The rise of emerging economies in Eastern Europe has caught the eye of many an entrepreneur in recent times. Guy Clapperton assesses the current business environment for entrepreneurs across the continent, with particular reference to the East/West divide.
Guy Clapperton is a freelance journalist based in the UK
There are a lot of myths surrounding entrepreneurialism in Europe. They're years behind in countries such as the UK, say some; they're actually quite far ahead, say others. In fact, there are no distinct rules that will govern the whole of such a disparate set of cultures.
Indeed it needn't be a problem at all in some instances. Lee Tumbridge is managing director of Wageroller, a company he set up with his wife to offer financing against wage bills for small firms, and which has now set up in a number of territories without any real difficulty. "We've been talking to a number of international partners, including banks, and we're putting the licenses in place ready to take forward in the different countries." Opening in 14 countries in Europe, encompassing both East and West, the biggest issue has been that Germany has a federal tax so it needs to be treated differently legally. "What we're finding is because of the nature of what we do, there is a lot of similarity between the different countries." Translation issues aside, and you do need someone to check for idiom as well as literal accuracy, there hasn't really been an issue with working in multiple countries.
Much of this is because Tumbridge works with local partners. "We've been working with the product development departments of the local banks," he says. "And we're working with a PR firm on our brand management so that every nuance is the same in every country."
East vs West
This is not to say that there are no territory-specific quirks to look out for. Phil Lenton is managing director of Compsoft, a company that helps high-growth businesses through periods of rapid expansion, and recently spent a week teaching at the Brian Griffiths School of Management in Oradea, Romania. His observations of the students' plans are instructive. "It feels like England 20 years ago and I don't mean that patronisingly," he says. "The kind of business ideas that people come up with are good but one dimensional – it's all about doing one specific thing well. One student I spoke to had an idea for selling sandwiches; they wanted to sell nice sandwiches and that was the extent of the idea. I said yes and what else, and he said they could sell them to business workers, or on the street, or to cafes. Another idea was to sell jeans, another to sell toys. These were basic, sound ideas but wholly under-developed and yet they had something to them; in Romania, for example, there simply wasn't any natural outlet for quality toys or jeans, so if someone gets the branding right they're onto something."
The limitations extend further than the embryonic nature of the ideas; Lenton found no evidence of mechanisms such as direct debits or electronic payments. This in turn affected the state of the internet and people's notions about websites. "The internet is still very much an awareness tool," he explains. "Partly it's where the market is," he adds. "If I were to try and set up in Romania I might find I was being too clever for my own good. It's a reflection of where the country is … us from the West can think it's not cutting-edge and look for more comprehensive business ideas, but it would go completely over their heads." An example is Lenton's own idea of developing a means by which peer groups could evaluate each other's websites; however, this idea simply wasn't understood in Eastern Europe where websites are brochures and if they look clear they're deemed good enough.
Others have also noticed the difference between East and West Europe, particularly when it comes to investing in new business. Giuseppe Curatolo is a venture capitalist with TLcom Capital and believes there are two potential opportunities for any entrepreneur in an emerging market. "One is to exploit your intellectual property and tackle the world markets," he says. This is what the Israelis, for example, have done brilliantly by building a technology brand and selling the notion overseas. "The second opportunity is to look at your domestic market, which is often huge. A Russian company could look to go international but its domestic market is vast."
Whichever route an entrepreneur in an Eastern European country takes, anyone wanting to invest needs a partner who knows the market. "You won't get anywhere investing in Moscow by yourself," Curatolo says. "You need a partner who knows the ethics, the market and the practices over there." The disparity between the East and West in Europe is shrinking, though, he believes, and people who tried setting up only five years ago are likely to find a more switched-on market when they try again.
It is, of course, a simplification to suggest that it's more difficult to get investors for East rather than West Europe. Carsten Brinkschulte is chief executive of mobile synchronisation and device management company Synchronica, which he founded in Germany. "I have founded two companies in Germany (Weblicon and Synchronica). Weblicon was VC-funded while Synchronica was set up using private money, and I can say from these experiences that Germany is much more risk averse than the UK, where access to capital is better and more funding is available," he explains. "However, on the flip side, the salaries in the UK are much higher than in Germany, so it's more expensive to set up a company in the UK." The good news is that in Brinkschulte's experience, the classic European respect for the family and particularly a family business is entrenched – nowhere is this sort of enterprise not welcomed, at least initially.
The American factor
It's also useful to compare European attitudes to some elements of entrepreneurialism with those in America, the obvious competitor. It's clear to some commentators at least that, East/West divides aside, there are times when the entire continent speaks as one. Gary Muddyman of global internationalisation and translation service Conversis notes that Europe just doesn't seem wired to start businesses in the same way as its transatlantic counterparts. "A survey of entrepreneurship in 2000 said that 10% of the US population were actively engaged in the process of creating their own business. In Europe it's less than 4%," he says. Old Europe attitudes are fairly similar, he adds, although particularly negative in France for example. "In new Europe, the situation is slightly different. New rules are being created, perhaps a spirit of re-invention after the amalgamation into Europe."
Even more of a contrast is the typical view of business failure – a sad reality for many owner/managers. "In the US it is seen as a step in the experimentation process – a step closer to getting it right," he says. "In Europe, re-entering employment after a failed business can be difficult and, in particular, lending institutions will treat failed entrepreneurs with suspicion." Brinkschulte agrees. "In Germany, it's the same as the UK in that there is a real stigma attached the business failure. Once you have had one venture fail, you're a marked man. As a result, many people in Europe opt for a "safe" career within a large corporate rather than going it alone. I believe there is a lot of creativity being lost because European people who may have founded a business had they been born in the US, are bowing to the European risk-averse attitude to entrepreneurialism and following a corporate career instead."