Flying the flag for Flanders: Kris Peeters and Luc Hooybergs
Tax incentives and an excellent location make Flanders an attractive proposition for investors. The region's president, Kris Peeters outlines key government business policies, while Nike's European logistics director, Luc Hooybergs, explains why he chose Flanders to house Europe's largest distribution centre.
In 2012, Flanders attracted 159 foreign investment projects worth €1.5 billion and created 3,740 new jobs. In the same year, it received the European Entrepreneurial Region award for its stimulation of business and clear vision and ambition. But what lies behind the region's success?
Of the many contributing factors, the government's proactive stance in attracting foreign investors is perhaps the most significant. Speaking in London earlier this year, Flanders' president, Kris Peeters, outlined the state's approach.
"We stimulate industry to innovate and become greener, more creative and more competitive," he said. "We've also set up a specific fund that has €200 million in venture capital to support investment projects.
"Of course, it's up to the industry to come up with the right ideas - whether that's Flemish SMEs or foreign companies. In either case, we welcome you with open arms to come and strengthen our industrial clusters."
Flanders' tax system is also specifically calibrated towards attracting investment, particularly in the research and development sector. With a statutory corporate income tax rate of 33.99%, this may not appear to be the case at first, especially when compared with the 24% rate of many neighbouring countries. However, two key incentives that stand out from the host of available options mean the average rate actually paid by companies in Belgium is around 26%, and can be as low as 4.8%.
The first, notional interest reduction (NIR), allows companies subject to Belgian corporate tax to remove from taxable income a fictitious interest determined by shareholders' equity (net assets). Rates are currently at 2.7%, and 3.2% for SMEs. Patent income deduction (PID) focuses more specifically on technical innovation, allowing an 80% deduction of qualifying (adjusted) gross patent income, which can include royalties or any other value added through patents, from taxable revenue. This effectively cuts the Belgian statutory rate of 33.99% to just 6.8%.
These incentives have attracted vast sums of foreign direct investment to Belgium; in 2012, the country received $89.1 billion. According to the UN Conference on Trade and Development, this figure was only surpassed by two much larger countries, China and the US.
The region's attraction is not purely based on financial benefits, however. Nestled between France, Germany and the Netherlands, and with the UK just across the Channel, Flanders has exceptional access to key European markets. Belgium's impressive transport network, including the highest density of roads and railroads in the world, as well as excellent shipping facilities, ensures companies can quickly and easily reach key business markets.
Flanders also boasts low-cost warehousing (in Q2 of 2013, rates were €50,810/m2 a year according to fDi Intelligence), and a highly skilled workforce. Belgium is ranked in the top three countries in the world for primary education, maths and sciences, and management schools by the World Economic Forum's Global Competitiveness Report.
In the early 1990s, Nike consolidated its European logistics centres from 32 warehouses in different countries to a single facility; Laakdal in Flanders. With a total floor space of 265,000m2, this enormous site has over 182 million units pass through it per annum, a combination of shoes, textiles, bags and accessories.
"Putting the distribution centre outside Holland, where our headquarters are, was quite a big deal," says Luc Hooybergs, Nike's European logistics director and Laakdal general manager. "It was all to do with the business case. It was more competitive to place the facility in Flanders. Also, the initial founder had built up a strong relationship with the local authorities."
Flanders' Government has provided Nike with various forms of support, including funding that allows the company to pursue its sustainability initiatives at Laakdal. The entire centre, requiring power roughly equivalent to 10,000 households, is powered by green energy produced by a combination of wind turbines and solar panels.
"The government has also extended the railway up to the container terminal to ensure specific vessels that come from Zeebrugge port along the canal can reach us," adds Hooybergs.
Beyond sustainability, the Flanders administration has given Nike further assistance in trialling a fresh distribution centre model. Opened last year at a site ten miles from Laakdal, the new facility was a direct response to the widening gap between Nike's business needs and existing design principles.
"We used to ship products on a seasonal basis to large, customer distribution centres (DCs), but this resulted in a lot of inventory sat in DCs, which is working capital tied up," Hooybergs explains. "So we developed a new concept that uses sell-through data from customers' accounts that allows us to replenish their stores directly from Laakdal. It's a much better way to generate profit for the accounts and lets us grow our market share.
"It also, however, means the orders shipped out of Laakdal are much smaller, making our job harder."
Addressing this challenge, Nike's new centre defies the move towards automation currently sweeping the logistics sector and instead relies entirely on manual operations. It also exports everything from under one roof, whereas other suppliers often have separate facilities for different business wings, such as e-commerce.
"The results we've had are incredible," says Hooybergs. "The lead time has shrunk by 60%, which means we can ship on the same day now for e-commerce - a huge value proposition. Even more astounding, our productivity is 30% higher.
"The only reason we were able to invest in this new facility was the support we've had from Flanders' Government. As a result, we have developed a fresh logistics concept, which will form the basis of our future."
Nike is also currently building an open innovation and training centre at Laakdal, again with support from the Flanders administration. The aim is to investigate and pass on knowledge about how logistics firms can boost sustainability.
"Logistics creates a lot of impact, both environmentally and from a traffic perspective," says Hooybergs. "I believe we have a duty to improve on these factors - that's why we've built this facility.
"We're going to provide educational programmes to universities where students can come to see our facilities. Not only will it add to their knowledge, it will also be passed on to other places."