Yankee, come here!

Europe offers a population density and industrial concentration unmatched anywhere in the world. And it's as decidedly pro-American as it is pro-business.

By Michael Babb -- Logistics Management, 4/1/1998

Born on Jan. 1, 1993, the European economic area is now a reality. Customs formalities and administrative obligations have either been reduced significantly or eliminated entirely. From the downs of England to the plains of Lombardy lies a continuous, crescent-shaped corridor known as the "banana of wealth" with a population density and industrial concentration that is unmatched anywhere in the world. And right next door: Eastern Europe, an emerging market with perhaps even greater potential than all of East Asia.

"The U.S. used to see Europe as an appendage," says Roger Morgan, who heads supply-chain management for Becton-Dickinson's European operations near Grenoble, France. "Now the businesses are thinking on a worldwide basis."

"People who think that growth and the future belong to the Pacific Rim are mistaken," asserts Nick Seiersen, a consultant with KPMG in Toronto, Canada. "This is a myth that is causing too many companies to ignore the huge, wealthy market that is Europe today--home to over 300 million people, with a standard of living comparable to North America's and a growing wealthy seniors segment." Four of the world's seven economic superpowers are located here, and, from the perspective of consumer tastes, this "banana of wealth" is becoming a more homogeneous culture.

But Americans are advised not to carry this "homogeneous culture" thinking too far. Their Continental friends have no intention of building a European version of the USA anytime in the near future. U.S. companies planning to do business here must face the reality of 1998, says Seiersen, and that is: How do they address a market that still has, as its primary characteristics, diverse cultures, different languages, and various behaviors?

This doesn't mean logistics operations have to be micro-divided and carried on in many ethnically and culturally distinct sub-markets to serve local customs and tastes. Europe's vast communications and transportation infrastructures make it possible to set up a single "European Distribution Center" to serve the whole continent.

The big question is, where? "With the size and complexity of Europe, deciding where to put down logistics operations is a big question," says Seiersen, "and [it's] worth spending some time making sure your answers are right."

Value-Added Logistics

For American companies that want to do business in Europe, setting up operations with direct sales is often an attractive first option. Products are imported to fill customer orders. However, this involves several days of sea transit to the first ports, followed by complex planning to unload and clear customs, arrange for transportation, and so on.

This lengthy and uncertain leadtime encourages U.S. manufacturers to take the next step and establish their own European distribution centers (EDCs). They do this to provide more responsive service and to support growth with more demanding customers, notes Seiersen. What's changed with the development of the European Community is that the logistics business is evolving from a multi-domestic structure to a pan-European and differentiated organization, with companies having only two or three operations.

American companies tend to progress through a number of permutations of the EDC, with the fittest of them surviving to an advanced stage of practice called "Value Added Logistics." VAL is an outgrowth of traditional logistics and distribution, and it is particularly suited to Europe's tangle of micro-cultures. The basic idea is to manufacture an inventory of modular and generic parts that subsequently can be assembled in a number of different ways after the customer's order has been received. The generic parts can be made in low-wage countries while final assembly and custom configuration take place in the EDC, close to the customer.

The methods work brilliantly for computer companies. Hewlett-Packard, for instance, imports parts from the Far East and Italy to assemble and ship 80,000 laser printers per month from its EDC in Amersfoort, Holland.

The Benelux Beachhead

Near the top of the "banana of wealth," at the mouth of the Rhine River, lies Rotterdam, Europe's greatest port. Three hundred million tons--25 percent of all goods entering Europe--pass through this Netherlands harbor each year. Through Europe's waterway system, they can go cheaply as far as the Black Sea.

The Port of Rotterdam's latest showpiece is the fully automated ECT/Sea-Land terminal for the transshipment of containers. It continues to invest heavily in the construction of Distriparks, ultra-modern cargo distribution complexes with extensive warehousing facilities, and Trade and Distribution Centres with direct transportation links to the European hinterland.

For many years, The Netherlands has been the gateway into the European continent for foreign manufacturers. "The seafaring Dutch have a commercial mindset and multicultural style that makes it easy for Americans to do business," observes Seiersen.

The country's multilingual environment has attracted many logistics providers and service companies such as Roadshow International, which recently decided to centralize its European operations in Nieuwegein, Holland. Roadshow provides map-based route-planning software for truck fleets and now has one-quarter of its revenue coming from Europe. Why locate in Holland? "Our Dutch staff supports seven different languages," says Chris van der Harst, managing director of the International Division. "This allows us to meet the needs of our European customers easily and quickly."

