The Economy Is in Decline. How Do Small Companies Survive? | Maybe Europe Has the Answer, Part 1

Over the past two months we visited nearly 40 companies in Europe, hoping their experience would show Chinese companies how to handle what is coming. This is the first piece in the series.

A world where growth is no longer fast: Europe. Quite possibly also China, a few years from now.

China has had 30 years of growth and has never met a real slump or a real standstill, so past experience no longer covers the situation. Companies and the people who work in them can already feel the trouble coming. Once growth slows, where do you make and catch opportunities? How do you rearrange yourself to cope?

Seen from further back: will Chinese companies, so used to getting big, change? And for people carrying the high cost of city life, can the internet really give them a new way to work?

We think Europe may hold some of the answer.

Start with a set of numbers.

FoodPanda, a food-delivery company headquartered in Berlin, has 250 people in its Berlin team, holding 51 nationalities between them. Clue, another Berlin startup, has just grown to 35 people — from 16 countries.

This is no coincidence. Even in Scandinavia, a world of its own that runs heavily on personal connections, the Stockholm company Form us with love makes a point of the same fact: its team's national makeup is complicated. This 10-year-old design company has built some international standing for many reasons, and one of them is indispensable — it hires designers from the United States, Britain, India and South Korea.

"We can be a company that's 10 percent Swedish and 10 percent Brazilian," says MediaMonks, an Amsterdam digital media company with offices in more than eight cities around the world. In the Amsterdam office alone sit people of 28 nationalities.

These all-embracing European companies live off the EU's free movement of people; a creative worker can move to another city with almost no effort.

London has been thought of as the creative center of Europe, even of the world, since the middle of the last century, and the Swedish designer Grace Boicel is one of its tens of thousands of immigrant designers. The city is "in danger" — rents have multiplied; some designers can no longer carry the cost of living and have left for Berlin, California and Beijing to look for work; some clients have been taken in recent years by Nordic design firms that keep getting more fashionable. Even so, its creative industry is as crowded as its streets.

People pour in from every corner of the world, ready at any moment to replace a colleague or turn into a new rival. So many companies sell creative work here, and clients like to meet here, that Grace Boicel had just seen an American client who was in town on business. "There is always a plane going over your head," she says.

London is Europe's busiest transit hall for creative work. But after June 24, Grace Boicel started to wonder how long that could last. She woke at 6 a.m. to find that 20 minutes earlier the BBC had announced it: Brexit was a fact.

People, capital and goods may all be held back now. Their movement was one of the things that kept Europe alive.

People come first. Before the referendum Niklas Zennstrom, a co-founder of the internet calling service Skype, said a Britain outside the EU risked losing founders like him. He chose Britain because London is a financial center and because it could pull in entrepreneurs from all over Europe — and now those entrepreneurs may be told to leave. Hours after the result came out, word spread that the American investment bank Morgan Stanley had moved 2,000 staff from London to Frankfurt and Dublin. The bank denied it at once.

In Grace Boicel's trade "the main cost is people; to put it plainly, what we sell is brains," which makes the question of who can stay especially sharp. She first settled in London 11 years ago, sent there as an employee of Nokia. The Finnish telecom company, then at its height in 2005, picked London because enough creative talent had gathered there, and decided to put a research and development department in the city.

Once designers from EU countries are pushed out, London will no longer be able to show off its international credentials the way Berlin, Amsterdam, Stockholm and Copenhagen do, with teams of complicated national makeup. More to the point, the creative work itself will suffer.

You don't have to crowd into London.

In Copenhagen, the Danish capital, it is Midsummer, the longest day of the year. High-school students finish more than a decade of schooling around the same date, and they climb onto hundreds of trucks with megaphones and celebrate wildly through the streets. When they reached Nyhavn, they interrupted an international meeting Henrik Jeppesen was holding.

Attention Group, the design company Jeppesen co-founded, now has more than 40 full-time designers, bigger than most Nordic design studios and closer in size to a London one. They come from the United States, Canada, South Africa, Germany, Sweden and Switzerland, and their clients are spread across Europe and Asia. Yet Jeppesen does not think the company needs an office anywhere outside Copenhagen.

That is the opposite of what he thought 16 years ago. Attention was among the first European design companies to open an office in Beijing. In 2000 Jeppesen set out to find new clients in Asia; he first looked at Ho Chi Minh City in Vietnam, then went to Beijing. He was ready to spend a great deal on staff to make it work. Around 2008 he realized the money could be saved altogether: email, Skype and flights at a certain frequency were enough to keep the business running. "It isn't necessary. You don't have to keep meeting clients to understand them."

Much like the pull toward the local in the stock market, what the internet has done to Europe's small companies is this: the more electronic the work, the more local the company. If working from home causes no trouble, working from a local office causes none either — it only calls for improving the internet plumbing now and then.

Reform is a Copenhagen startup that makes and sells kitchen cabinets. In March it closed its first million-dollar round, from one American and two Danes. A small part of the money went on the sound in the meeting room. The founders, Michael Andersen and Jeppe Christensen, are opening up the German and American markets and have to stay in working contact with partners and factories there; frequent Skype meetings require everyone's voice to come through clearly.

