The opportunities and threats for the German Future Mobility SMEs related to the “Digital Single Market” Initiative by the European Commission


Term Paper, 2016
16 Pages, Grade: 1,3

Free online reading

II
Table of content
Table of content ... II
1.
Introduction ... 1
2.
Start-ups in the German future mobility sector ... 1
3.
Start-up internationalization and the growth phase ... 2
4.
Start-up´s current barriers of internationalization in the EU internal market ... 3
5.
The Digital Single Market Initiative ... 4
6.
Opportunities and threats for the German SME´s in the future mobility sector
related to the Digital Single Market Initiative ... 5
Appendix ... IV
List of References ... VI

III
List of abbreviations
DSM
Digital Single Market
EC
European Commission
EP
European Parliament
EU
European Union
ICT
Information and Communications Technologies
SME
Small- and Medium Sized Business
VC
Venture Capital
VDA
German Association of the Automotive Industry

1
1. Introduction
On June 2
nd
2016, transport service provider Uber attracted a record US$3.5 billion investment
from Saudi Arabia's Public Investment Fund and reached a valuation of US$62.5 billion. The
platform business is now worth more than German car manufacturer BMW, proving the
enormous potential of innovation in the sector of future mobility (Tagesspiegel, 2016). Uber
and the other world´s leading digital platform businesses have a combined market
capitalization of US$4 trillion, but only 4% of this value is generated by European firms (Center
for Global Enterprise, 2016.) Incumbent businesses in the mobility sectors around the world
are fighting with how to prosper in an increasingly digital and platform-based business
environment, but European enterprises appear to be hampered due to the absence of a large,
accessible digital market to support their growth (Ansip, A., 2016).
Although the EU reached a high degree of economic integration, it is especially difficult for
innovative start-ups, in sectors with a need for high initial investments, to scale their business
up in Europe (Ansip, A., 2016). Many highly innovative start-ups in this sector, therefore, move
to the U.S. during their growth phase (Forbes Entrepreneurs, 2014). Juncker´s Commission
set-up a Single Digital Market Strategy in 2015 providing significant changes for the digital
economy in Europe (Council of the European Union, 2015). This paper outlines the German
start-up scene in the sector of future mobility and analyzes their barriers for
internationalization. As a conclusion, opportunities and threats related to the DSM Initiative
will be derived.
2. Start-ups in the German future mobility sector
Start-ups incubating in the innovative sector of future mobility strive for disruption of today´s
automotive, mobility and transportation sector (Bundesverband Deutsche Startups e.V.,
2016). In the future mobility sector, the boundaries of hardware and software, as well as
physical and digital solutions and services, are converging. Simultaneously, there is a shift from
the importance of experience and technology know-how towards the ability for innovation
which adds to an increasing importance of technology-oriented start-ups in the sector of
future mobility (Ernst&Young, 2016) (compare: Appendix II).
While the automotive industry further focuses on the sustainable development of software
and technology to equip cars, there are numerous company ventures which have a different
idea about the mobility of tomorrow. With the necessary venture capital (VC), German start-

2
ups want to shape the future of mobility not only in Germany or Europe but globally (Die Welt,
2015). Germany has a unique potential to successfully create an environment in which
mobility innovations can profit from technological experience as well as from young,
disruptive ideas (VDA, 2016).
For a comprehensive analysis, the author presents two examples of German future mobility
start-ups that will be exemplarily used to conclude practical implications. The "Sharing
Economy" has a significant impact on the future mobility sector: "The idea of sharing and
borrowing goods and services is making waves. New offerings in the mobility sector are making
the biggest ones" (Roland Berger, 2014). One of the German mobility start-ups making use of
the sharing principle is named Electric Mobility Concepts UG (eMio). The Berlin-based start-
up operates a fleet of shared electric scooters in Berlin since 2015. Customers can reserve and
book scooters via an application on their smartphones (Electrive.net, 2016). Due to the
seasonal business in Northern Europe, eMio planes a quick expansion especially towards
Southern Europe (EcoSummit, 2015).
Another start-up in the electronic mobility sector is UNU motors. The young company
developed a neo-classical electric scooter that fits the lifestyle of young European urban
citizens. The business model is relying on direct selling as UNU delivers the scooter ready-to-
ride (incl. the necessary license plates) and offers after-sales-service through the network of
a large German automotive supplier (Unu motors, 2016). The scooter is characterized by a
moderate price tag (Süddeutsche Zeitung, 2015) and will, in a second generation, be fully
equipped with a human interface system offering additional online services that enhance the
current business model (compare: Appendix II) (Ecomento, 2014).
3. Start-up internationalization and the growth phase
Mobility Start-ups are characterized by fast growth which often can only be realized if the
business model can be scaled up to reach the goal of profitability and sustainable success. The
question for the suitable international growth strategy is, therefore, subject of high interest
among founders (Churchill, N.C., Lewis, V.L. 1983).
According to global strategic marketing research, there are two strategical decisions to be
made: Market selection (and segmentation) and Market entry mode decisions (LoBue, 2016,
p. 49). One can assume that due to the market proximity and the high degree of economic
integration, both start-ups decided to internationalize into European markets as the first step

