You want to set up a subsidiary in Europe? You ask yourself what country to pick for your European HQ’s? How do you go about European Site Selection?
What is your intention?
To provide insight into the process, we will take the example of a US based Life Sciences company. The company wants to enter the European market. The Life Sciences company wants to market, sell and support its US developed products into the European market. They also want to establish an R&D facility in their new European offices.
List and Rank European Life Science Clusters
The company realizes that it will need access to a Life Science cluster. Access to a cluster will help the company take advantage of the infrastructure that already exists within the cluster: research universities, qualified labor and talent pools, sources of funding, CMO’s, CRO’s and consultants.
A study by Sanofi: The Leading Life Science Clusters in Europe, describes the many European Life Science clusters. From the study, it becomes obvious that the different European clusters focus on different subsectors. the company further limits its options to those clusters which are ready to support its specific specialization. Chances are the remaining clusters include most of the more prominent ones: the United Kingdom, Switzerland, Germany, France, Belgium, and possibly some smaller ones.
General Economic Environment
When choosing between several clusters that can accommodate your activity other factors will come into play:
What is the level of competitiveness and economic freedom offered in each of these locations? The labor productivity per hour worked, the cost per hour worked and labor restrictions/freedom are additional need to be taken into account.
Other factors may come into play as well. Is the facility easy to visit? Is it easy to ship product through Europe?
Another very important factor has to do with taxes. Corporate tax rates vary widely between European countries. France has the highest corporate rate (38%), Ireland has the lowest (12%).
The issue is further complicated as several countries have specific tax incentives related to R&D expenses. In addition, certain countries will tax income derived from IP at a rate more favorable than the standard corporate tax rate (Patent Box). Patent Box implementation differs widely from country to country.
Unfortunately, the tax situation is in flux as the OECD countries agreed in November 2015 to implement the BEPS actions (Base Erosion and Profit Shifting). Most companies see tax as a cost, and work diligently to reduce the tax burden. To avoid taxation, companies have set up structures that allow the shift of profits to countries with lower taxes. The BEPS actions curtail tax avoidance by forcing governments to tax profits where the activities that generate the profit are performed.
Further incentives are offered by Regional Governmental Organizations as well as the European Union (Horizon 2020).
Site Selection: Pick the Cluster that Best Fits your Need
Each company has a specific reason to set up a subsidiary in Europe, as well as a specific strategic goal. As expected, these choices significantly impact Site Selection. GB5D will help you map your reasons and your strategic goals. We will compare those with the “matching” clusters. And because a given county’s tax environment and investment incentives may change as a result of BEPS, we suggest to run multiple scenario’s. This will allow you to evaluate the impact on the probability, and the risks involved, of meeting your goals in reference to each the different possible choices.