Navigating the U.S. Market
The United States offers much potential with its vast economy and large population. However there are also certain challenges when doing business in the US, especially for small and medium-sized enterprises (SMEs) from the Benelux region. Based on the survey responses, this chapter provides key insights to help Benelux ventures navigate the complexities of the U.S. market.
Why the U.S. Market
Most Benelux ventures are interested in the U.S. market for the following reasons:
Recognized as a premier destination for innovation and entrepreneurship, the U.S. serves as a fertile ground for Benelux ventures to cultivate groundbreaking ideas and technologies. Access to cutting-edge research institutions, advanced technologies, and evolving industry trends fosters an environment conducive to both growth and innovation.
With its dynamic and ever-evolving economy, and robust consumer demand, the U.S. market offers abundant opportunities for expansion, providing companies with the potential to rapidly make substantial revenue and broaden their customer base. The U.S. market supports immediate financial gains and long-term strategic expansion.
In the qualitative interviews, entrepreneurs stressed the importance of doing market research before expanding to the US. They acknowledged that extensive research is crucial to understand the U.S. market differences, the competitor landscape, and US product-market fit for your company. Benelux-based ventures in our study also highlighted seeking professional guidance from other partners as crucial. It’s a large and complex market and it can be time consuming and overwhelming to figure everything out on your own.
“Before entering the US market, conduct comprehensive market research and analysis to understand the needs, competition and potential of the market."
A common misconception by several Benelux ventures in our study is the oversimplification of the US as one country. The US consists of 50 different states, which are all characterized by its unique culture, traditions and business practices. When expanding to the US and starting in a state, it’s important to understand and deal with its diversity. Doing business in New York is already different from doing business in California, but also very different from doing business in Texas or Oklahoma. Each state has its own opportunities, challenges and regulations.
In our study, entrepreneurs emphasized that expanding across the entire US might not be the smartest move. Instead, taking the time to do research and help figure out which states and hubs are most promising for your product or service helps you strategically enter the market.
The data shows that most Benelux ventures are spread across the East and West Coast. Especially many Tech companies decide to start their operations in either New York (9%), California (7.5%), Texas (4.5%) or Georgia (3.7%). These states are well-known hubs for innovation and access to talent.
New York is a significant tech hub, especially in finance, media, and advertising technology. California's Silicon Valley is globally famous for its many tech giants, venture capital firms, and vibrant startup culture. Austin has become a bustling tech hub, fueled by its lively startup scene, and the presence of major tech players and research institutions. Atlanta is also gaining recognition as a growing tech hub, with a rising number of startups, supportive environment, and expertise in fields like fintech, healthcare IT, and logistics technology.
When deciding on your business locations, entrepreneurs were motivated by several factors:
Recognizing the importance of aligning expansion strategies with market demand and customer preferences.
Prioritizing regions with a skilled workforce to ensure success in their industry.
Assessing the presence of industry ecosystems, favorable regulatory environments, and competitive dynamics.
Recent interpretations of tax laws that stress customer location and service benefits have further catalyzed this change.
Recent developments, particularly those from the OECD and the Wayfair ruling, have significantly influenced how companies choose their initial operational locations. The OECD's recommendation to tax based on actual activity, not company location, and the Wayfair ruling mandating sales tax for remote sellers with “substantial business” in the particular state, irrespective of physical presence, have added complexity to expansion decisions. This has prompted companies to broaden their considerations beyond tax incentives when selecting expansion destinations (Institute, 2024).
Benelux Experience Before U.S Expansion
Companies often wonder when it’s the right time to embark on a US market expansion. The figure below shows how many years it took after founding the company to enter the US market. The data shows that a majority (54%) of ventures entered the U.S. market within five years of establishing themselves in the Benelux region. Notably, 10% of ventures initiated their U.S. expansion within just two years after founding their parent company. These findings mirror those of the 2020 DVITUS research, indicating that 40% of respondents entered the U.S. within five years of founding their parent company (TABS, 2020). Overall, these results suggest that Benelux ventures in both studies tend to pursue U.S. expansion relatively quickly. This is also because there is an increasing number of software and ecommerce companies expanding to the US, for which their predominantly online business model makes it easier to expand to the US market relatively quickly.
Timeline of Expansion to the U.S.
0 - 2 years between parent founded and U.S. Expansion
2 - 5 years between parent founded and U.S. Expansion
5 -10 years between parent founded and U.S. Expansion
After 10 years between parent founded and U.S. Expansion
Entered Markets before U.S. Expansion
The 2020 DVITUS research indicates that prior experience in other international markets, especially in smaller European ones, doesn't always determine success in entering the U.S. market. Many companies have effectively expanded into the U.S. without prior market entry experience (TABS, 2020). In our 2023 study out of the 133 surveyed ventures, a majority had experience in various European regions. Some had experience in other export markets like South America, Central America, and Australia. Remarkably, five percent entered the U.S. market without any prior export experience.
While prior market entry experience may offer some advantages, it's not a decisive factor for successful entry into the U.S. market. Effective navigation of the U.S. market relies more on strategic planning and adaptability than on previous international experience. Factors like U.S. expansion investment play a crucial role in determining success, as we'll explore next.
U.S. Expansion Budget
When expanding into the U.S. market, one of the critical factors for success is having a sufficient budget. One of the challenges that entrepreneurs faced was difficulties in understanding the costs associated with an expansion. Costs that were often underestimated are employment, legal and tax expenses. These costs have risen over the years, making the expansion for Benelux ventures in the U.S. significantly more expensive due to the low value of the euro and higher wage increases in the U.S. compared to Europe (Ionescu, 2022).
