London Calling: Salesforce Chases European Growth Despite Brexit

 | Jun 13, 2018 | 10:18 AM EDT
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Salesforce.com, Inc.'s (CRM) announcement on Wednesday to invest $2.5 billion in the U.K. over the next five years may seem counter-intuitive given looming specter of Brexit and other geopolitical risks in Europe.

Yet the San Francisco-based CRM platform powerhouse is serious about its U.K. expansion. The company unveiled plans to increase data center capacity, office space and staff to keep up with its growing customer base.

The announcement is a part of the U.K. government initiative to lure foreign tech investments and compete with France, which pledged to unveil new incentives for foreign businesses and had moderate success with the "Macron effect" and a bump in foreign investments.

"We continue to see strong growth in the U.K.," says Andrew Lawson, Executive Vice President and UK General Manager at Salesforce, in an interview with Real Money. "The investment today supports our growing customer base in the region and we plan to continue building on our presence in the U.K. and across Europe."

For Salesforce, it's about more than U.K. and Europe. Its EMEA region grew 31 percent in constant currency in the first quarter, making it the fastest-growing region for the company globally.

On Wednesday, Salesforce was an honored guest at the Tech Investment Roundtable hosted by Prime Minister May at 10 Downing Street, where the U.K. government rolled out a series of new measures to lure tech companies and foreign investors.

It was one of the three poster children for foreign investment touted by the U.K. government on Wednesday. Mubadala, UAE's sovereign wealth fund, announced the launch of $399 million European investment fund. And NTT Data, Japanese IT services firm that is investing $55 million to open a new office and innovation center.

"Salesforce offers a wonderful example of the benefits a successful technology company can bring to the UK economy, and I welcome their continued investment, which will create interesting and high-skilled jobs for our workforce," Prime Minister Theresa May said.

The CRM market is heating up globally and is expected to reach more than $75 billion by end of 2022, according to Garner research, and the European market is going to be an important battleground.

The U.K. move is a part of the company's international expansion plan as it chases its $20 billion sales goal. Earlier, Salesforce planned to invest $2.2 billion in France and $2 billion in Canada.

"We think that we're going to get there ($20 billion in sales) faster than we could have imagined," CEO Marc Benioff bragged to investors on the earnings call last month.

Salesforce certainly has the war chest to go on an international expansion quest.

Its first quarter revenue of $3.01 billion was up 25% compared to a year before, beating guidelines by a few million. Net income was $344 million.

Salesforce's U.K. clients include Aston Martin, British Airways, Funding Circle and Driver and Vehicle Licensing Agency, Philips and Santander UK (SAN) .

"With Salesforce, we are able to deliver a leading experience to millions of drivers and vehicle owners across the UK and drive ongoing innovation across our customer service teams," says Tony Ackroyd, Director of Operations and Customer Services at DVLA.

Salesforce's plans to invest in France and Canada are on track, according to Salesforce. Earlier this year, the company said it will also inject $2.2 billion into its French business.

"We remain committed to our investments in other markets and our global strategy," Lawson said.

The timing of the announcement and Salesforce's optimism may seem surprising given the costs and impact of Brexit on the U.K. businesses are still uncertain.

There are already indications that more companies will reallocate investments or relocate their operations elsewhere. The total volume of UK's outward investments was up 35% in 2017 and U.K. fell to third place behind Germany and France, according to the EY Attractiveness Report, which tracks investor sentiment.

Still, a more challenging, competitive U.K. climate may present more opportunities for Salesforce as it bets on fast-growing and emerging business segments.

Last month, it opened its first European Salesforce Innovation Centre in Salesforce Tower London "to drive the digital transformation required to connect with customers in new and intelligent ways by leveraging cloud, social, mobile, AI and connected products with IoT."

Next year, it plans to add a new data center. It's expanding its U.K. presence with offices in London, Staines-upon-Thames, Manchester and Glasgow.

Salesforce also has big plans for sustainability: the new data center will source 100% renewable energy and last year it achieved net-zero greenhouse gas emissions. Now it's providing its clients a carbon-neutral cloud offering.

"International is our most important growth environment. Within that, it's EMEA and within that, the U.K. is prime," Lawson said the World Tour London conference in May.

 

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