Expanding internationally is an opportunity to grow business revenues, gain competitive advantage through learning and establish a globally recognized brand. There are several examples of US companies that have expanded internationally, significantly grown revenue and become household names. Google was founded in the US in 1998 and it is now the leading search engine in the world. Paypal was founded in 1998 and, after successful International expansion, now facilitates online payments across 190 countries.
This article aims to extract key insights on why companies should pick London as their first international office. London represents a balance between a path of least resistance and a proof of concept for US companies going global.
Why should a US company move to London? London is unanimously recognized as a unique city that is one of the global leaders in politics, business, knowledge and many other fields. London is the world’s leading financial center for international business and commerce. It is the fifth largest economy of all global cities. It is also the most visited city in the world by international tourists. So, from the standpoint of a US tech company, what are the practical considerations that make moving to London a natural choice? Below I outline the five key reasons for which London should be chosen as a first international office.
1. Availability of talent and rise of tech. In London, there is wide availability of talent. The UK is home to top universities where thousands of future business and engineering leaders graduate every year. In addition, as the UK is part of the European Union, any European can move to London without the need of visa, thus making London a very attractive talent market. London is already a leading market for financial services and consulting talent. However, the rising trend of entrepreneurship and the growth in the tech sector is signaling a change. There were 382,000 workers in London’s technology and information sector in 2014, an increase of 11 percent since 2009. This growth is more than triple the growth in the previous four years. In addition, in 2010, UK Prime Minister David Cameron and London Mayor Boris Johnson launched the Tech City initiative to support the growth of the technology cluster in East London, committed to making London the tech capital of the world.
2. Same language, with different accent. The English language is a basic and also very important commonality. It is not surprising that US companies often launch their first products to the UK, Australia and Canada. Dealing with the same language gives many advantages: English makes it easier for US executives to relocate, and lead; it is also easier to localize products, guidelines or marketing messages; it is easier to interact with partners from the headquarters; it is easier in terms of utilizing the same US customer service. Box CEO Aaron Levie said it best, “London represents a similar environment with a different accent.” It is no surprise that Box chose London as its first international office.
3. Business friendly environment. The UK tax regime is becoming increasingly favorable. Corporate tax rates have been lowered to 20% in 2015. While Dublin still provides lower tax rates in Europe, the gap is diminishing, making London a more attractive choice. The legal system is also very efficient, making it easier to set up a business abroad, hire and fire employees, and deal with potential legal issues. London is in fact rated as the 8th country for ease of doing business, according to the World Bank. It is just below the US, which is ranked 7th, and ahead of Australia (10th), Canada (16th) and continental Europe (Germany 14th, France 31st, Italy 56th).
4. Gateway to Europe. London is located in very close proximity to many European cities (1hr from Paris, 1.5hrs from Amsterdam, 1.5hrs from Frankfurt, 2hrs from Rome), and thus can function as an entry point to Europe. In addition, it is very well connected to the US (London Heathrow is one of the largest global airport hubs) and it is more advantageous for the time zone (an hour ahead of continental Europe). On the negative side, London is also one of the most expensive cities in Europe, but new areas are emerging in the city where the cost of living and operating a business are lower. For example, the East London tech city, also known as Silicon Roundabout, is a fast growing entrepreneurial area and significantly cheaper than Central London.
5. Competitive market and launch of ‘copy-cats’. There are an increasing number of copy-cat startups being launched around London. Entrepreneurs and funds try to copy US business models and replicate them in the UK. This trend is even more prevalent in consumer products than in the B2B space, where some of the competitive advantages come from corporate relationships and are more difficult to replicate. Once the copy-cat startups succeed in the UK, they expand to Europe. For example, Rocket Internet, a recent German IPO company specialized in funding companies with the same business model of US companies, has been investing heavily in London in recent months. In addition to cloning companies, more generally the VC funds in London have also increased significantly, making the market increasingly competitive. For example, in 2014 alone, more than a $1 billion has been invested in UK startups. If US companies wait too long to expand to London, competitors will either replicate their models or come up with new disruptive models.
In summary, there are many reasons for which London is often considered as the first international office for a company. Under these conditions, London represents the path of least resistance and serves as a convenient proof of concept opportunity to access the wider and attractive European continent.
NB. This article focused on why companies should move to London. However, we should not discount the rise of alternatives, especially in Northern Europe or Scandinavia. For example, as a leading venture capitalist told me, most of the companies in his portfolio still move to London, even if he thinks a higher share should move to Northern Europe since, in those markets, English is very well spoken, there is a lot of talent and competition is more limited. As a result, there are even more reasons for London to continue investing, innovating and growing as the leading tech hub in Europe.
Check next blog post: A US tech company decides to open an International office in London. Now what?
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