Disruption Is the Eurozone’s Gain
If history is any guide, changes underway in Europe spell opportunity for U.S. middle-market businesses and investors.
This article is brought to you by Emmersion.
Looking at the circumstances facing Europe—including tough issues such as immigration, terrorism, radical populism and the fracturing of the union—one would think the region is entering an extended period of recession and volatility, not coming out of one. And yet, the continent is experiencing growth.
Despite Brexit, private equity flow into the United Kingdom is strong, hedge funds are returning to the region, and the Spanish economy, which has seen nearly a decade of double-digit unemployment, has rebounded to prerecession figures.
To find a similar period of widespread political, economic and societal disruption in Europe, one has to look back to the late 18th century. That era witnessed the end of Britain’s hold on its American colonies, political disorder brought about by the French Revolution, a regional population boom, and the start of the Industrial Revolution.
At the turn of that century, when Napoleon was conquering Europe, British companies began using new technologies like the steam engine to manufacture and transport goods for both domestic and international markets. In Germany, iron production grew six-fold from 1825-1850 to fuel demand from growing European cities; French coal production doubled during the same period. Other European markets caught on too, and the spread of industrial capitalism eventually spread across the continent during the 19th century.
To support corporate growth amid these radical changes, capital was needed. Instruments such as loans and joint-stock ventures were used to finance machinery, transportation and improvements to infrastructure. Emerging markets and trading partners, including the United States, were demanding European goods, and commercial enterprises and cross-border investors collaborated to develop these new markets.
To find a similar period of widespread political, economic and societal disruption in Europe, one has to look back to the late 18th century.
History Repeats Itself
Europe today is in the midst of another disruptive period. Changes in European politics may be dizzying, but private industry has been quietly steadying the ship, and the ingenuity of European companies has become an asset for global growth.
German middle-market manufacturers are exporting not only their products but also their manufacturing apprenticeship programs. Meanwhile, with tailwinds from a weakened pound and strong cross-border private equity support, British companies and manufacturers are producing goods for domestic and European markets and their pricing is now competitive with global manufacturers.
In emerging markets like Latin America, European investment accounts for more than half of all foreign direct investment in the region. European companies are building telecommunications networks, infrastructure, renewable energy platforms, roads, and hotels, and distributing consumer products to a rising middle class population. Companies from Western and Eastern Europe recognize the vast potential of this region to a much greater degree than North American companies and investors.
History has shown that European companies and investors thrive during periods of instability by using their ingenuity, innovation and a broadening viewpoint on the connectivity of global markets. If this history is any guide, U.S. middle-market companies and investors would be wise to follow the lead of their European counterparts. If they can look beyond the daily news cycle and develop relationships, opportunities and partnerships across the pond, U.S. businesses and investors stand to benefit from this once-in-a-century opportunity.
Stephen Marks is the managing director and principal of Emmersion, an international business development and investment advisory firm based in the U.S., U.K., and Latin America. Join Marks at EuroGrowth November 6-7 in London to learn more about opportunities in emerging markets. For more information, please visit eurogrowth.org.