3
of scaling-up their business model. Due to the respective differences within the particular
business models (Mobility Service Provider eMio vs. product supplier and service provider
UNU motors), the start-ups are likely to vary regarding their preferred entry modes.
Possible ways of entrance into international markets include direct and indirect exports via a
domestic agent, non-equity contractual modes (for example, licensing, franchising, and
management contracts; subcontracting, long-term contracts and offshoring), and equity-
based models. Foreign direct investment and other forms of international involvement (such
as joint ventures) are considered as equity-based models (LoBue, 2016, pp. 83-118).
Start-ups like Unu tend to enter foreign markets primarily as exporters since doing so requires
little capital investment and is, therefore, less risky. Another common mode to enter new
markets for start-ups is the establishment of service operations or offices in other EU countries
or the creation of alliances across European national borders. External factors influencing the
internationalization decision of start-ups consist of home-country characteristics such as
export promotion programs, costs and time involved in exporting, and transport costs; and
host-country characteristics such as tariffs, regulations, political risk factors, and geographical
and cultural distance (European Competitiveness Report, 2014).
The advances in ICT and logistics systems, the deregulation of markets and new forms of
international/ European financial transfer options have reduced the costs of exporting and
given digital start-ups opportunities to enter European foreign markets (European
Competitiveness Report, 2014). Nevertheless, there are still relevant barriers for the
internationalization of German future mobility start-ups.
4. Start-up´s current barriers of internationalization in the EU internal market
To internationalize their business, start-ups like Unu or eMio can be subject to protectionism
and trade restrictions which create barriers to profitability when entering new foreign markets
(LoBue, 2016, p. 44). Although the EU marketplace has comparably little or partly even no
barriers for European businesses operating in European markets (LoBue, 2016, pp. 30-33),
there are still obstacles for SME´s when moving towards an "Europeanization". As this paper
analyzes the potential of the EC DSM Initiative, only barriers related to the political and legal
environment of the start-ups are analyzed. Language barriers or cultural diversity in the EU
are not addressed but would have a major influence on the result of a holistic PESTEL analysis

