Companies often tell me they want to “expand into Europe”. My first question is usually: where, exactly? Choosing the wrong first market can leave a business carrying localisation costs, distributor margins, regulatory work, inventory and local infrastructure before it has established that enough customers will actually buy.
Germany, France, the Netherlands, Ireland, Spain, Italy, Poland and the UK may all sit within the same broad geography, but the commercial reality in each can be very different. Customer behaviour, competition, pricing, channels, language, regulation and the cost of serving the market all vary, and those differences can materially change the economics of expansion.
For that reason, I rarely find “Europe” a useful unit for a market-entry decision. The first task is to narrow the opportunity and identify where customer demand, access, economics and operating fit give the business the strongest basis for growth.
Europe, the EU and the Single Market are different commercial environments
Some companies are thinking about the European Union when they say “Europe”. Others include the UK, Switzerland, Norway and other non-EU markets, where the regulatory, customs and tax environment can differ significantly.
The UK, for example, sits outside the EU Single Market and Customs Union. Norway, Iceland and Liechtenstein participate in the Single Market through the European Economic Area, while Switzerland has its own bilateral arrangements with the EU. These structures influence customs, VAT, compliance, distribution and decisions about where a company bases people or inventory.
For companies planning to expand across several European countries, these differences also affect whether the first market provides a practical platform for subsequent growth. The structure chosen for one country can make the next stage of expansion easier or considerably more complicated. here
Start with the customer
Companies often begin European market selection with country size, GDP, population and growth rates. Those are useful filters, but they tell me relatively little about whether a company can actually win business in a particular market.
I want to know where the relevant customers are, how concentrated they are, what they buy today, who serves them and what would persuade them to consider another supplier. A smaller country can be an excellent first market if the customer base is accessible, the proposition fits and the sales process is manageable.
We worked with an Australian technology-enabled consumer products company that was considering France, Germany, Italy, Spain and the UK alongside the United States. Several of those European markets looked attractive and there was evidence of demand across more than one of them, so the decision could not be made simply by comparing headline market size.
Once we compared the markets in more detail, the commercial differences became much clearer. Competition varied, distributors expected different arrangements, localisation added cost and individual markets introduced their own regulatory and operational issues. Seasonality also affected demand, with implications for launch timing, inventory and how quickly the business could reasonably expect sales to develop.
The exercise turned a broad European ambition into a much more useful country-level decision. We could compare where demand, accessibility, economics and operating fit gave the company the strongest basis for entry.
Understand how customers buy
The route to market can be as important as the size of the opportunity. Distributors may dominate a category in one country, while buyers elsewhere prefer to deal directly with suppliers. Retail can be highly concentrated in one market and fragmented in another, and B2B customers may have different expectations about local sales coverage and support.
Before recommending an entry model, I want to understand who influences the purchase, how long the sales cycle is, what evidence the customer needs, which intermediaries matter and what margins those partners expect. Those factors determine how much control the company can retain, how much it will cost to reach customers and what internal capability it needs.
Companies sometimes choose the country first and then start looking for a distributor because that appears to be the simplest way to enter. I prefer to understand the buying process first and design the commercial model around the way customers in that market actually purchase.
Make sure the economics work
A European expansion can look attractive at regional level and still produce weak margins when individual markets are modelled properly. Pricing, VAT, freight, warehousing, labour, distributor and retailer margins, customer acquisition costs and local service requirements can all affect the commercial result.
We saw this with the Australian company I mentioned earlier. European distributors could provide valuable access to customers, but the margins they required placed significant pressure on the product economics. The value of distribution therefore depended on whether the additional reach justified the margin being given away.
For product businesses, I usually work backwards from the final customer price. We look at what the customer will realistically pay, the margins required by distributors or retailers, logistics, tax and marketing costs, and then determine what remains for the business. Service companies have a different cost structure, but the same commercial discipline applies.
Work out where regulation changes the opportunity
The EU provides a high degree of regulatory consistency across many areas, which can make expansion into additional member states easier once the relevant requirements have been met. Companies still need to understand how regulation affects the economics, timing and feasibility of the first market-entry decision.
Product standards, labelling, data protection, consumer law, environmental rules, sector-specific regulation and professional licensing can all influence the amount of work required before launch. In some sectors, compliance is relatively straightforward; in others, products, systems or customer communications require substantial adaptation.
I prefer to identify those requirements while markets are still being compared. By the time a distributor has been appointed, inventory committed or a launch announced, regulatory surprises become much more expensive to solve.
Decide how much localisation is really needed
The amount of localisation required varies considerably by market and sector. A B2B technology company working with multinational customers may be able to operate in English across several countries, while a consumer brand may need local-language websites, packaging, customer service and advertising much earlier.
The Australian company we worked with had to consider the cost of adapting software, websites and customer materials across several languages, as well as market-specific product requirements. Assessing those costs country by country produced a much clearer picture of the resources required than treating localisation as a single European project.
Localisation also extends beyond translation. Pricing, payment methods, customer examples, product ranges and sales arguments can influence whether customers see the proposition as relevant and credible. The amount of adaptation should reflect what customers in the target market genuinely need in order to understand, trust and buy the offer.
Think about the operating model early
The first European market can shape the structure of the business for years, so I want companies to think beyond the immediate launch. Decisions about where inventory sits, which entity invoices customers, where employees are based and how sales, customer service and distribution are managed can become much harder to change once the business has gained momentum.
I have seen companies build an expensive structure around one market and later discover that it works poorly when they try to expand into neighbouring countries. For some businesses, the first country is primarily a revenue opportunity; for others, it can also provide a useful regional base because of logistics, talent, language or proximity to future priority markets.
The operating model needs to work for the first market while giving the company reasonable flexibility to expand. That requires some thought about where the European business could be heading if the initial launch succeeds.
Build European expansion in stages
For companies entering Europe for the first time, I usually favour a staged approach. Choose one market carefully, establish whether customers respond, test the sales model and learn what operating in Europe requires from the business before committing to several countries simultaneously.
That experience gives management much better information for the second market than a regional strategy built entirely from desk research. The next country may share customers, language, distribution infrastructure or regulatory characteristics with the first, making expansion more efficient, or the strongest opportunity may require a different model.
Over time, each market should add something to the company’s European capability. The customer knowledge, relationships, systems and operating experience gained in the first market can then improve the quality of subsequent expansion decisions.
Questions I would want answered before entering Europe
Before committing significant resources, I would want clarity on the customer, commercial model and operating implications. Which customers are we targeting, in which countries are they most attractive, what evidence do we have that they will buy from us and how do they currently purchase this product or service?
I would also want to know whether the pricing and margins work after local costs, how much localisation is required, which regulatory issues could affect entry and whether the business can support the operating model. If the first market succeeds, we should also understand whether the structure we have created will support the next stage of European expansion.
These questions give management a much more useful basis for comparing opportunities across Europe. Some markets may justify investment immediately, others may become relevant later, and some may never offer enough commercial value to warrant the resources required.
Choosing where to start in Europe
Europe offers access to large, sophisticated markets and a highly developed commercial environment, but the opportunity is distributed unevenly across the region. The strongest starting point is usually the country where customer demand, access, economics and operating fit combine to give the business a credible path to growth.
A good first market should also improve the quality of the next decision by giving management a clearer understanding of European customers, route-to-market performance and the capabilities the organisation will need as it expands further.
If Europe is part of your international growth plans, Dearin & Associates can help you identify the markets with the strongest commercial fit, pressure-test the opportunity and work out the most practical route into the region. Book a Europe Expansion Pulse, a 15-minute conversation to pressure-test the opportunity and your next move.
