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INTERNATIONAL REPORT: Germany and Belgium – Restarting the Engine for European Growth

Ghent, East Flanders, Belgium

Ghent, East Flanders, Belgium

By Stefanie H. Mathes
From the May/June 2012 issue

The successful integration of emerging Europe has led to spillover effects between advanced and emerging Europe economies. Emerging Europe keeps advanced Europe’s exports up. Production chains have become integrated across borders and advanced European banks have come to dominate emerging Europe’s banking systems. As much as both regions benefit from the interaction, they are affected by shocks in one or the other region. Spillovers travel both ways.

Need For Growth Critical

IMW estimates forecast a 1.3 percent growth of real economic activity in advanced Europe in 2012. Overall, growth is slightly decreasing by 0.4 percent. In fact, some economies are faring much better than others. Some are hindered by high private indebtedness, a burst in asset prices, funding difficulties and lost competitiveness. At the same time others, such as Sweden or Germany, “free from major imbalances, took advantage of their strong initial competitiveness positions,” are barely affected by the turmoil in the euro area periphery, the IMW report states. Germany’s GDP is rising, unemployment is down, interest rates are low and businesses and consumers are giving encouraging signs on the whole. But again, “the health of the economies across Europe is very closely tied to our own economic development,” Robert Justin Scheid, manager at Germany Trade and Invest (gtai) says. In both investments in Germany and trade of goods and services, Europe is indispensable for growth in the country. 75 % of Germany’s exports remain within Europe.

Is it even attractive for an American company to invest right now in post-crises Europe? “Clearly yes,” Scheid says, and he continues by making a case in point: “Germany has proven itself a safe haven for investment.” It is the largest market on the continent, a prime location between Eastern and Western Europe, and outstanding investment conditions. Also, other European countries have rebounded. (See interview below.)

Yet there are others like Portugal and Greece that suffer from severe structural unemployment and still remain in recession. IMF states that in Italy and Spain, higher interest costs on the sovereign debt, front-loaded fiscal adjustment and increased tensions surrounding banks will constitute additional drags on already soft activity.

“We need to boost growth in Europe,” Manuel Barroso, President of the European Commission, said in his May message. And he continues: “We are delivering a robust response to the crisis by repairing our banking system, strengthening our economic governance, setting up credible financial firewalls and providing unprecedented solidarity to Member States in difficulty.” Crisis management in the euro area needs to go beyond ensuring stability but it needs to focus on growth. No matter if it is emerging Europe or advanced Europe, regions need to focus on their economic strength in their efforts to gain investment. Both, foreign investors and European regions profit: Europe is a secure investment and at the same time needs foreign investment to further grow.

Belgium Big On R&D

Belgium has the same size as Maryland. Like Maryland, Belgium is also home of a capital, namely Europe’s capital, Brussels. Unlike Maryland, however, Belgium is home of three language communities. The Dutch-speaking Flemish Community, the French-speaking Wallonia-Brussels Federation and a small German-speaking population. Despite its diversity, the three main regions, the Flemish, Walloon and Brussels-Capital Region have one thing in common: They share great opportunities for innovation and research and development activities for U.S. companies.

In fact, the Belgian innovation system is among the best in the world. The latest figures from OECD show that Belgium has the fourth largest global technological advantage in biotechnology, just to give an example.

There are a variety of tax incentives for research and development activities, such as investment deduction for research and development related investments and patents. A 15.5 percent tax deduction of the investment value of assets which aim to promote research and development of new products and advanced technologies that are environment friendly or of patents is only one example of many. 80 percent tax exemption of patent income for patents and supplementary protection certificates are yet another example. Tax incentives are attractive on the research side as well as on the labor cost side—there is, e.g. a reduction of employment costs for expatriates.

Philippe Gabant, Director of Business Development and founder of Delphi Gentics, says: “Belgium is a Monaco for patents.” This is because tax deduction on patent income is a federal measure that allows up to 80 percent of exemptions for income from certain patents. The measure applies not only to Belgian companies that are subject to corporate tax but also to all Belgian branches of foreign companies.

