QSR Business Update: Trading in the EU

Some recent news coverage would have us believe that Europe is dying on it’s feet, but word on the street suggests that the European market shouldn’t be ruled out yet.

Europe has been in the news a lot recently, and much of the coverage has been far from positive. However, failed Governments and unsuccessful European bond sales aside, what are European businesses actually experiencing at the ground level and are macro-economic factors having any impact? We talk to three of our European QSRs to find the true story behind the headlines.

Asked what consequences, if any, were being felt upon trade from the Eurozone’s current problems, Adelino Silva from LINCIS in Portugal said that “yes, a huge impact” was being felt. Noting that Portugal’s internal economy has long been in disarray, he summarized the current situation: “The debt crisis has hit Portugal in a very weak position to take any control. Our economy was based mostly on public construction. We also have a high percentage of public servants which makes the tax burden to companies and the private sector quite high compared to other countries, and the last government spent more than it could charge on taxes.” The result of economic weakness has been a decline in business certainty: “Our main market, the automotive industry, is surviving and has some new projects on, but our feeling is that it is being more conservative than ever about starting these. We have several customers with projects on standby, just waiting for headquarters to take a decision.”

On a contrasting note, Ansgar Gosling from agostec in Germany says: “We haven’t and aren’t feeling any impact on trading from the ongoing financial crisis, partly because agostec is not dependent on the stock market in any way. German industry generally is experiencing excellent order growth, with companies in machine building and the automotive industry creating substantial gains during 2011. The order books are full and component suppliers are having problems producing the volumes required in time.”

Gustavo Gasparini from Datajob in Italy paints a picture that sits between the two: “Our sales are down this year because of a slow down in the industrial machinery market.” However, he suggests that there’s a bright spark in the form of the automotive industry, where, according to Gasparini, “sales are holding up thanks to Fiat, whose research and production has ramped up.”

No crystal balls ...

Where Gasparini sees a difference compared to previous years is in his ability to project what will happen in the year ahead. “This year has not been so bad for me, but I have no way of foreseeing the future. Much depends on one customer, namely Fiat, and how they want to go forward. As for the industrial automation market, it is hard to say if it will restart.”

Notably, Datajob’s success with Fiat this year is thanks to considerable groundwork by the company over a period of two to three years before. Gasparini’s current efforts are focused on trying to find new business opportunities, but he admits that ‘nothing starts within a year.’ Part of that is simply down to the Italian culture. He suggests: “Things take longer to start up here and new products take more time to come to fruition.”

Silva feels the outlook for his CAN business’ prospects in year ahead are also dependant on finding new business opportunities: “Portugal is a small economy that depends heavily on foreign companies in the automotive sector. The other sectors where CAN can be used are not manufactured or developed here. However, I still believe in CAN for the near future, mainly for emerging markets.”

Whilst LINCIS has had to cut personnel due to current business conditions, the company is developing a new geographic market to ensure its future. “We are now in the process of creating a LINCIS branch in Brazil, where the economy is stronger and where there is huge demand for technology and high skilled services”, explains Silva.

Going against the flow

For his part, Gosling foresees stability in the CAN business, saying of agostec, ‘we feel confident in this market’ despite ‘more and more Flexray applications coming on stream.’ Notably, agostec has also experienced difficult times. Gosling relates: “We managed to survive 2008 and 2009 (which were difficult years for us). During this time we actually employed more people; behaviour that was contrary to the main stream. It’s a question of calculating risks in a responsible way.” He feels the approach has yielded agostec’s present success, saying that: “Next year we will launch new products, plus we plan to create more synergy with our partners and set the course for the future.”

Meanwhile, Gasparini notes with quiet confidence, “investment by Fiat stalled at the beginning of the crisis, but has now started to ramp up”, as attested to by its now majority ownership of Chrysler. He adds: “Since Italy is still Fiat’s biggest market, they must have confidence that it will grow.”

What is immediately apparent from all our interviewees' reactions is that the story on the ground isn’t the one that the general media paints – as in all situations, the reality is less clear cut than the newsreels would have us believe. Gosling sums up our QSRs sentiments nicely: “So the EU will cut its forecast for growth, OK. This is nothing to be concerned about. Rather, this gives us additional motivation for lateral thinking.”