allows for goods move freely within the EU. The symbol indicates that the manufacturer declares that an item complies with rele- vant EU legislation8 . Commercial technology products all require a CE mark and this must be applied to a product before it arrives into Europe. We recommend working with a certification partner such as TUV Rheinland who can provide support when pre- paring the required documentation to file for the CE mark. Additional information can be found on the U.S. government website export.gov. WEEE directive and battery regulations The EU Waste Electrical and Electronic Equipment (WEEE) regulations aim to reduce the amount of electrical waste which ends up in landfills within the EU9 . When a product con- tains a battery, the WEEE battery symbol must be shown on the packaging. The regulation sets out that the manufacturer of an electrical product must pay for the costs of disposal at the end of life of the product. Producers must register within each EU market they sell in and clarify how they are meeting their financial commitments and returns obligations as part of the WEEE regulations. The best way to manage these requirements is to join a producer compliance scheme that reports on behalf of companies based on the bill of materials and the number of units sold within the EU. Examples include GRS Batterien in Germany and Stibat in the Netherlands. 8 European Commission, “Single Market Standards - CE Marking”, http://ec.europa.eu/growth/single-market/ce-marking/index_en.htm, accessed May 2016. 9 European Commission ”Waste Electrical Electronic Equipment(WEEE)”, http://ec.europa.eu/environment/waste/weee/index_en.htm, accessed May 2016 08 Product set-up considerations Technology products are typically not “culturally sensitive”, in that the products are being used independent of culture. In some cases culture can have an influence on the scalability of the product into different markets. An interesting example is the “nest” thermostat. Heating technology and the market for the installation of the equipment differs throughout Europe. This made it impossible for “nest” to expand into the European market with a single product. When configuring a product for launch in the EU companies are advised to take the appropriate amount of time to ensure the key regulations and product set up areas are addressed before launch, rather than completing a costly retrofit afterwards. This section covers some of the key areas to be addressed and provides suggestions as to where to find further information. EAN UPC barcodes EAN stands for European article number and is based on the Universal Product Code (UPC) system of 12 digits with an additional digit added. Before products can be sold at major European retailers, products must have a corresponding EAN code. The codes can be generated cheaply. By using the GS1 standard the codes can be used on products sold worldwide. CE markings The CE mark is used to ensure that the products sold in the EU meet health, safety and environmental protection requirements. The symbol forms a key part of the framework which allows for goods move freely within the EU. The symbol indicates that the manufacturer declares that an item complies with relevant EU legislation8. Commercial technology products all require a CE mark and this must be applied to a product before it arrives into Europe. We recommend working with a certification partner such as TUV Rheinland who can provide support when preparing the required documentation to file for the CE mark. Additional information can be found on the U.S. government website export.gov. WEEE directive and battery regulations The EU Waste Electrical and Electronic Equipment (WEEE) regulations aim to reduce the amount of electrical waste which ends up in landfills within the EU9. When a product contains a battery, the WEEE battery symbol must be shown on the packaging. The regulation sets out that the manufacturer of an electrical product must pay for the costs of disposal at the end of life of the product. Producers must register within each EU market they sell in and clarify how they are meeting their financial commitments and 8 European Commission, “Single Market Standards - CE Marking”, http://ec.europa.eu/growth/single-market/ce-marking/index_en.htm, accessed May 2016. 9 European Commission ”Waste Electrical Electronic Equipment(WEEE)”, http://ec.europa.eu/environment/waste/weee/index_en.htm, accessed May 2016 returns obligations as part of the WEEE regulations. The best way to manage these requirements is to join a producer compliance scheme that reports on behalf of companies based on the bill of materials and the number of units sold within the EU. Examples include GRS Batterien in Germany and Stibat in the Netherlands. RoHS The restriction of the use of certain hazardous substances (RoHS) directive has a similar purpose to WEEE but it aims to eradicate certain hazardous substances. Producers must ensure that their products do not contain restricted materials or where permitted, only within the accepted limits. By Product set-up considerations Technology products are typically not “culturally sensitive”, in that the products a independent of culture. In some cases culture can have an influence on the sc product into different markets. An interesting example is the “nest” thermostat. Heat and the market for the installation of the equipment differs throughout Europe. impossible for “nest” to expand into the European market with a single product. When configuring a product for launch in the EU companies are advised to take t amount of time to ensure the key regulations and product set up areas are add launch, rather than completing a