The U.S. business community has taken note of these advantages. The U.S. has maintained its position as one of Belgium’s largest employers in the field of innovation oriented companies.

Just a year ago, Deltek, headquartered in Virginia, opened a new office in Diegem, which is located near Brussels. Deltek produces enterprise software solutions. A local presence was core to the U.S. company. “Belgium is a key region in the European market,” Patrick Smith, Vice President, Corporate Marketing and Communications at Deltek, says. Because Belgium is located in the heart of Europe, it “offers the opportunity to work in French as well as in Dutch as an example, and thus is an important step towards possible future European expansion plans,” he says. And Belgian prospects value efforts to understand their language and culture.

Yet, the market is also challenging. Despite the size of the country is small, there are various cultural influences which need to be addressed. “We need to have a separate approach in each region,” is the experience that Patrick Smith has made. “You need to be well informed on the leading language in the companies you communicate with, or the language your business partner prefers.” And he adds: “It is a matter of respect which we try to provide with utmost care.”

For Deltek, the multi-lingual approach in Belgium is a challenge. Marketing material, for example, needs to be in Dutch and French. Needless to say, scalability becomes an issue because it is more expensive to do everything in two or even three languages. Despite these challenges, Deltek is absolutely content with their Belgium investment. They would “certainly” do it again.

More recently, Dow Corning, headquartered in Michigan, has announced the completion of its new state-of-the-art research and development facility in Seneffe, Belgium. Dow Corning is a global leader in silicones, silicon-based technology and innovation. The new research and development facility includes a Solar Application Center and a Silicone Synthesis Technology Center. The $13-million investment aims to advance research in new silicon-based materials and solar cell efficiency. Dr. Gregg A. Zank, vice president and CTO of Dow Corning, says: “This investment will accelerate innovation and growth,” and he adds that “by having this facility in Belgium, we will have access to very talented scientific people throughout Europe to work collaboratively on sound science and technology to develop sustainable products and applications for our customers.”

Interview with Burkhard Balz, Member of European Parliament

Burkhard Balz
Burkhard Balz

Q. How is Europe’s economy doing?
A. Europe is experiencing a sovereign debt crisis that was triggered by the global financial crisis. We are in the midst of an unparalleled drive for structural reforms while simultaneously reigning in government deficits. Substantial progress has been made, but we are not out of the woods yet. I am sure that Europe will emerge from the crisis strengthened and united.

Q. Is it even attractive for an American company to invest right now?
A. Europe remains highly attractive for US companies. It provides access to 500 million consumers, a highly skilled workforce and excellent infrastructure. Current structural reforms will continue to improve the conditions for investment by US companies.

Q. Despite the economic crises: Which countries are doing well?
A. The crisis has not yet passed and Europe will have to continue to show the reforming spirit which it has exhibited for the last two years. In its core Europe’s economy has remained healthy. This region includes Germany as well as Austria, Poland, the Scandinavian and the Benelux countries. Germany has shown that structural and labor market reforms can lead to both economic growth and a balanced budget.

Q. What has been done to strengthen the Euro?
A. The European Union has sought to strengthen and reform the Eurozone. The Stability and Growth Pact has been toughened and debt brakes will be written into national law. A permanent safeguard for struggling governments has been created with the ESM fund. Greater fiscal integration will ensure greater stability in the long term.

Q. For which branches is Europe particularly attractive?
A. Europe has an extremely diverse economy which is attractive to most industries. It has strengths in both manufacturing and services while also retaining a healthy and productive agricultural sector.

Q. Please pick five countries that are most promising for U.S. companies.
A. The Scandinavian countries arguably provide the most stable and high quality macroeconomic conditions in the world, in addition to consistently ranking amongst the most competitive economies. A leading manufacturing sector and a world-class infrastructure, on the other hand, make Germany very attractive for investment. Finally, the United Kingdom is an obvious choice for investors in the financial sector and service industries.