Figure 23: Investment to Enter the U.S. Market
We examined the budget patterns of the Benelux ventures, to determine whether having enough budget is necessary for success in the US. The figure below shows that ventures which prematurely withdrew from the U.S. market had the smallest budgets, with 40% allocating between 250K and 500K euros, and 20% between 500K and 1M euros. The remaining 40% did not disclose their budgets. Conversely, 68% of ventures operating without a U.S. legal entity and 50% of those with a U.S. entity had investment budgets ranging from 500K to 2M euros. Furthermore, 10% of ventures with a U.S. entity had budgets exceeding 2M euros.
We also inquired about the perception of Benelux ventures in this study regarding the adequacy of their allocated funds—whether they deemed it ideal, underestimated, or overestimated. Most ventures across all three groups expressed satisfaction with their investment budget, perceiving it as ideal. Remarkably, 80% of Benelux ventures that prematurely left the U.S. market still considered their low expansion investment as ideal, despite their lack of success. However, the small number of respondents in this group might limit the reliability of these findings.
Despite the general satisfaction, a notable portion—comprising 34% of group 1, 20% of group 3, and 12% of group 2—admitted that their allocated budget fell short of covering their expansion needs. These ventures acknowledged underestimating the actual investment required for their endeavors. During the qualitative interviews, concerns about cost underestimation were frequently raised, particularly regarding operational expenses in the U.S., such as housing, salaries, and insurance. Many Benelux ventures highlighted that they underestimated salary expenses, as U.S. salaries tend to be higher compared to the Benelux region and vary depending on the state and city (Ionescu, 2022).
“We underestimated the costs of operations in the US and the time required for market expansion.”
Figure 24: Investment to Cover U.S. Expansion Needs
Major U.S. cities typically have the highest employment costs. Additionally, employers must consider healthcare and other benefits to attract talent, adding to the overall cost of employment (Ionescu, 2022). Especially health care benefits can be very costly in the US, much more costly compared to Europe. These insights underscore the critical importance of thorough planning and sufficient investment in navigating the complexities of the U.S. market. Successfully expanding to the U.S. demands significant financial resources to give yourself a change in the competitive US market landscape.
Essential Expansion Tools for Benelux Ventures
When conducting market research and navigating the U.S. market, Benelux ventures should be aware of several important tools and resources available to support their expansion efforts. These include subsidies and financial support, visa application guidance, and advisory services.
1. Subsidies and Financial Support
Dutch SMEs looking to expand internationally are eligible to apply for the RVO voucher provided by the Rijksdienst voor Ondernemend Nederland (RVO). This voucher can reimburse up to 50% of international expansion costs, up to a maximum of €2,500. The subsidy covers expenses such as market research and business matchmaking, offering crucial financial support during the costly startup phase of expansion.
Luxinnovation supports Luxembourgish ventures through various programs designed to assist with international growth. This support includes subsidies for market research, participation in trade shows, and other international business development activities. These programs are instrumental in helping businesses mitigate the financial risks of expanding into the U.S. market.
Belgian SMEs and startups can access various grants and subsidies through federal and regional programs. For example, Flanders Investment & Trade (FIT) offers subsidies specifically for export promotion and international business development. These subsidies can cover a portion of expenses for trade missions, international fairs, and market research, thus alleviating some of the financial burdens associated with entering new markets.
2. VISA Applications
Navigating the U.S. visa process is crucial for Benelux ventures looking to expand. The most common visas highlighted in this study are the E-1 (Treaty Trader), E-2 (Treaty Investor), and L-1 (Intracompany Transferee) visas. These visas facilitate the entry of essential personnel and investors from Belgium, the Netherlands, and Luxembourg into the U.S. The E-1 visa supports businesses engaged in substantial trade with the U.S., while the E-2 visa is for investors making significant capital investments in U.S. businesses. The L-1 visa allows the transfer of key personnel to U.S. offices and can lead to permanent residency. Initial market exploration can be conducted using an ESTA or B-1 visa, though these have operational limitations and should be seen as preliminary steps.
Although the visa process has become more stringent and costly over the years, Benelux companies often succeed with early planning and professional assistance. Establishing a U.S. entity can simplify applications by demonstrating a stable business presence.
3. Advisory Services
Securing expert advisory services emerged as an important strategy among Benelux ventures in this study. They underscored the significance of engaging with various specialists to access essential guidance and expertise, crucial for navigating the U.S. business environment. Notably, the most frequently mentioned advisors included:
Legal Counsels
Immigration Specialists
Financial Experts or CPAs
Human Resources and Payroll specialists
Bankers
Insurance Brokers
In the qualitative interviews conducted for this study, respondents consistently emphasized the importance of seeking advice from advisors or organizations when expanding into the U.S. market. One Belgian participant highlighted that part of their market research involved consulting government support organizations with a specific focus on the administrative requirements associated with U.S. expansion. Another entrepreneur echoed this sentiment, stating that based on feedback received from advisors, they were able to adapt strategies and better prepare for a successful U.S. expansion.
“It is highly recommended to consult with organizations or advisors for market insights when expanding to the U.S.”
Several respondents shared their experiences of encountering administrative challenges across various services such as banking, payroll, and sales tax compliance. Seeking advice from different advisors helped them overcome these hurdles effectively. Additionally, ventures that exited the U.S. market expressed a desire to have prepared better, citing seeking advice from experts and specialized organizations in U.S. expansion as a key area they would address differently if given the chance.
Overall, both the quantitative and qualitative aspects of this study emphasized the immense value of expert guidance and the importance of seeking advice from specialists to navigate the complexities of the U.S. market more effectively.