costly retrofit afterwards. This section covers so areas to be addressed and provides suggestions as to where to find further informati EAN UPC barcodes EAN stands for European article number and is based on the Universal Produc system of 12 digits with an additional digit added. Before products can be sold at m retailers, products must have a corresponding EAN code. The codes can be generat using the GS1 standard the codes can be used on products sold worldwide. CE markings The CE mark is used to ensure that the products sold in the EU meet health, safety and environmental protection requirements. The symbol forms a key part of the framework which allows for goods move freely within the EU. The symbol indicates that the manufacturer declares that an item complies wit legislation8. Commercial technology products all require a CE mark and this must b product before it arrives into Europe. We recommend working with a certification p TUV Rheinland who can provide support when preparing the required documentatio CE mark. Additional information can be found on the U.S. government website expor WEEE directive and battery regulations The EU Waste Electrical and Electronic Equipment (WEEE) regulations aim to redu of electrical waste which ends up in landfills within the EU9. W contains a battery, the WEEE battery symbol must be s packaging. The regulation sets out that the manufacturer o product must pay for the costs of disposal at the end of life Producers must register within each EU market they sell in a they are meeting their financial commitments and 8 European Commission, “Single Market Standards - CE Marking”, http://ec.europa.eu/growth/single-market/ce-marking/index_en.htm, acce 9 European Commission ”Waste Electrical Electronic Equipment(WEEE)”, http://ec.europa.eu/environment/waste/weee/index_en.htm, acce returns obligations as part of the WEEE regulations. The best way to manage thes requirements is to join a producer compliance scheme that reports on behalf o companies based on the bill of materials and the number of units sold within the EU Examples include GRS Batterien in Germany and Stibat in the Netherlands. RoHS The restriction of the use of certain hazardous substances (RoHS) directive has a s to WEEE but it aims to eradicate certain hazardous substances. Producers must en products do not contain restricted materials or where permitted, only within the acce
- 17. 17 RoHS The restriction of the use of certain hazardous substances (RoHS) directive has a similar purpose to WEEE but it aims to eradicate certain hazardous substances. Producers must ensure that their products do not contain restricted materials or where permitted, only within the accepted limits. By placing a product on the market producers are making the declaration that it complies with the directive10 . It is the producer’s responsibility to ensure that they can demonstrate this obligation by ensuring the necessary oversight of its suppliers to not manufacturer components with the restricted materials. Further information can be found at the export.gov website or directly on the europe.eu website. Lithium batteries Products which contain lithium batteries are now very closely controlled when in storage and in transit. It is essential that producers have the necessary material safety data sheet (MSDS) for each product containing lithium batteries detailing the chemical components and the necessary handling requirements. These documents will ensure that the required precautions are taken such as adding additional labelling which allows carriers to ship the products safety. Further information is available from all carriers (e.g. the UPS website). Product warranty In the EU there are different warranty periods which producers must provide depen- ding on the market and the channel in which they sell. When operating within the B2C market, it is the seller’s responsibility to provide a minimum of a 2-year guarantee for defects with the product. The seller must repair or replace the product free of charge or provide a discount or full refund11 . When selling into the B2B market there are no spe- cific rules which must be applied. For example, a producer can provide only a 3-month warranty on a device to a retailer although the same retailer is legally obliged to provi- de a 2-year guarantee to the end customer. Additional information is available on the europa.eu website. Schedule B and HTS codes Harmonized tariff schedule (HTS) and Schedule B codes form the basis for customs import and export around the world and in the United States. When shipping inter- nationally from the United States, the correct Schedule B and HTS codes need to be applied to the product. The codes are the basis for international product classification and are used by customs officials to determine tariffs and for product registration documents such as certificates of origin12 . Additional information is available on the export.gov website. Localization When launching a product within the EU it is important to be conscious of the cultural diversity and existing norms which consumers are familiar with. Today there are over 24 official languages within the EU and although English is understood by a large portion of people under 35, consumers still expect their native language to be available. 10 European Commission, “RoHS Directive”, http://ec.europa.eu/environment/waste/rohs_eee/index_en.htm, accessed May 2016. 11 European Commission, “Guarantees and returns”, http://europa.eu/youreurope/citizens/consumers/shopping/guarantees-returns/index_en.htm, accessed May 2016. 12 export.gov, “The Harmonized System”, http://export.gov/logistics/eg_main_018119.asp, accessed May 2016.
