Sunday, September 15, 2019

The Main Challenges of Running a Business in Europe

In recent years, Europe has endured considerable social and economic tumult, from the 2016 Brexit vote (we’ll have more on this later) to the continued fallout from the great recession of 2008. 

In fact, the performance of SMEs in most EU member states is considerably lower than it was prior to 2008, with the Slovakian economy alone having lost nearly 50% of its small and medium-sized ventures during the last decade. 

But what are the most pressing challenges of currently running a business in Europe, and what steps can firms take to optimise their operational efficiency? Let’s find out.

Businesses in the EU are Struggling to Find Customers

This is a fundamental issue amongst EU firms, with the European Commission (EC) revealing that a staggering 71% of companies in the single bloc are struggling to identify customers for their products or services.

This may have something to do with the economic constraints caused by Brexit, as uncertainly remains about the nature of the UK’s exit from the European Union and the precise date of their departure.

Most economists predict that the trade volume between these two entities (which was estimated at around 1196 billion Euros prior to the Brexit vote) will decline markedly once the UK has left the Union, with a no-deal exit potential triggering a significant fall in activity.

As a result, businesses are struggling to identify and convert customers in the current climate, with many looking to reconsider their pricing strategy in a bid to create a more competitive proposition for their clients.

Businesses in the EU Have Less Access to Finance

In truth, this is a relatively longstanding issue in the EU, as businesses (particularly small and medium-sized firms that make up more than 99% of the European economy) continue to struggle to secure a viable source of finance.

Now, whilst the supply of finance has improved through the years thanks to improved capital and liquidity of positions of European banks, there remain considerable concerns about the burden of overly restrictive financial regulation within the Union.

Brexit has also cultivated a more risk-averse approach amongst European banks, who are increasingly loath to lend in such an uncertain economic climate.

This is creating a perfect storm for businesses in the EU, and making it hard for them to achieve growth and their underlying objectives.

Businesses in the EU Struggle with Different Tax Rates and Cultures

Whilst the so-called freedom of movement is something that underpins the European project, it can create issues in a single bloc where each member state offers different tax levies and regulatory measures.

This is one of the factors that recently prompted the Belgian government to reduce its corporate tax rate, which will drop to 25% in 2020 (from a peak of 33.99% in 2017).

The lack of a uniform tax rate and culture also makes some member states far more desirable than others, creating gaps in skilled labour in some countries and making hard for these economies to grow sustainably.

Of course, service providers like RSM can help both companies and individuals to optimise their tax payments and transition when they enter into new regions. However, this remains a significant concern and one that definitely contributes to a wealth gap between some EU member states.

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