Sunday, April 02, 2000

Is the Dutch Advantage Unsettling Europe?

After pondering this week’s article choice for a couple of days, not sure how I could find an appropriate article to offer a discussion on the economic integration of the European Union (EU), I decided against worrying (in other words, I decided to procrastinate!) and I sat down with the Sunday NY Times (one of my favorite Sunday activities). Luckily for me, I came across an article entitled “Is the Dutch Advantage Unsettling Europe?” by Andrew Ross Sorkin. You can find it online at http://www.nytimes.com/library/financial/Sunday/040200biz-holland.html though you’ll have to complete a one-time registration process to gain access to it.

The article begins by suggesting that the Netherlands is the Delaware of Europe and as such is “the place” for companies and wealthy individuals to set up shop. Gucci, Swatch, and the Rolling Stones are all Dutch entities. The article also immediately suggests that the primary reasons for setting up shop in the Netherlands may finally be forced into change as the EU’s “instinct to level every playing field” comes into being.

Currently, almost 60% of all foreign headquarters in Europe are in the Netherlands with “more than 6,800 foreign companies setting up shop” there. This is one of the reasons why the Netherlands receives more “American investment than any country except Canada and Britain”.

At the root of such popularity with foreigners is the country’s tax and legal flexibility. Especially the tax system which allows expatriate employees of the foreign corporations located there to only report 65% of their income for tax purposes. Additionally, the tax law “exempts dividends and capital gains from foreign subsidiaries making the country an ideal home for holding companies” and “considerable freedom exists in adopting a suitable system, to calculate taxable profit.” Three attractions sure to appeal to any business person!

Though the Dutch take these tactics in stride as simply part of their “trader” heritage, others in the EU have stressed the “traitor” viewpoint of such actions in creating an unfair advantage versus others in the EU.


Impact

I believe it will be difficult for the EU to ever truly strip the Dutch of their “pro-business” mentality. Tradition is a powerful thing to change and this is simply one more of the many traditions the EU is working hard to change and unify.

As a business person considering how best to serve customers throughout Europe and the Middle East, I can relate first hand to the attractiveness of the Netherlands. While working in the satellite business out of the Bay area, we entertained proposals from many parties as to how best to expand beyond San Jose and open our first International office. We wanted a better way to access and feel the pulse of our European and Middle Eastern markets and customers. (We subsequently decided that the Middle East was a completely separate issue and developed arrangements in Dubai, UAE and Cairo, Egypt).

As it turned out, we decided that our European customers could be served from a single base out of the Netherlands. From there we were able to quite readily approach the UK and Germany (two of the biggest satellite markets in Europe) as well as other European markets. As an aside, we also found the Netherlands conducive to doing business in South Africa which, at the time, was just beginning to open up as a satellite reception marketplace.

For our operation, the Netherlands turned out to be ideal for many reasons including a strong can-do attitude, superb multi-lingual (out of necessity) skills and flexible tax and business arrangements as pointed out in the article.


Summary

Having been responsible for the office outside of Amsterdam and having been to the Netherlands on numerous occasions, I can personally attest to the can-do, pro-business approach the Dutch people (in general) bring to their operations. At the same time, I’ve also seen first hand what I recognized as the relatively less than pro-business atmosphere and approach (in general) of folks in France, Spain, and the United Kingdom (in that order). With this comment, I don’t me any disrespect. It’s just that I definitely recognized a difference in how business was prioritized in the day to day world as I traveled from country to country.

The goals the EU has set for itself are challenging and far reaching. However, as the text and lectures postulate, leveling the playing field as to tariffs, tax laws, and other trade barriers will go a long way in creating “one” market. In spite of this “paper” leveling though, the natural (perhaps cultural) advantage of the EU’s individual members such as the Dutch will continue to challenge the region’s true unification and therefore economic integration progress.


Sources

Sorkin, A. Is the Dutch advantage unsettling Europe? [Online]. http://www.nytimes.com/library/financial/Sunday/040200biz-holland.html


Pugel, T. A., & Lindert, P. H. (2000). International Economics. New York: Irwin McGraw-Hill.

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