This article written by Riva Froymovich has been chosen because it highlights some of the barriers faced by European start-up companies. The author accurately describes the problems which many entrepreneurs encounter and indicates at some solutions to these problems. The issues discussed by the journalist are still relevant to many companies.
This article can be interesting from theoretical and practical perspectives. It will particularly useful to those people who intend to conduct business in this region. These are the reasons why it has been chosen.
Overall, Riva Froymovich distinguishes several obstacles which prevent many companies from growing. First of all, one has to mention high cross-border transaction costs. Despite the fact, that the European Union is regarded as an area of free trade, the majority of companies sell their products only within a certain country but not between the member states (Froymovich unpaged).
Furthermore, it is important to remember that European labor laws significantly do not enable companies to downsize their personnel. Certainly, they can do it but such practices can be extremely costly for them especially when their credit rating is downgraded by financial institutions. Y
et, this emphasis on employees’ rights overlooks the needs of many organizations, particularly, the situations when downsizing is necessary. As a result, European businesses are becoming less agile and responsive to economic changes. Finally, Riva Froymovich points out that European entrepreneurs have very little access to capital in order to start new projects.
In part, this situation can be explained by the fact that existing legislation prevents does not allow banks to make high-risk investments (Froymovich, unpaged). Unfortunately, this principle is often applied to start-up companies. Thus, lack of funding is one of the obstacles which prevent many business ideas and projects from being implemented.
In my opinion, this article has pinpointed the underlying causes of stagnation among many European start-up companies. These organizations may have the expertise to implement business ideas, but they often lack resources to do it. Moreover, the existing regulations do not promote the growth of such enterprises.
Admittedly, the arguments expressed by Riva Froymovich can require verification. More likely, an in-depth economic and legal research will be needed to identify the factors contributing to stagnation. However, this article can point to some of the problems which must be resolved by European legislators and financiers.
To provide recommendations, one would have to do an in-depth study of European laws and economic trends. However, on the basis of this article, I can single out several important steps that should be taken. First of all, the European government should pass the laws which can minimize transactions costs which occur when a company sells its products across a border.
Secondly, it is vital to make state-aid programs more available to these companies; otherwise they will be unable to achieve growth and sustainability. Finally, financial institutions should not downgrade the credit ratings of companies provided that they have to downsize their personnel as it is done now (Froymovich, unpaged).
This approach will harm many small and middle-sized enterprises. A small company can become an economy of scale on condition there is legal framework which supports trade, investing, and free movement of labor. If it is not present, entrepreneurs will hardly become successful. European governments should pay close attention to these issues.
Froymovich, Riva. “Why No Apple in Europe?”. The Wall Street Journal. Web.