By Deep Parekh - co-founder and Managing Partner of Asteroidea AG.  Member of This Way Up (TWU) @ThisWayUp_ & CEO-Collaborative Forum, @deepparekh

Just as the subtle, sensual, yet striking nature of an authentic cappuccino from the back roads of Bologna creeps up on you after the first creamy sip, so too do European businesses claim success in the market place.  Are their ideas better? Are they funded better? Is their market acumen better? Perhaps, but one of the common features that we have seen is that their business models are increasingly differentiated.

To Take Risk or Not to Take Risk - That is the Model:

It is a well-known fact that Europe is far more conservative than the US, in terms of appetite for risk.  However, look closer and you will find some of the worlds largest, most successful, and sustainable companies were born in Europe, like Nestlé and Unilever. 

Not only is their success in the consumer goods and personal care sector but also rampant in technology (Logitech), biotech and pharma (e.g. Bayer), clean-tech (Agri.Capital), design (FrogDesign), automotive (Volkswagen group), Building Community (mci-group), heavy industry (Siemens), engineering (ABB), and retail (Zara).

Through our work with many European and Swiss companies, we find some interesting features about their business models that are competitive differentiators in that they are hard to identify, when combined, complex by nature, and difficult to replicate.  Let us look at three specific components of their business models:

More Trusting Organization & Culture:

Many European companies have European boards of directors and European leaders - this simple fact has tremendous implications on the business model, in that the organizational culture is different: it is based on trust, confidence in people fulfilling their roles to deliver steady and predictable results without outrageous growth or risk. 

Restrictive labor laws and a predictable institutional output of college graduates imply that there are no large swings of hiring and firing of resources; with a longer-term staff commitment, companies are prone to invest more in their resources, and get better loyalty from them in return, develop deeper customer relationships, and foster a sense of pride and reputation of employers. The vast diversity of origin (different languages and cultures) on all levels contributes strongly to innovation and openness towards each other and towards new different markets.

Longer Term Relations Between Customers & Suppliers:

European companies treat customers and suppliers as long-term relationships and partners, rather than the typical narrow-minded, price-based vendor-client relationship.  This allows cross-enterprise innovation to foster, and breeds a fabric of trust between partners, a significant advantage for the extended enterprise ecosystem.

The European Revenue & Cost Advantage:

It's not only European companies are loathe to invest heavily when returns are not clearly defined, but because of the risk-averse nature of the continent, the bets made are smaller, less painful when they don't work out, and more biased towards incremental innovation constantly.  They bootstrap many innovation projects and don't give them the support until they succeed, which pushes for success at a very low cost. 

Further, governments strongly back innovation projects that use public university resources, which lowers the cost of R&D significantly for the businesses, spurring the radical innovation that would never otherwise get support within an enterprise independently. 

Many new companies are being created on the basis of this differentiation.  Larger enterprises are finally realizing this differentiation and this is enabling spin offs at a faster rate, and with lower corporate risk.  The combination of these factors is difficult to replicate, and these business model components are structured fundamentally differently.  Watch out world, there's a new generation of European businesses that are going to be tough to beat!

Published on: May 14, 2016
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