Big companies weigh more things when they choose where to sit. IKEA, the world's largest furniture maker and retailer, was founded in the small southern Swedish town of Älmhult and now splits its headquarters three ways — Älmhult and Malmö in Sweden, Amsterdam in the Netherlands — each with its own functions. In Amsterdam IKEA gets favorable local tax treatment. The public relations department has to stay in Älmhult, because only there does IKEA have enough open ground for Europe's largest photo studio, where it shoots the catalog and other short films.

Small companies are not like that. Their reasons for picking a city are usually very simple. Judith Fischer registered her company in Berlin in May, planning a photography tour project. "It's a good cycle. Berlin has a good name: it's cheap, so a lot of young people come, and if the Berlin government gives just a little encouragement, more will come," she says. She applied at the job center and got unemployment support of 1,650 euros a month for six months running.

As Reform's plan shows, Germany is the obvious first stop for a European small company tasting the international market: it is the largest economy in Europe and a big market. But plainly there is more to it.

In late May a Canadian business school professor, Bill Whelow, turned up at a breakfast meeting at Betahaus, a co-working space in Berlin. He quickly worked out that he was the only person there in a long-sleeved shirt and suit trousers. He rented a desk, talked to the founders, and planned to stay a few days before going home to open a similar space in Charlottetown, a Canadian city of 50,000. Compared with Berlin, Whelow says, the conditions for starting a company back home are still very early: the incubators the government has built are aimed mainly at students.

SNASK went on first at this year's Cannes Lions International Festival of Creativity. Fredrik Öst, the Swedish founder who was born in South Korea, brought along the band they put together last year and showed off at the world's largest advertising festival. The Stockholm advertising and design studio started with two people and now has seven. They all like loud type and colour, they still refuse to use computer effects, and they make their patterns and props by hand.

Most of SNASK's clients are American, and it has just signed with one of the world's largest agencies, in New York, which means more of the sort of work that carries bigger budgets and longer schedules. Several of the world's biggest advertising firms were born in Britain and the United States in the 1960s and 1970s. After decades at the top they now find the inspiration inside the building has nearly run dry, and they prefer to buy ideas from small, strongly styled companies like SNASK.

Muuto and HAY, two Danish home brands, built their names quickly by borrowing outside brains, and the method reached even old furniture companies such as Menu. In the thick of the financial crisis Menu went to Jonas Bjerre-Poulsen to work on a rebrand. It was that large contract that made Bjerre-Poulsen decide to set up his own studio, NORM.

Small companies and independent designers and creatives have found more openings in this. Either they turn a big company into a client, or they stand on a big company's shoulders and open a new line of business. A 2015 report on the European labor force found that the number of freelancers in the Netherlands rose 52 percent between 2008 and 2015. In the Nordic countries more than four companies are remaking IKEA furniture, redesigning the fabric, panels, legs and handles on IKEA pieces. At least two of them have raised money from investors.

These small companies and studios are usually very small, but they "all think they're the best" — probably an important quality for winning big-company clients, and also what makes competition at home so fierce. Who knows why, but some of them say openly that business abroad is easier. They have also found that simply passing on the business lessons of the big foreign markets to clients at home always goes down well. ARX, a Dutch architecture firm, has picked up more local clients that way.

Experience does not always transfer. Greentom, a Dutch stroller brand, is less than three years old. In 2015, 30 percent of its sales came from outside Europe. "The world is moving faster than Europe, and I can see a positive future too," the founder says.

For more than a decade that "positive future" was thought to belong to the emerging markets, China among them. Leaning on relatively cheap labor and commodity exports, those markets grew close to 10 percent a year for several years running, and many factories began producing for the home market instead of for export. But this summer, apart from Greentom and a Finnish design company called OMUUS, almost nobody in Europe still uses the word "BRIC".

The fast growth of the emerging markets seems to be over. Leaving aside the cycles in the growth rate, eager European companies have started to judge how mature those markets are, instead of simply marveling that one city there holds nearly ten times the population of a European country.

HAY, a Danish home brand very much in favour at the moment, found Chinese suppliers 12 years ago and is now opening stores faster in one Chinese city after another. The founder, Rolf Hay, rates China above the United States; in a carefully weighed tone he says that about five American cities care about design-led home goods, while China has at least six or seven.

Rolf Hay is as curious as we are about the question we started with. "Why isn't the Chinese economy doing so well any more?" he asks, on Copenhagen's busiest shopping street. "Why do you think the creative industry hasn't been built up there?"

If experience no longer serves, where else can we look for the answer?

All of the above is only a small part of what we found in Europe, and only part of the answer. In the rest of the series we will also answer these questions:

• How a small company manages its own place in a global supply chain, and how it deals with different kinds of clients;
• What a weak economy and market do to these companies;
• How they use new methods to get information about markets and technology;
• How they find the right people to grow themselves;
• How they look for support from local governments, big companies, schools and institutions;
• How to work across time zones;
• How can they be creative?

Cover image from Normann Copenhagen