4
(LoBue, 2016, p. 12), as trade costs associated with crossing language barriers are doubling
from offline to online trade (Gomez, Martens, & Turlea, 2013).
The challenges on the road in the EU are still significant and diverse but mostly related to the
lack of venture capital for start-ups in the growth and internationalization phase (Financial
Times, 2016). For "grown-up start-ups", which have successfully proved their business within
the German market and now want to expand into other European markets, one of the main
barriers to scale-up success is a lack of funding (compare: Appendix I). After having
experienced a boost in ventures all over Europe and especially within Germany, the start-up
ecosystem in Europe is threatened by a lack of capital which prevents founders to be able to
move beyond their current home or core market (Bertoni et al., 2015).
The lack of capital increases the cost pressure on a start-up´s internationalization projects.
This means that 28 different national regulations on consumer protection, contract laws,
product liability, personal privacy and other factors (Hessels, J. and Parker, S.C., 2013) related
to the legal evolution (LoBue, 2016, p. 18) become an almost insurmountable barrier (Ansip,
A., 2016) for businesses like eMio. For direct online sellers and exports like Unu motors, one
of the biggest obstacles are the high cost of cross-border delivery (Gomez, Martens, & Turlea,
2013): While 44% of EU consumers buy online in their own country, far fewer (15%) order
online from another country (European Commission, 2016). Additionally, the European VAT
rules, that have come into force in 2015, are having an adverse impact on small and medium
enterprises specialized in the supply of electronic services: Businesses like eMio are faced with
the need to adapt to 28 different tax regimes in case of the Europeanization of their business
(Ecommerce Europe, 2016).
5. The Digital Single Market Initiative
,,The Single Market refers to the EU as one territory without any internal borders or other
regulatory obstacles to the free movement of goods and services" (European Commission -
The European Single Market, 2016). The purpose of the European Single Market is to stimulate
competition and trade, to improve efficiency, to raise quality, and to cut prices (Baldwin et al.,
2006). Rewarding the Single Market as one of the EU's greatest achievements one can
conclude, from the barriers that have been outlined earlier, that many digital businesses today
are not able to leverage the full potential of the concept. As a counteraction, the Juncker
Commission aims to establish a Digital Single Market, where "citizens and businesses can

5
seamlessly and fairly access online goods and services: whatever their nationality, and
wherever they live" (European Commission - The European Single Market, 2016). The DSM is
a possibility for SME´s in Europe to respond beyond altering, avoiding, acceding or allying
towards adverse changes (LoBue, 2016, p. 19) that evolved through a lack of adaptation of
political & legal framework conditions for digital businesses.
6. Opportunities and threats for the German SME´s in the future mobility sector
related to the Digital Single Market Initiative
The author summarizes the opportunities and threats related to the Digital Single Market
Initiative for start-ups in the future mobility sector in figure 1.
Figure 1 - Opportunities and Threats of the DSM for two start-ups in the German Future Mobility Sector
Beyond the direct opportunities and threats, the DSM Initiative encourages the culture of
innovation and entrepreneurship in the European sector of future mobility. This culture has
produced the current innovations leaders such as Tesla, Google, Apple or Uber which are all
US companies that many European OEM´s now fear (Neil Cybart, Above Avalon, 2016). As the
mobility sector is still very much open to disruptive innovation (McKinsey& Company, 2016
and likely to be subject of heavy changes in the near future (compare: Appendix III) (Deloitte,

6
2015), German SMEs in the mobility sector should develop strategies to leverage on the
European changes while being first creating a substantial competitive advantage.
Although the DSM is of high importance considering the strategic marketing actions of
German mobility start-up´s, the Capital Markets Union initiative, which improves the access
to cross-border finance with equity and venture capital for start-ups in Europe (Financial Times
2016), is likely to have an even higher positive impact on the growth opportunities for start-
ups in the sector (Nicolas Véron, 2015).

IV
Appendix
Appendix I - Barriers related to the business environment for the enterprises in EU-EEA
markets and non-EU-EEA markets (percentage of SMEs that state important) (EIM Business &
Policy Research, 2010)
Appendix II - The automotive revenue pool will significantly increase and diversify toward
on-demand mobility services and data-driven services (McKinsey & Company, 2016).

V
Appendix III - Mobility sector faces increasing innovation and disruption (Deloitte, 2015)
Appendix IV ­ Degree of internationalization among innovative European Start-ups
(European Start-up Monitor, 2015)

VI
List of References
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VII
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[Accessed 05 June 2016].

VIII
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IX
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X
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16 of 16 pages

Details

Title
The opportunities and threats for the German Future Mobility SMEs related to the “Digital Single Market” Initiative by the European Commission
College
European School of Business Reutlingen
Grade
1,3
Author
Year
2016
Pages
16
Catalog Number
V338402
File size
1562 KB
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
german, future, mobility, smes, digital, single, market”, initiative, european, commission
Quote paper
Ferdinand Fetscher (Author), 2016, The opportunities and threats for the German Future Mobility SMEs related to the “Digital Single Market” Initiative by the European Commission, Munich, GRIN Verlag, https://www.grin.com/document/338402

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