- 18. 18 Product packaging Unless a product’s packaging is very large, it is unlikely that it will be possible to provide all target market languages on one box. As mentioned earlier in this paper, it is common practice to cluster markets together based on their cultural and geographical proximity. For producers, analysis is required to determine how many SKU configurations will be required given the amount of content which is on the box. Marketing considerations become a key driver for determining how many markets can be accommodated on the “real estate” of the products packaging. Additional considerations include local market certifications, age ratings and plug variation requirements. Customer support There is no specific level of support that needs to be provided to customers within the EU but local norms and expectations need to be followed. It is important for producers to think about what the target market is for the products. For example, a French custo- mer would be very unhappy if support was not localized in French, but if there was a technology product which was aimed at “Early adopters” then online support would most likely suffice. Warranty and manuals When reviewing the requirements for the warranty and manuals, detailed discussions are necessary about the legal obligations and also the localization requirements. If a products packaging is small this can increase the page count and thickness of these documents significantly. An additional factor for products which contain batteries is that there needs to be an additional leaflet which explains to the customer, in their local language, how to correctly dispose of the battery. This requirement was called out in the WEEE regulations section discussed earlier and must be followed by all producers. Summary Expanding into Europe brings with it challenges but also opportunities. If businesses are to be successful they need to take the time to ensure that they have adequately prepa- red and reduced the number of unknowns that inherently come with expansion into a new market. By performing the necessary level of market research, companies will give themselves the best chance of succeeding. Following the research, the next step is to choose the market entry strategy which will allow a business to scale at the right pace while balancing its budget constraints. This leads to the decision as to whether to launch onto the market via the B2C or B2B channel. After selecting the channel(s), the next step is to review the location to establish a warehouse. If a partner is used, it is important to ensure that they are flexible enough to meet customers’ needs today but also in the future. Coupled with this topic, the legal and VAT set up should be examined to ensure the most cost effective use of busi- nesses resources. Finally, companies should take the time to prepare their product for launching onto the European market, as there are a number of expectations placed on them through EU regulations. 09
- 19. 19 Appendix Who is arvato? arvato is an international outsourcing services provider with more than 70,000 employees in 40 countries worldwide. Our customer portfolio includes the who’s who in the consumer technology industry which we have built up through trusted relationships over decades of partnering. More information is available at www.arvato.com Who is SVG Partners? SVG Partners is an investment and advisory firm that partners with public and private organizations on strategy, innovation and global expansion. Formed in 2010 and based in Silicon Valley, SVG invests in early stage technology companies. More information is available at www.svgpartners.com Who is Salesupply? Salesupply is a global E-commerce service provider that supports businesses to achieve profitable international growth faster at lower costs. Salesupply provides a full range of solutions ranging from research and strategy, to effective localization of web shops, followed by complete operational support, traffic generation and brand management. More information is available at www.salesupply.com Who is Praesidium? Since 