If your business expanded or relocated within the past 24 months, it's the exception, not the rule. Companies around the world have put the brakes on new investment during this time period, with economic growth figures crawling along at 1 percent to 2 percent.

Europe hasn't been immune from the sting. Ernst & Young, which tracks business investment in Europe in its "European Investment Monitor," reported a sharp decrease in the number of new projects in 2001.

The initial data for the first six months of this year shows a continuation of that slowdown. That doesn't mean that the foreseeable future must be full of doom and gloom for a company considering expanding into Europe. In fact, some of the best deals can be made during difficult times.

If your company is in a position to expand to Europe, this is the right time.

While London and Paris continue to hold the top spots, other cities, such as Helsinki, Madrid, Moscow and Stockholm, are gaining a greater percentage of the projects.

Raw Numbers Aren't Pretty

In 2000, Ernst & Young reported 2,243 new investment projects in Europe. The following year, that number fell to 1,974, a drop of 12 percent. Ernst & Young has been tracking investment into Europe since 1997. In that time, the organization has recorded more than 11,000 projects.

The first six months of 2002 showed basically a flat number when compared with the first six months of 2001. This year, Ernst & Young reports 923 new projects in Europe from January through June, compared with 912 projects during the same period in 2001.

"We haven't really seen a bounce back this year," said Mark Hughes, author of the "European Investment Monitor" and lead adviser, Location Advisory Services, for Ernst & Young. "We usually see more investment in the second half of the year, so we're hoping that's the case again."

Companies that are considering expanding into Europe right now need to do so with a focused plan. It seems like obvious advice, but it really is a necessity right now.

"Companies need to have a clear business rationale for a project decision," Hughes said. "That's always been the case to some degree, but today there's more of a challenge for a company to expand."

Go in With Your Eyes Open

Expanding or relocating is challenging in any setting, but especially so for U.S. companies that have never gone to Europe. The European Union has standardized some trade rules and made movement of goods between countries easier.

But significant differences - even among EU member countries - still do exist. For example, acquiring property can be a completely different process in Europe than in the United States.

The hiring and firing of workers is also significantly different in Europe. Most countries have mandatory levels of vacation that must be given to every employee, along with hours of overtime that can or can't be worked.

The corporate tax structure is also much different than in the United States, with most European countries having a much higher corporate tax rate. The list goes on and on.

Where To Go?

The United Kingdom is still the most popular spot for U.S. companies, and for investment in general, into Europe. About 15 percent of new projects in 2002 have ended up in the UK, followed by France with 13 percent.

In general, locations in Western and Northern Europe experienced a drop in the number of investments in the past two years, while some countries in central and eastern Europe have actually seen an increase in the amount of projects.

The reasons for this dichotomy are clear, according to Hughes.

"Manufacturing operations have really drifted to Central and Eastern Europe," he said. "Central and Eastern Europe make it to the final cut of nearly every manufacturing project of 500 jobs and more."

The main industries driving this growth are auto and electronics.

"They aren't the only ones, but they're the biggest ones," Hughes said.

Companies with shared service centers are also turning to Central and Eastern Europe. Lower labor costs is the main factor in companies looking at these parts of Europe.

The increased manufacturing and back-office activity in Central and Eastern Europe is reflected in the countries with actual project growth during the past 18 months. Hungary, Russia, Poland and Lithuania (all non-European Union countries) experienced 40 percent project growth during that same period.

London remains the top destination city for new projects in Europe, although the city's lead is shrinking over its nearest competitors. In the first six months of this year, 51 new projects were recorded in London, which represents 6 percent of all projects during the first six months.

The next cities on the list for the first half of this year are Ile de France and Rhone-Alpes. Prague, Moscow, St. Petersburg, Bucharest and Heves, Hungary, all have seen large percentage growth.

"What we are seeing is a change in the incentive schemes in Central and Eastern Europe," Hughes said. "Previously, the incentives were only tax related, but in the last six months [countries] have started to offer cash subsidies."

The incentives make these countries much more competitive with European Union countries, according to Hughes.

"We are beginning to see countries like Romania, Russia, Bulgaria, the Ukraine and Turkey gatecrashing the party for the first time in the post-Communist area," he said. "Risk is becoming more manageable, with recognition of their longer-term potential for EU affiliation and market opportunities."

The EU recently announced a new initiative to spur research and development. It will take effect in November.

"There are $17.5 billion (euros) available to member countries for R&D funding," Hughes said. "This refers specifically to the development of any new product or process."

The introduction of the euro in January did not make a noticeable immediate impact. That doesn't mean it won't in the future, just that not enough time has passed to measure it effectively.

"There is no consistent country picture," Hughes said. "Some of the euro 12 - Portugal and Finland, for instance - did comparatively well, while other like Ireland, Belgium and the Netherlands did not.

"Outside the euro, Sweden and Denmark did well, the UK did not," he added. "For certain sectors, particularly those dominated by manufacturing activity such as automotive, the euro is more important. For others, it is at most one of a number of considerations."

Facility Choice is Significant

Deciding what functions will be performed in a new European facility isn't the only big decision to make. As in the United States, companies expanding in Europe need to decide what type of building they will operate in.

Should the company build a new facility on a greenfield site? Is renovation of an existing building the right option? Should the company go it alone in Europe, or enter the region through an acquisition or partnership?

"There are significant differences between the United States and Europe in terms of laws and how things are done, but there are also lots of similarities," Hughes pointed out. "Companies must still make significant decisions on what they want to accomplish. You have to establish the scale and nature of the new activity."

And just as in the United States, a firm must look at the expansion decision in Europe as a long-term decision, not just one that is a good choice today.

"Companies need to think about how business activity might change during the next 24 months, and how that impacts their decision," Hughes said. "There are also other things to consider, such as if the facility must be within the EU or outside. Others might be what type of skills they are looking for in the work force or what the transportation requirements are."

The Future is Full of Change

No one can foresee exactly the specific changes that will occur in the European business environment in the coming years. But experts like Hughes offer an educated opinion on what companies need to look for down the road.

"The EU has to ensure that its regulatory environment for future investment continues to be as flexible and user friendly as possible," he said. "Skills and infrastructure are also perennial issues that need to be addressed.

"There are no silver bullets for agencies to solve inward investment issues," he added. "Many are now chasing the same sectors, e.g. pharmaceutical and life sciences, but there are not enough potential suitors to go around. A better place to start may be to identify regions' real economic/industrial assets and build on these, using inward investment as one component."

Lance Yoder is a freelance business writer based in Greenwood, Mo.

Top 25 European Business Destinations

1 London

2 Paris

3 Barcelona

4 Stockholm

5 Brussels

6 (tie) Madrid

6 (tie) Moscow

7 Munich

8 Vienna

9 Frankfurt

10 (tie) Amsterdam

10 (tie) Budapest

10 (tie) Copenhagen

11 Dublin

12 Milan

13 (tie) Berlin

13 (tie) Helsinki

14 (tie) Sofia, Bulgaria

14 (tie) Tallinn, Estonia

14 (tie) Turin, Italy

15 Glasgow

16 (tie) Belfast

16 (tie) Bucharest, Romania

16 (tie) Saint Petersburg

17 (tie) Prague

17 (tie) Warsaw