As published in Lëtzebuerger Land on July 13, 2012. Full Version PDF.

In February, the Luxembourgish government presented “Le Luxembourg vu de l’étranger” on the results of their fall 2011 quantitative study on the perception of Luxembourg, having surveyed 554 decision-makers and actors working with Luxembourg. Of those surveyed, 82% think Luxembourg has problems with its image. In addition, 85% of those surveyed think that the reputation of the country is a key asset in attracting business. How valid is this assumption? Can a business-friendly image be negative?

Through my qualitative study as a Fulbright Scholar at the University of Luxembourg this past academic year I have researched the nation branding of Luxembourg through over 20 qualitative interviews with public and private sector communication strategists. Based on this research, it became clear that the country is positioning itself as a trusted, reliable business partner. This strategy is commonly used by B2B firms in the private sector, but Luxembourg can also competitively argue that the country is very business-friendly, both globally and relative to its European neighbors.

During my research, when asked for Luxembourg’s top 3 values, the top three responses were: stability, quality of life, and multiculturalism. Different values are key for different sectors, but the most business-related was stability. In recent history, very few countries worldwide can compete with Luxembourg’s record of political stability, and the Euro Crisis has only strengthened this asset relative to other E.U. member states. Since the introduction of general suffrage in 1919 (except during the Nazi occupation and the legislative period of 1974-1979), the Christian Social People’s Party has been in power in Luxembourg. In addition, Jean-Claude Juncker has been Prime Minister since January 26^th, 1995. By comparison, German Chancellor Angela Merkel is seen as flip flopping from a free trade to welfare state stance, making it difficult for companies to predict how Germany’s future policies may impact their profitability. Furthermore, Juncker is trusted as a down-to-earth politician who will not be involved in any scandals, such as that of President Christian Wulff, anytime soon. As put by an interviewee in the culture sector: “Everyone knows Juncker won’t be found with beautiful things or on the yacht of some mogul. They trust him; he has lived in the same house for 30-40 years. He will say ‘Hi’ to you on the street.” In addition, the election of French President François Hollande has rocked the boat, as he declared he will raise taxes. On top of its political stability within the regional business community, Luxembourg is already known for its fiscal stability, a trait that came up many times in my nation branding interviews.

When François Hollande declared a 75% tax on incomes over 1 million Euros, British Prime Minister David Cameron took the opportunity to welcome these high earners to Britain, although history proves Luxembourg may be a safer bet. Other countries may follow France’s example and increase taxes not only on individuals, but also on firms, as they attempt to grapple with their national debt. As put by an interviewee from the Ministry of Economy and Foreign Trade: “You know what the regulatory framework of the country is, and there are no abrupt changes. I just came out of a meeting with a company who wanted to come to Luxembourg because every time there is a change in government in France, the policies change dramatically, and you have to rebuild your business case. That’s not the case in Luxembourg.” In addition, since VAT taxes were introduced in Luxembourg, the country has always had the lowest rates in the E.U., making domestic supply tax rates the lowest available in the E.U.

One interviewee emphasized another benefit to business is the country’s social stability based on the tripartite system. The tripartite model is viewed as a unique Luxembourgish program between the government, employers, and unions. It is an example of how the government actively participates in attempts to find solutions between businesses and employees: “Instead of battling labor, [the government tries] to find a solution. Compared to France with all the strikes, this is an advantage for Luxembourg.” However, recently the system has encountered difficulties.

The size of the country also decreases the amount of red tape and difficulties business may have in working with the government. As put by an interviewee in marketing:

[In Luxembourg] administrative distances are short and uncomplicated for business [… When coordinating with the German government,] they have to go through the city then the regional government to get anything done. In France, everything has to go through Paris, so it takes forever. If I need something [in Luxembourg], I call the lawyer at the ministry and he tells me who to contact, and I call them and get a person on the phone.

This system is much more efficient than dealing with the bureaucracies of larger countries. Furthermore, communication strategists advertize how the size of the country allows for easy access to decision-makers. As put by another private sector interviewee: “One thing appreciated by foreign CEOs is they have the direct number of the Minister. You are easily in touch with whoever you want.” The flexibility of policy is also advertized in that the government is open to suggestions from the private sector if processes can be made more efficient or if new policies could provide new opportunities in new niches.

However, foreign media outlets often misconstrue the Luxembourgish government’s flexibility in helping business. An example is in 2010 when Strategic Airlines, a cargo airline, had its license revoked by France and three weeks later received a license from Luxembourg. As put by a private sector interviewee:

You had a report on ‘20 heures’ on FR1, [which in general] said, ‘It’s Luxembourg as usual, you come, you pay, you get what you want. They don’t look at the maintenance, the dedication of the staff, etc.’. The thing is a cargo airline never gets on TV because no one is interested in this. Here, all of a sudden, it was a main feature.

This story would normally not be a top story and does not necessarily deserve media attention. However, the story was framed as scandalous in the French press, stating that the French government was “angered” and “shocked” that Luxembourg would make its own decisions on giving a license to the company.

Thus, Luxembourg has a very strong argument as to why business should invest within its borders, but its major issue is awareness. As mentioned by an interviewee from Luxembourg for Finance: “It is not a favorability problem, it’s an awareness problem. You don’t have to travel very far to find people who don’t know what Luxembourg is. It is terrible, but it is true.” Thus, the future of branding Luxembourg as a place to do business may need to focus on the basic step of gaining of awareness from business professionals abroad. This is already a focus of the Luxembourgish government, but will take time to grow. For example, the 2010 Shanghai Expo was a major success for Luxembourg. The pavilion was one of the most visited and one of only five that was not demolished after the Expo. These Expos are a cost-effective way of advertising Luxembourg. Luxembourg does not have the financing to compete with large countries in advertising spending. As put by an interviewee in marketing at the Commission de Promotion des Vins & Crémants de Luxembourg: “If we wanted to do advertisements in the Paris metro, we would only have enough money for 2 advertisements. In France, they have budgets a hundred times our budget. That’s a huge impact.” Both the private and public sector are aware of this. As described by an interviewee from Ville de Luxembourg: “So far it does not make any sense to make these huge advertising campaigns to bring to countries because it is just too much spread. I think the one-on-one approach, conferences, road shows, to a professional audience is the most successful.” Thus, the main focus is a more one-on-one targeted approach as opposed to mass media campaigns.

Unfortunately, these awareness efforts take time, but even if a few companies relocate to Luxembourg, it could have a strong impact on the economy of the country. However, the country has a strong argument as to why it is a trusted, reliable business partner in Europe. France having lost its place in January, Luxembourg is one of only four countries, the others being Germany, Netherlands, and Finland, which still has a Standard & Poor’s Triple-A rating. Also, in 2011 public deficit made up only 2.4% of the central government’s budget, down from 2.6% in 2009 and 2010, and in the country never experienced a recession in the 2008 financial crisis. Thus, Luxembourg has a unique value proposition to attract foreign business; its difficulty is attracting the attention of the global business community.