Yet Holland is not without its problems. A victim of its own success, the country is finding its road infrastructure is becoming overloaded, and transit times are increasing as are the costs of doing business, he notes.

France Reaches Out

France is Europe's largest country in land area and enjoys a prime position between the Atlantic Ocean and the western edge of the "banana of wealth." And while the country lives with a level of unemployment that would cause riots in America, even this has a silver lining: It keeps the wage base relatively low.

Significant investments in new infrastructure are changing the logistics picture in France. Europe's largest railway, the SCNF, has built a world-class high-speed rail network. Hundreds of kilometers of new roads are constructed every year. The Channel Tunnel provides a fixed link to the UK. Major airports in Paris and Lyon are connected to the highway system and high-speed rail networks, which helped Federal Express in its decision to relocate its European hub, along with that of its logistics division, FLS, to Paris' Charles de Gaulle (CDG) airport.

Automation of pre-customs clearance at CDG was a crucial factor, explains Brigitte Iconomoff, director of customer operations for FedEx at CDG. Today, FedEx offers inflight pre-customs clearance for the 6,200 daily shipments from its U.S. hubs. All information regarding shipments is forwarded via state-of-the-art EDI to French Customs at the time of departure from the United States, and by the time the plane lands at CDG, agents have selected the packages that will require their inspection. The balance are immediately forwarded to the final consignee. Next year, she says, FedEx will extend its operations to 130,000 daily shipments, not only for Europe but for the Middle East and Asia.

One of France's newest investments, due to open this year, is Europort Vatry. Located 90 miles east of Paris, the freight-only airport will operate around the clock to reduce cargo cycle times. French officials say Vatry will be the largest aircargo complex in Europe and promises to lower landing fees by as much as 50 percent from other airports.

France is the only European country to span both North and South Europe, giving it a big geographical advantage. It has the only road connections to Spain and Portugal. The most convenient motorways to Italy are through France, either along the Mediterranean coast through Nice or through the Mont-Blanc tunnel to Turin and Milan. Restrictions on routes through other countries make them less attractive: In Switzerland, for example, trucks weighing more than 24 tons must take the train. Austria won't allow truck traffic after 10 p.m.

"These factors make France the most attractive option for a Southern Europe distribution hub," says Seiersen. He thinks such a hub would be located within 150 kilometres of Lyon.

Gateway to Central Europe

On the east side of the "banana of wealth" lies Germany, Europe's most populous (82 million) and most industrialized country. High labor costs make many American companies think twice before moving here. Nevertheless, by siting a distribution facility in Germany, significant volume can be serviced within a relatively short distance.

Unlike its European neighbors, which concentrate large productive capacity in a few major cities, the German economy is more regional, with fierce competition between regions. This has spawned a number of small to medium-size logistics companies whose competition with each other in the domestic market serves to control the costs. Larger German freight forwarders such as Schenkers and Kuehne & Nagel have reached out into international markets with value-added logistics services. Express parcel carrier DPD is expanding through international alliances with Parceline in the UK and Groupe Heppner in France.

And the larger carriers are taking advantage of their country's excellent position to serve countries in Central Europe, such as Poland, the Czech Republic, and Hungary, where German is often the second language. P&O Trans European recently completed a 53,000 square-foot logistics center in Leipzig to serve as a transit point to coordinate traffic between Central and Eastern Europe.

Germany does not have an extensive coastline, but it makes use of the ports that it has. The Port of Hamburg is the largest rail-container-handling center in Europe; each week, more than 200 intermodal train shuttles leave the port destined for other European countries while more than 250 block trains head for German industrial centers.

The Port of Bremen, called Europe's "automobile turntable," handled more than one million automobiles for the first time in 1997. It recently opened Container Terminal III, built large enough to handle future generations of supersize post-Panamax vessels.

Americans Welcome

"Any Common Market state will provide a home for the simplified administration of the Single European Market, as well as duty-drawback facilities for goods re-exported to non-EC countries," notes Seiersen. He reports that there are other significant incentives offered by states and communities to get companies to locate close to them.

"Also be aware that most countries provide support to foreign businesses that are looking to locate operations in their country, and these government agencies can help find the best deal for you and guide you through the red tape," he says. There also are organizations that will help you find third-party logistics services locally.

Today, Europe is not only a huge market, it is as decidedly pro-American as it is pro-business. Government agencies, such as "Invest in France," roll out the red carpet for Americans who want to relocate. The sign on the welcome mat says, "Yankee, please come here!"