Introduction
European tech companies have been known to consider moves into the United States market, especially once growth stagnates and upward mobility becomes difficult in the current market. The US market can sometimes work to the benefit of UK and European businesses by providing a new area of expansion and growth, but it can also be difficult for European companies to adjust to the market.
There are several initial considerations that European companies should make prior to international expansion into international markets like the US in order to achieve the best start and most success, such as considering when, where, and how to expand.
When to Expand?
Expanding a technology company from Europe to the US market can be an exciting and rewarding opportunity. With the right approach, companies can enjoy vast opportunities for growth and success in the world’s largest consumer market. However, there are several key considerations to keep in mind when making an international expansion. Companies should evaluate all potential risks and benefits carefully and decide if expanding is the right choice before taking a leap into the US market.
Choose the Right Moment
Expanding to the US will be one of the most difficult decisions in the company’s life. Expanding too soon can prove dangerous due to the possibility of little success in the US market combined with losing its presence in Europe.
Conversely, expanding too late could mean the US market is already saturated with competitors who will be able to compete with the company in Europe as well. With that being said, knowing when the time is right for expansion can be a difficult decision to make, given an array of key considerations. Nonetheless, the US market dominates tech. Therefore, it is wise to consider international growth and have global ambitions.
A Basic Understanding of the US Market
Before expanding to the US, companies should research the regional market thoroughly. Companies should identify their target customer base, understand consumer preferences, and conduct market research in order to create a successful business model for their US operations. Additionally, researching local competition will be essential for assessing how products or services may fare against current offerings in the region.
Legal Requirements
There are various regulations and laws to consider when expanding a business from Europe to the US. Companies should research their obligations under state or federal laws like US labor law, tax law, and anti-trust regulations, among others. Furthermore, there are corporate governance laws that differ from European regulations. For example, when a company is required to pay payroll taxes, the parameters surrounding the payroll tax law may differ from European payroll tax laws. Therefore, it is often advised that tech companies looking to expand to the US seek expert local advice.
The graph below shows the effective corporate tax rate in the US over the years. As seen, the tax rate is constantly changing each year with a general decreasing trend. Therefore, European tech companies looking to expand should seek specialist professional advice.
Additionally, understanding local zoning ordinances and other land usage laws can help identify suitable locations for offices and other facilities. Staying up to date with the latest legal developments can be a challenging task, so companies should consider consulting with local legal professionals as needed.
Financial Considerations
One of the most important considerations for any business expansion is finances. Companies must have the financial capital to establish and maintain operations in the US market. These resources include capital for purchasing or leasing necessary facilities and equipment, hiring new personnel, launching marketing campaigns, and accruing other expenses. Companies should also consider the cost of US taxes when making financial plans for expansion.
While many such businesses understand these key aspects, expanding to the US market from the European market also requires strong financial discipline, expert local advice, and global growth ambitions. Without the facets and considerations above, European tech companies will find it near impossible to expand internationally.
Where to Expand?
The US tech industry is so vast that there are over half a million tech companies in the US employing over 12 million workers, and the North American tech sector controls 35% of the entire global market share. Heavy contributors to these numbers are the well-known tech markets already known in the United States, such as Silicon Valley, Boston, Chicago, and New York. However, European companies looking to expand to the United States should not only look to expand to these regions but to 3 other key regions as well.
Pittsburgh
Pittsburgh has historically been known as the “Steel City,” but it is quickly changing its branding to become a much more technologically advanced and smart city. Pittsburgh has its own Innovation District that allows tech entrepreneurs to develop their companies and promote themselves within the area, and it observed the highest rate of increase in average tech salary from the previous year in 2021, rising 14%.
Pittsburgh finds itself a top destination for many upcoming and established tech conglomerates due to its ability to serve both startups and tech giants. For a European company, Pittsburgh could lend its high levels of tech job postings and tech workers to help European entrepreneurs on their business journey and provide them with newly deemed full-time employees.
Atlanta
Atlanta finds itself already a global power in the global Fintech industry and as a haven for startup growth, as over a dozen companies based in the city have transformed from over a decade ago to reach valuations above $1 billion. Additionally, Atlanta is ranked the 3rd highest city for tech job posting volume, behind only New York and Chicago, cementing it as one of the possible cities that could be a haven for UK and European tech businesses. European expansion to Atlanta would allow a company to successfully be supported by a renowned network that supports startups because Atlanta has multiple tech innovation centers, such as Atlanta Tech Village.
