Drawing foreign companies a struggle

In part two of our series on the Dutch economy's efforts to attract resources from outside its borders, PHILIP HOFMAN finds out that despite leading Europe on cost efficiency, Holland struggles to win over foreign business investors.

For businesses, The Netherlands is the cheapest country in Europe to operate from, says consultancy firm KPMG in its bi-yearly international cost competitiveness report. KPMG studied 27 different business costs in ten highly developed countries. Overall, Holland is a notable 3.5 percent cheaper for businesses than the United States, while runner-up Great Britain trails The Netherlands by 1.7 per cent. Hot on the heels of the KPMG report came Ernst & Young’s European attractiveness survey. It reflects how investable 814 international business leaders find European countries. The report also shows the actual number of foreign direct investment (fdi) projects taking root. There is good and bad news about fdi in The Netherlands.

Modest role
The good news is that despite, or perhaps thanks to the economic crisis, Holland has moved up three steps on the European fdi ladder - from tenth to seventh place. The total number of foreign companies opening offices here declined by 11 percent in 2009, but Holland's closest competitors slid faster. The bad news is that the number of European headquarters coming to The Netherlands has fallen sharply. Only six opened here last year, down from 19 in 2007. Foreign companies opening research & development facilities in The Netherlands have become even rarer – merely three did so in 2009. Paradoxally, R&D activities are cheap to conduct here, thanks to low taxation. Despite its central location in Europe, good universities, a well educated population comfortable with speaking English, and the lowest business cost level in Europe, Holland plays a modest role in luring foreign companies. The 108 new foreign owned offices opened here in 2009 are dwarfed by the United Kingdom (678), France (529) and Germany (418). Belgium drew 40 more foreign direct investments last year. In terms of job creation from fdi, The Netherlands falls outside the top 20, with just over 1,000 new jobs. “The Netherlands is not as bad at attracting foreign investment as it looks, but competition from other countries is getting fiercer”, says Caroline Rodenburg, Senior Manager International Advisory Location Services of Ernst & Young. “Germany and Belgium are gradually receiving more investment in logistics and transport for instance. We have long labelled ourselves as the ‘Gateway to Europe’, but that label won’t stick just by itself.”

Expensive image
Elbert Waller, International Affairs Executive of KPMG, admits that being low-cost helps, but it does not guarantee a steady stream of foreign companies towards the door of Holland plc. “Perception plays a part; The Netherlands has the image of being expensive. It is more attractive from a cost perspective than many companies realise.” 
Office leasing, surface freight and statutory labour costs stand out as Dutch low cost leaders, says Waller, just as the total tax cost, which includes capital, property and local taxes. “Cost has become more important to investors during the crisis”, says Waller, “but it is not the only factor in investment decisions.” Rodenburg agrees, particularly when cost levels between competing countries are not massively different. ”The availability of qualified personnel, good transport and telecommunication infrastructure and the quality of life on offer for everybody working for the company are also important factors. The Netherlands is considered attractive on these points.”

R&D climate
So, what more can The Netherlands do to attract foreign companies? Picking its battles carefully may be a good start. American pharmaceutical company MSD’s plan to close the entire research department of its Dutch subsidiary Organon has sparked fresh debate about how Holland can improve its research & development climate. Jean-Marie Viaene, Professor of International Economics at the Erasmus School of Economics in Rotterdam, strikes a sobering tone. “I am surprised at the idea that some people in The Netherlands are still optimistic about the prospects of receiving foreign direct investment in the area of R&D. There are quite a few countries today, in Asia for example, which educate good scientists and can provide research at a lower cost. Dutch universities produce excellent managers, but besides a few exceptions, do not educate enough scientists who can actually make goods or engineer processes.”

Singapore of Europe
Waller believes business services are Holland’s future. “It’s something we are really good at. We should strive to be the Singapore of Europe, and attract investment to match that particular strength.” Still, Waller believes the Dutch need to “do a better job of Holland promotion”. “I remember being at an investment conference in Dubai, where Prince Charles was beamed live onto the stage as a 3-D image and made a spirited case for investing in the UK. Some nations seem to do a better job of selling their country. They project the message ‘We are simply the best place to invest!’ Us Dutchmen, we are not good enough at the show side.” Professor Viaene believes the government should do more to help companies thinking about settling activities here. “Make sure they are served at one desk for all their needs, such as granting permits, subsidies and arranging terms with the tax authorities. Environmental and social laws and regulations are ever more complicated and changeable. Foreign companies really need to receive proper guidance. Ireland has used this approach with great success.”