Q. There have been rumors about re-instating borders in some countries. Can you speak about the current situation?
A. The European Union and its member states do not want to re-instate national borders. With our experience of more than 15 years we do however want to make sure that the Schengen rules allow the member states to provide for security as well as guaranteeing the freedom of movement.

More U.S. investments continue to arrive in Belgium. Baxter International announced that it is investing 50 million euro in the construction of a new manufacturing facility in Lessines. Baxter is thus expanding its existing production complex. The facility is to begin manufacturing in 2014, thus creating 50 new jobs. In Lessines, Baxter will be producing a new innovative drug used in the treatment of a rare form of emphysema.

Lessines is a Walloon municipality located in the province of Hainaut. Each Region in Belgium stimulates investments in research and development on its own territory whereas the Federal State stimulates the national research and development policy. Wallonia ranks high among the knowledge regions, thanks to six clusters—networks, that interlink business and science to encourage innovation. A consortium of public and private players works together in order to create the technology of tomorrow. The most important regional clusters include aeronautics and space (Skywin), agrifood (Wagralim), life sciences (Biowin), Transport and logistics (Logistics in Wallonia), mechanical engineering (Mecatech) and environmental technologies (GreenWin).

In order to activate innovation, the Region of Flanders has chosen a similar way as Wallonia. The region is home to four Strategic Research Centers which, like the clusters in Wallonia, support collaboration in the academic and business field. One of the four main Research Centers is IBBT, Flanders’ research institute for information and communication technology, and broadband. Second, the Flemish Institute for Technological Research (VITO), a contract research and consulting center operating in the fields of energy, environmental and material technology as well as in industrial product and process technologies.

Third, the IMEC, which focuses on nanoelectronics and nanotechnology. IMEC is the leading European independent research center in micro- and nanoelectronics, nanotechnology, design methods and technologies for ICT systems. What will be seen in practice in ten years is already being run in Belgium today. Here, the world’s leading integrated device manufacturers, equipment and material suppliers, system houses and electronic design automation vendors collaborate. At Imec, close to 2.000 people are employed, including over 600 industrial residents and guest researchers. To intensify US-Belgium research activities in the field of nanobiotech, relations to John Hopkins University and Olin College, both of which are based in Boston, are supposed to be increased.

Yet another case in point of such a regional research asset is the Flanders Institute for Biotechnology (VIB). This entrepreneurial research institute conducts strategic basic research in life sciences, including molecular biology, cell biology, developmental biology, structural biology, genetics, biochemistry, microbiology, genomics and proteomics. More than 1.200 scientists work at the center for life sciences. VIB is funded by the Flemish regional government and it works together with four universities. More specifically, it collaborates with UGent, K.U.Leuven, the University of Antwerp and Vrije Universiteit Brussel.

Next to Wallonia and Flanders, the third region in Belgium is the Brussels capital region. As became apparent, economic development is a regional matter in Belgium and Brussels’ capital focuses on life sciences. With its three main universities and five university hospitals where approximately 3.000 researchers work in the field of life sciences, it is a promising area for future research in the field of life sciences. In fact, over the past decade, collaborations between universities and industry have resulted in the foundation of several start-ups, as well as the commercialization of academic research.

The Ludwig Institute for Cancer Research has a branch in Brussels and it is renowned for its research in cancer immunology and cancer genetics. Furthermore, the University Catholique de Louvain-la-Neuve (UCL) focuses on several areas. Academic excellence can be found in the fields of bioengineering, microbiology, cell biology, immunology, molecular biology as well as pharmacology and pharmacy. More than 200 work groups are centered around these fields.

The most important research fields at the University Libre de Bruxelles (ULB) are molecular biology, oncology, immunology, pharmaceutical research and public health. However, research is always linked to industries. Therefore, ULB also manages industrial zones devoted to research.

Industrial research and development as well as technology transfer represent an increasingly important part of the university’s research activities. In the last few years the budget devoted to cooperation between the university and various industries has tripled. Plus, ULB has created specific contact points and manages scientific zones in Nivelles, Evere and Anderlecht, in order to better meet the needs of industry.

