Europe is a fabulous region for tech businesses to build up their product offerings, employee workforce, brand, and revenue in order to achieve some initial growth. But the potential to plateau can occur, as European companies can find themselves lagging behind American or Chinese counterparts within the tech industry due to having access to a less tech-focused market.
While some firms could find themselves succeeding and achieving massive profits and success in Europe, others should seriously consider a move to the American market based on the characteristics of the US economy and the concentration of knowledge and technology found there. However, before any potential move, European tech companies should consider all the factors and determine if they should make a potential move and when to do it.
The US Economy
The first reason European companies should consider the American market is due to the strength, size, technology, and landscape of the US economy. To start, the US has the largest consumer market in the world, which makes it easier to raise venture capital compared to the European market. This large consumer market exacerbates the different facets of the US economy, including size, economic zones, and technological advancements.
Size
The most obvious reason that foreign companies expand to the US is due to the large size of the US economy. In 2020, over 16% of global gross domestic product (GDP) belonged to the US, which made the US economy the largest economy in the world. Even though COVID-19 hit businesses all around the world, the US economy still outperformed the competition with a focus on technology. Therefore, the size of the US economy means that it can withstand turbulence due to its technological prowess. As seen in the graph below, the US has had the biggest economy in the world since 1871.
Furthermore, European companies can benefit from the size of the US economy because there is a large pool of customers, primarily within the middle class, that have the financial resources to try new products and tech. Entrepreneurship is a huge aspect of American culture that benefits all kinds of businesses, partnerships, and startups.
The large size of the US economy also means that firms have an adequate supply of resources that they can use to boost profits. The importance of business-to-business relationships in the US economy means that it is easy to have a constant and unique supply of resources.
Economic Zones
Within the US, there are numerous economic zones like silicon valley that have found success in certain industries. Therefore, the economic zones create pools of talent, attracting the smartest and most like-minded people from throughout the world. Therefore, European tech firms and startups could benefit from an economic zone like silicon valley because there are like-minded individuals that are willing to help an idea grow and enter the US market. As seen in the graph below, the silicon valley region in California, USA, contributes most to US GDP. Therefore, tech companies contribute largely to the US economy.
Furthermore, economic zones foster collaboration between businesses. Complex problems can be solved by pooling the resources of a variety of firms, such as a venture capital firm, to address a particular business problem. Hiring is also easy within these economic zones. In silicon valley, there is a high density of tech workers that are willing to work. In the tech industry, it is often hard to find the right person to hire with the proper qualifications and experience. Therefore, economic zones are crucial to the success of many American and international tech companies. When hiring becomes easy, efficiency and profitability are increased.
A Concentration of Knowledge and Technology
The USA finds itself a very lucrative site of expansion for young companies looking to expand out of the European Union and into a more robust market capable of growth. Big tech and media companies are found more frequently in the US due to the level of technological advancement present within the US market. For example, according to Bloomberg, as of March 2022, out of 1000 unicorn (privately-held startups with valuations of $1 billion+, a startup’s dream) companies globally, 524 belong within the US, which demonstrates to European startups that tech firms must advance from the European market to the larger digital markets found within the US.
There is also a level of privacy for companies within the US, as Europe is subject to the Digital Services Act and Digital Markets Act that look to create more transparency. But it’s not just the market size and prowess that allows the United States to achieve growth and innovation in the future; It is also the concentration of knowledge and technical skills and innovations found within US companies and US personnel.
Workforce and Talent
The US technology workforce has been growing steadily over time since 2000. According to figures from Deloitte, the share of the tech workforce in total employment increased from 2.9% in 2001 to 4% in 2020, signifying that the US tech industry is growing larger and allowing for more people to create new research and revenue. This massive growth, as the US tech workforce has reached 5.5 million people, shows the level of talent and amount of personnel that European countries do not have access to. Since this number is continuing to increase, it retains a viable pool of employees that European startups could obtain.
Technological Advancement
The US not only has a large concentration of knowledge but it is consistently ranked among the most technologically advanced countries. According to World Population Review, using aggregate rankings from sources such as Global Finance and Insider Monkey, the US ranks second globally behind only Japan in terms of technological advancement, ahead of the UK and China, with it also being the only company to appear on rankings from all ten sources.
This level of advancement shows that the US tech industry already has platforms upon which European startups could continue growing, which is a huge advantage that would allow these businesses to place themselves ahead of their competitors and achieve future money and success. These companies could escape from a level playing field found in smaller markets and ensure that they accrue advantages to eliminate the competition. Not only would European tech firms have access to American technology, but they would also be able to work with more support from a partner or manufacturer that they may not have had access to in Europe.
Overall, the US provides both the knowledge and the technological advancements to allow European tech firms to continue expanding and potentially reach the level of tech giants.
When to Expand
Now that the opportunities that exist in the United States have been presented, the next step is to understand when to expand. Deciding when to strike is oftentimes the most important factor in expanding overseas but is often underlooked. Expand too soon, and you will be unable to properly fund and support both markets, but expand too late, and you risk failing to capture an adequate market share to fund success in the new market. However, by investing in strategic planning, market research, and product readiness, any company can properly flush out an American expansion plan.
Strategic Planning
The best way to properly understand when to expand is to properly and thoroughly plan. Firstly, businesses should develop a detailed timetable with extensive research into the capacity to reach the identified milestones and the allotted time. This timetable should also include a budget for associated costs, as this is often a constraint when firms do not possess enough capital to launch an expansion.
Market Research
Another factor that is key to the expansion timeline is research and analysis. Having a proper understanding of the market status and where it is projected to go is very important. A proper understanding of customers and competitors also contributes to having comprehensive knowledge about the target area. In the United States, the business environment is extremely competitive and highly volatile depending on the industry. However, proper research can help companies to make educated guesses about the best times to act.
Product Readiness
The final key consideration for creating an expansion timeline is product readiness. While the United States is the most opportune market, particularly for tech firms, it is also extremely saturated in almost all industries compared to other countries. In order to sell in America, any products or services must be unique, localized, and competitive. Ultimately though, added value is the most important factor in establishing a successful product.
Identifying areas where value adds are easier to reach and capitalizing on internal capabilities and strengths are musts, particularly in digital markets, when attempting to sell any offering. While the United States has the highest bar for success, firms that do succeed will see an incredible reward in terms of sales volume, opportunity, near unlimited access to investors and venture capital, proximity to innovation, and nearly any other metric.
Conclusion
European tech firms should decide for themselves whether or not to expand into the United States, as the opportunity for growth increases drastically along with the opportunity for failure due to increased competition. While some firms may thrive in a more cutthroat environment, others may not be able to keep up with the demands of a larger customer base or industry. Overall, companies should make sure to prepare themselves for a potential move, confirm that there are no further convenient opportunities to expand in Europe, and complete research on when would be the right time to expand.
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