Overall, Atlanta succeeds at attracting businesses following European expansion due to its ability to offer affordable startup operation costs for a European business and numerous people already established in tech employment that could be convinced to join a new company in the area.
Austin
Austin has been rapidly expanding over the past 10-20 years. Combined with Texas emerging more and more as a technological hub, Austin finds itself a great place for European businesses looking to expand to the world’s largest consumer market and find local growth there. From 2011 to 2021, the Austin Chamber of Commerce found that the Austin Metropolitan Area had a 58.4% growth rate in high-tech jobs, compared to a nationwide average of only 18.7%. With numerous tech giants already in the area and hundreds of thousands of millennials looking to work in the rising tech industry in Austin, a European company could find itself quickly becoming a major player in the area if they quickly bring in new employees and attract new business partners with a polished and confident pitch.
All of these locations find themselves as great places for a European tech business looking to expand to the United States, and each of them offers a variety of benefits that would allow companies to get a jumpstart and thrive in the US market.
How to Expand?
Sourcing Funding
Obtaining capital to fund a tech venture in the United States can be a challenge. However, knowing where to look can massively increase a firm’s chances of receiving funds. Generally, businesses looking to receive funding in the United States work through venture capital investors. For technology firms, one of the best and most prestigious places to look for funds is from silicon valley investors. Compared to British private equity investors or other European investors, American investors are much less risk-averse and are only willing to gamble on ideas with high potential, even if they pose a high risk.
However, despite global growth, foreign firms can face disadvantages when attempting to fund their operating costs in the United States. Typically, American investors prefer to encourage domestic success, meaning investors tend to be more inclined toward helping local American firms. Therefore, it is important for European tech companies wishing to gain venture capital investment in the States to not only have an innovative business model and pitch but also be able to communicate their vision and progress across the geographic divide.
To this end, establishing meaningful connections with venture capital firms and showcasing success through effective marketing campaigns are crucial steps that must be taken before such a venture can derive adequate financial backing in the US market.
Capitalizing on Incentives
Venture capital funds are not the only ways to generate assets for a foreign firm expanding to the States. The US offers numerous incentives to attract innovative businesses. One of the most crucial benefits that many cities and states offer to draw in firms includes providing free marketing services within certain targeted industries. This free access can give tech companies a chance to rapidly introduce their products or services in the United States, often at a lower cost than those experienced in Europe or other countries. These same cities and states also offer an array of other financial incentives that are extremely helpful in kickstarting American business.
Moreover, the US economy offers abundant protectionist opportunities and preferential trading arrangements beneficial for European tech firms looking for growth and sustainability.
Incorporation
Companies intending to establish a physical presence in the United States need to consider incorporation to ensure legal protection. The process of incorporation consists of deciding on a legal form of business, such as a Corporation or Limited Liability Company (LLC), obtaining an Employer Identification Number (EIN), and applying for any necessary licenses or permits for regulated businesses. Once established as a national corporation with appropriate state and federal documents, foreign firms will be fully equipped to begin upright operations in the United States.
When it comes to the question of where to incorporate, Delaware is the ideal choice for many businesses, as the state offers some of the most well tested-corporate governance laws in the nation. Additionally, Delaware-incorporated businesses have access to an experienced court system for resolving employment law disputes. This specialized court system provides companies with speed and clarity when resolving these types of matters, reducing the time and cost associated with such issues. Thus, foreign firms looking to incorporate within the U.S. can be certain that their business is benefiting from decades of proven business practices offering them optimal legal protection and guidance in their operations.
Conclusion
Global companies can better acquire global revenue, and the United States is one of the best places for the most successful businesses to continue to see organic growth and a return on investment dollars. Whether a company is an early-stage company or is rapidly expanding and quickly raising money, it is up to the company to decide whether the US market is the next step following European expansion.
Before that decision is made, however, businesses will continue to achieve success if they take the time to consider the when, where, and how of expansion to the United States, as the answers to those questions will ensure a smoother and more effective transition. Successful businesses follow what their predecessors did, and the effective European tech conglomerates that expanded to the US took the time to consider these things.
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