Berlin Is A Digital Center

And the winner is…Berlin: Twitter, the micro-blogging service, is moving to the German capital. This will be only the fourth Twitter office outside the U.S. “Twitter’s move to Berlin is an accolade for the capital. Berlin is becoming the European hub for the digital industry and is becoming more international through this link to Silicon Valley,” said Melanie Bähr, Berlin Partner’s Managing Director. Twitter announced its decision in early May at the Berlin Web Week, an event uniting re:publica, Germany’s largest and most well-known conference on blogs, social media and the digital society, and the digital industry conference NEXT Berlin, co-initiated by Berlin Partner and Medienboard Berlin-Brandenburg. Twitter’s announcement demonstrates the Berlin Web Week’s importance.

Berlin is not merely the coordinator for events; the city boasts a vibrant and up-and-coming start-up scene—precisely what makes the city desirable for investors.

For example, Ashton Kutcher and a group of individuals invested $1.2 million in the Berlin Gidsy company. Gidsy was founded in 2011 in Berlin as a platform for marketing recreation activities. Offers can be booked in Berlin, but also in New York, Amsterdam, San Francisco and London. Gidsy will use the investment to continue to expand worldwide. It’s not Kutcher’s first investment in Berlin: He previously supported Amen and Soundcloud, two influential start-ups. Soundcloud, the audio platform, began this year with a fresh investment of 50 million euros from U.S. venture capital companies.

Skype’s founder, Niklas Zennström, has also been active in Berlin. He, along with his investment company Atomico, bought in to the Berlin software company 6Wunderkinder, which provides productivity software.

Similarly, the Russian investors Ru-Net and Kite-Ventures have invested in Lieferheld and Delivery Hero, which are portals for ordering food online. Eight million euros have been secured in the third round of financing.

Earlybird Germany, which has recently compiled $200 million for a venture fund for Internet start-ups, also shows a promising commitment to the city.

Furthermore, Berlin is home to the Wooga start-up, which is the second largest games developer for Facebook.

Berlin also leads Germany as the place to open new Internet companies. In 2011, the Chamber of Commerce and Industry registered 509 new companies in the computer sector. Well-known e-commerce companies like Zalando, mirapodo, brands4friends, reBuy, momox and MisterSpex are already based in the capital. Amazon’s present, too—with a customer service center in Berlin.

Berlin’s digital industry is gaining in recognition and significance. A recent article on Techcrunch.com, one of the most respected sector blogs, was titled “Berlin: The Birth Place of The Next Facebook.”

Companies interested in moving to Berlin have a competent partner in the capital: The state of Berlin’s economic development corporation, Berlin Partner. It assists investors in locating to the city and answers questions on trade, securing sites and expansion for Berlin’s local companies. As a public private partnership, Berlin Partner enjoys support from more than 170 private companies. Berlin’s state government has commissioned Berlin Partner with the location marketing for the city, as well. True to its motto “we enable growth,” Berlin Partner offers customized, individualized service packages to assist investors and businesses in the capital. These packages range from helping companies test the city and its market for a few months, to consultations on funding and financing opportunities, to assistance with real estate options and ultimately support with recruiting the right employees.

Berlin Partner concentrates on promoting the city’s particularly dynamic clusters: Service Industries, Photonics, Energy Technologies and Mobility, Life Sciences and the Healthcare Industries and also ICT, Media and Creative Technologies. These future-oriented sectors with global market potential underscore Berlin’s advantages as a strong economic location.

The Business Location Center is an important instrument for learning more: It is both a showroom and an online portal for information. It provides sector data and insight on the city’s advantages, displays real estate offers and offers planning data. It utilizes a 3D model of the city to demonstrate the location of possible business sites and a Solar Atlas, which maps out the solar energy potential for every building in the city.

To check out the free, comprehensive service available from the center visit www.businesslocationcenter.de.

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