Loosening Europe's ebusiness boundaries

Prepare yourself for a shock: the European Union (EU) is planning legislation that might actually benefit UK businesses.

The e-Europe Action Plan, presented to delegates at last month's Global Internet Summit in Barcelona, brings together initiatives intended to make it easier for UK companies to extend their European internet operations.

"Time is running out, and Europe must move fast," Erkki Liikanen, EU Minister for Technology, told delegates. "Ecommerce goes to the core of all business, and companies must urgently look to move their entire corporate structures online."

The EU's latest document addresses a range of ebusiness issues, including digital access for all, IT training, and changes to the legal framework surrounding incumbent telecom operators.

"These modifications could be in place by the summer," says Liikanen. "EU leaders have identified the real issues, and have made a very strong commitment to implementing change."

The issues dotcoms most urgently want addressed are the discrepancies between tax regulations in member states. "It's just too damn hard to start a company in Europe," says Paul Deninger, chairman and chief executive of venture capital firm Broadview. "European nations need to get over World War II, and focus on unifying the market across international borders."

Flexible regulations
As part of the e-Europe Action Plan, the EU will simplify the existing framework - reducing the number of regulations governing tax issues from 20 to six. The legislation will also be made more flexible, says Liikanen. "We will rely more on industry co-operation and non-binding measures as far as possible," he adds.

"This is the only way that Europe can capitalise on its scope and size to become a competitor in the global market," says Deninger. He is urging the EU to pass fundamental tax reforms and resolve the differences in stock option schemes in member countries.

John Palmer, founder of online auctioneer Letsbuyit.com, echoes this sentiment. The company operates in 13 countries across Europe, and Palmer believes that the differences between regulations and cultures is one of the major challenges it faces.

"The stock option issue is a pain in the butt," he says. "For us, legal advice was a priority because of this, and it upped the expenses accordingly."

The laws on giving employees stock options vary widely between European countries. In the UK they are often subject to capital gains tax, and in some countries they are even illegal.

For dotcoms, the differences in legislation can make it difficult to begin operations in certain countries. Rollouts in the UK have been delayed by the more complex legal procedure involved in partnerships, says Rob Hersov, chief executive of UK sports network Sportal.com. "In Germany and Spain we could start very fast, while we only launched in the UK this month - a year after the first rollout," he says.

The ability to roll out quickly across borders can be critical to a net business's survival, adds Hersov. "We had to get into markets quickly because we know that US competitors will be expanding into Europe very aggressively. We wanted to be strong enough to survive when that happened."

The action plan also promises to make it easier for entrepreneurs to operate in Europe. Liikanen is critical of a culture that seems to celebrate the failure of online businesses. "We must recognise that failure is part of the risk - that it can be part of the learning curve," he says. "It is still too hard to be an entrepreneur in Europe. We must urgently cut red tape."

To simplify entrance to ecommerce, the EU will accelerate the adoption of its Dual Use Regulation, creating a single European body responsible for exports. An alternative dispute resolution mechanism, covering cross-border disputes between internet merchants and customers, will be announced next month, Liikanen said.

Transparent market
Shipping across borders is a problem for many dotcoms and pan-European businesses generally, says Ernesto Schmitt, chief executive of online music service Peoplesound.com. "The internet will not be a virtual world until the markets are transparent," he says. "At the moment, operating in six countries means running six companies." For each country where Peoplesound launches, the company spends an additional $30m on logistics and fulfilment.

"We have had to build a business for each and every market we operate in," says Fabiola Arrendondo, managing director of UK-based portal Yahoo Europe. "It is hard work to integrate the back end and the logistics consistently across several markets." Yahoo has delayed launches into markets where internet use is too low to offset these initial costs, adds Arrendondo.

Despite these problems, most of the entrepreneurs at the Summit saw a pan-European strategy as critical to their survival. "Yes it's a pain in the neck, and it isn't easy to do," says Jim Rose, chief executive of UK online auction site QXL. "But if you can meet the challenges then it will ultimately make your business a success." If the EU can facilitate this kind of success, then European companies have the potential not only to compete with their US counterparts, but to outstrip them, says Liikanen.

With two-thirds of EU citizens predicted to have mobile internet access by 2004, and digital TV growing at 200 per cent annually, internet penetration via the PC - an area Europe has lagged behind in - will become irrelevant, he adds.

But companies should not wait until this has happened, or for all legislation to be in place before moving online. "For all companies, 2004 is very late to implement ebusiness across the organisation. My guess is it's too late."

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