Southern California takes a value-added approach to Europe.

Europe and the Eastern Bloc have become popular markets for Southern California companies looking for international markets, a trend that is expected to continue well into the future.

Interest in Europe is driven primarily by financial and marketing considerations, which is as it should be.

But all to often overlooked in initial financial and marketing analysis is the role that distribution will play in the business, sales, and service process.

Distribution is a key element in the classic marketing model and a major line item in determining pricing and manufacturing overhead. Companies that overlook it in their planning for European expansion are committing what could be a critical error. Determining distribution options at the outset can actually create a competitive edge that translates into customer benefits and increased European market share.

Using distribution strategies and tactics to achieve product differentiation is known as "value-added logistics." or VAL. To meet the specific and rapidly changing wishes of customers in different European sub-markets, products are modified before trial shipment. A distribution center can be transformed into a customer service center by adding functions like localization, testing, burn-in, packaging, labeling, final assembly, repair and after-sales support. VAL can expand the role delivery systems play in satisfying customer demands by getting a product to market faster or cheaper. Transportation and warehousing are cornerstones of the VAL concept. Among the world's foremost practitioners of VAL is the Netherlands, which has a long history of international trading.

Distribution considerations are rarely an issue when a company first begins selling to Europe. At the outset, it's simple matter of air-expressing the product to a European customer from a Southern California location. As sales grow, the process becomes more complex. By the time a company's sales reach between $5 million and $10 million, logistics have become complex and time consuming. If no remedial actions are taken, logistics will become a nightmare. Suddenly, products are being shipped to multiple locations, through multiple customs with different labels, packaging, languages, documentation, and value added tax (VAT) rates.

At this juncture, management is caught up in very detailed logistics issues instead of focusing on European sales. This is now the time to open a European market has become a critical issue to provide customer service. Customers want answers now. A fax the following day is insufficient. Proximity, therefore, becomes the initial building block in creating value-added logistics.

Many firms entering Europe for the first time or with small sales volume use distribution companies that provide value-added logistics services with technical capabilities on a par with those of the manufacturer.

Packard-Bell, the Chatsworth-based personal computer manufacturer, is a market leader in the marketing of PCs. Low prices, high quality products and responsive follow-up are Packard-Bell's strong points in Europe. The company has an operation in the Netherlands for order-taking, customer-specified light assembly, shipping, and customer service. The facility, located in Nijmegen, receives sub-systems from around the world, assembles the finished product, loads the specified software, adds country-specific documentation, tests the final system, then packs, ships, and invoices it. Packard-Bell also provides technical services from its Netherlands facility using toll-free European international telephone numbers.

The market-driven strategy extends well beyond the high tech sector as well. It is also is seen in a co-packing venture that speeds newly squeezed orange juice to supermarket shelves.

For Liz Claiborne, the women's clothing manufacturer, VAL means using a freight forwarder to quality check, press, repack and label ladies sportswear before delivery to dress stores around the Continent and in the United Kingdom.

Other Southern California companies looking to expand overseas, made the Netherlands their gateway into Europe. Companies like Orange County-based Western Digital, that stores its entire European inventory across the road from Amsterdam's Schiphol airport. Another example is Long Beach-based BW/IP. With two major manufacturing plants in Holland, the company takes advantage of the high work ethic and ingenuity of the Dutch.

Three hundred U.S. companies have extensive manufacturing operations in the Netherlands and Holland, Belgium and the United Kingdom host the largest amount of European headquarters.

For any company wanting to create value-added logistics, European distribution centers should be located near major seaports and international airports. They should be situated so that truck deliveries can be made within four to 36 hours; where inland waterway deliveries to most markets can be accomplished within two to three days, and where rail deliveries can be completed within one to two days.

International air facilities are equally important. Maximum distribution flexibility is provided by those international air cargo centers, such as Schiphol Airport, that specialize in distribution facilities on a free port basis. Key international trading ports, such as Rotterdam and Schiphol, create natural terminals for Europe's well-developed trucking system. European Union regulations have removed barriers to participation in all national EU transportation markets, providing trucking companies with access to all locations.

Waterways and canals are also strategically important. Many goods, not trucked around Europe, are shipped on container barge. The largest European rivers, and more than 3,000 miles of waterway, merge in the Netherlands. From Holland, the world's largest inland fleet (6,000) vessels) transports a constant stream of commodities and materials (240 million tons a year) well into the heart of Europe.

International customs formalities and documentation tied to the storage and movement of goods are probably the linchpin of providing product differentiation through value-added logistics. Warehousing is not just warehousing. How good move through customs, into and out of warehouses and the duty-free services that can be performed while goods are in storage greatly impact packaging, overhead costs, and responsive delivery.

Goods stored "in bond" in the Netherlands are not liable to any import duties, excise duties, or VAT. Duties are due only at the moment of declaration and clearance for consumption or use in the Netherlands. After clearance, a month's credit may be granted. Most important, goods stored in bond may be repacked and marked for local markets, inspected, tested, cleaned, and repaired if damaged in transport without being considered as imports subject to duties. Custom bonded depots cater to goods in transit and in storage during distribution. Such depots are usually situated at ports, airports, or border transfer points.

Dutch customs legislation offers a wide variety of storage options and has procedures for very sophisticated document inspection to help customize and resolve problems usually associated with the movement of imported goods. Documentation requirements, for instance, can be minimized in exchange for more intensive customs surveillance.

The above is just a brief description of the impact value added logistics can have on doing business in Europe. For companies considering expanding without the benefit of manufacturing on the Continent, VAL provides the ability to get the right products to customers at the right time. Researching value-added logistics considerations before the first international sale is made, before the first angry fax is sent, and before the first international shipment confusion occurs, allows a company entering Europe to achieve maximum efficiency and responsiveness.

Rutger Schuitemaker is area director of the Netherlands Foreign Investment Agency.