1998 Praesidium has delivered successful sales and marketing strategies, creating value for their clients by managing projects that optimize distri- bution channel management, increase brand presence and visibility at the point of sales and make a real impact on the shopper behavior. More information is available at www.praesidium.it Who is FocusOnVAT? FocusOnVAT is a consultancy company specialized in indirect taxes and fiscal representation in all EU member states providing VAT Customs solutions including VAT refund procedures for businesses of all sizes. More information is available at www.focusonvat.com Authors Finbar Lehane, Senior Expert Solution Design, [email protected] Patrick Manders, VP Global Solution Design, [email protected] Alexander Jeske, Senior Expert Solution Design, [email protected] Düren, Germany May 24, 2016 10
- 20. 20 Bibliography – Bundesverband Onlinehandel e.V., “The 335 Marketplaces in Europe”, http://www.bvoh.de/ranking-335-marketplaces-throughout-europe-online-means-diversity accessed May 2016. – Coface, “Major Macro Economic Indicators”, http://www.coface.com/Economic-Studies-and-Country-Risks/, accessed May 2014. – Ecommerce Foundation, a report commissioned by Ecommerce Europe, “European B2C E-commerce Report 2015”, http://www.ecommerce-europe.eu/ stream/european-b2c-e-commerce-report-2015-light-20150615jklasdjkfljaklsdf.pdf – Education First, “EF English Proficiency Index 2014”, http://www.ef.de/epi/, accessed May 2014. – EFT Prologis, “Europe’s most desirable logistics locations”, http://events.eft.com/ eu3pl/pdf/WinningLocationsEurope.pdf, accessed May 2016. – European Commission, “Guarantees and returns”, http://europa.eu/youreurope/citi- zens/consumers/shopping/guarantees-returns/index_en.htm, accessed May 2016. – European Commission, “RoHS Directive”, http://ec.europa.eu/environment/waste/rohs_eee/index_en.htm, accessed May 2016. – European Commission, “Single Market Standards - CE Marking”, http://ec.europa.eu/growth/single-market/ce-marking/index_en.htm, accessed May 2016. – European Commission, “Waste Electrical Electronic Equipment (WEEE)”, http://ec.europa.eu/environment/waste/weee/index_en.htm, accessed May 2016. – eMarketer, “B2C Ecommerce Climbs Worldwide, as Emerging Markets Drive Sales Higher”, http://www.emarketer.com/Article/B2C-Ecommerce-Climbs-Worldwide- Emerging-Markets-Drive-Sales-Higher/1010004, accessed May 2014. – eMarketer, “Ecommerce Sales Topped $1 Trillion for First Time in 2012”, http://www.emarketer.com/Article/Ecommerce-Sales-Topped-1-Trillion-First- Time-2012/1009649, accessed May 2014. – export.gov, “The Harmonized System”, http://export.gov/logistics/eg_main_018119. asp, accessed May 2016. – Internet Live stats, “Internet Users by Country 2014”, http://www.internetlivestats.com/internet-users-by-country/, accessed May 2014. – Klaas-Jan Meijer, “Creating a successful market entry strategy”, blog Salesupply, Salesupply, November 15, 2015, accessed May 2016. – Salesupply, “How to sell on Amazon US”, http://www.Salesupply.com/ Salesupply_2015_How_to_sell_on_Amazon_US.pdf, accessed May 2016. – Veraart Research Group/Retail-index.com, “Consumer Electronics Retailers in Europe”, http://www.retail-index.com/Sectors/onsumerElectronicsRetailersinEurope.aspx, accessed May 2016. 11 Disclaimer This document is provided for general information purposes only and with- out any representation or warranty (express or implied). The information set forth herein is not intended to be, and should not be construed as, the basis for an inves- tment decision. Nothing herein should be construed as legal, tax, financial, investment, accounting, or other advice. Whereas every effort has been made to ensure that the information given in this document is accurate, arvato Distribution and our partners disclaim any and all liability for any express or implied repre- sentation or warranty contained herein and for any omission from this document or any other written or oral communi- cation in relation hereto transmitted to any party and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organization mentioned.