European Union: How Europe is Rewriting Its Site Location Rules

On January 1, 1999, the euro will emerge as a negotiable currency, replacing several Western European currencies — the exact number of which will be determined in the coming months. “It is very likely that the euro will consist of the currencies of 10 [European Union] member states,” says Elias S. van Herwaarden, senior manager at Price Waterhouse Plant Location International, Brussels.

A key implication is in the area of financing. Relationships with banks and other capital sources will become more customer-driven, because the common currency will open up new sources of capital. “Real estate financing is up for grabs,” says van Herwaarden, “because there are new financial tools and a larger financial pool.”

Secondly, purchasers of office furniture and equipment, building materials and business-to-business services should benefit from lower prices as local market providers endeavor to keep companies from shopping for such provisions across the border. “The cost of money will go down, making the cost of building less expensive,” van Herwaarden predicts.

But few Western multinationals are devoting much attention to the issue. “This is dangerous, because we are talking about a brand new currency, a new way of doing contracts, and most companies are not prepared,” van Herwaarden says. Approximately 75 percent of European multinationals are not prepared, and almost nine out of 10 U.S. companies are partially prepared at best, according to Price Waterhouse research.

One area to pay particular attention to is the complex world of negotiating site agreements with European economic development authorities. European development initiatives generally are administered on the national level with some input from local or regional parties. Companies can expect to see their deals and the details of incentive plans scrutinized carefully by European Commission (EC) officials in Brussels. “The European Commission restricts state aid to very specific situations, which means that you want to think twice before accepting an offer,” says van Herwaarden.

Incentives are likely to be approved if the recipient company’s presence has a positive social impact; if the company locates in an area recently devastated by a natural disaster and whose presence will facilitate recovery; if the site is situated such that it abets the modernization of the former East Germany; if a seriously underdeveloped area in the European Union benefits directly from the new site; if the project benefits Europe’s competitive stance in the world marketplace; and in cases where specific regions or industry sectors in decline stand to benefit.

“The burden is on the company [to prove compliance],” says van Herwaarden. “If something goes wrong, you can’t blame it on anyone but yourself. This is a situation to avoid, because there are only losers in such a game.”
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