Factors you need to consider when expanding internationally

As our world shrinks, more and more companies are choosing to expand internationally into new regions and  markets for their products and services.
 

A recent publication of data from the Office for National Statistics shows a further increase in the number of companies in Great Britain trading internationally. With close to 16,000 additional businesses doing this, the number engaging in exporting their goods and services has risen by over 14,000*.  When choosing to take the next step and set up overseas, businesses want a soft landing and a smooth integration into their chosen new markets – but this isn’t necessarily easy to achieve.

Navigating an unfamiliar commercial landscape without aid is like trying to drive in a new city without sat nav. Companies face a maze of potential paths and turns with no guidance as to which route is best, and traffic lights continually on red. What they want instead is a clear, brightly lit path and a stream of green lights ahead. Preparation and support from experienced advisors can create that clear path and make sure of the desired soft landing.

Where to start?

A huge amount of preparation is needed before setting up overseas. The better your preparation, the more confident you can be about achieving your international goals.  

Question 1: What’s the business reason for expansion?

For some companies, a targeted review of opportunities and sectors leads to a clear decision that international expansion is the best next step. Increased effort to grow sales in your domestic market may be a strategy where extra effort brings diminishing returns.

In addition to this, many companies may see the opportunity to grow in harmony with their key customers; as they become more global, it can be easier to expand with them rather than spend time, money and resources finding new ones at home. Some major clients may even insist that they will only buy from you in other countries if you are also active and have a presence there.

On some occasions, unplanned expansion may also occur when a business is almost required to fulfil an overseas opportunity as an adjunct to their domestic business.

Question 2: Will you choose to buy an existing business overseas or expand your own operations?

There are a number of factors that will influence this decision. If you decide to buy an existing business overseas, you’ll need to consider whether to buy the trade and assets of the business or the company’s shares. The structure of the deal will also need to be determined along with decisions around funding, taxation and staff retention; are there key people you need to retain and incentivise and if so, how will you achieve this?

Your decision on whether to buy a business or expand organically determines your next steps. If you are buying overseas, you will certainly need expert corporate finance support to help you identify suitable targets, conduct due diligence and negotiate a good deal. Alternatively, if you decide to expand your own operations, you’ll need to think about a series of other issues, as we highlight in the questions that follow.

Question 3: What’s your sales strategy?

Your route to market – how you sell to your customers – will typically be determined by your specific sector. Whether you are a retailer, a reseller or a channel distributor, selling through physical premises or online, you’ll probably apply the same strategy overseas as at home. But this isn’t necessarily your only, or best, option. Expanding internationally gives you the opportunity to consider a new way of selling. There may also be local legislation or norms that influence your approach. If you need support in considering the most appropriate sales strategy, we can introduce you to a relevant expert from our network of contacts. 

Question 4: How will you get your international expansion up and running?

There are a number of factors you will need to consider:

Staffing

You need to decide if you will only employ local hires from the resident population or if you will send someone from head office for a period of time. When employing local personnel, you need to understand your payroll tax compliance obligations and what kind of pay and benefits package will be expected in the local market. Remember to consider expenses, company cars and pensions costs.

If you’re sending someone from head office, determine how long you expect them to stay and the tax implications for the company as well as the local payroll tax obligations. Visa and immigration requirements in your target location will also need to be established. If you’re unsure, we can introduce you to relevant visa and immigration lawyers.

You’ll also need to think about the welfare of the individual. To what extent will your company fund return visits home to see family and friends and will it support the relocation of the employee’s family overseas? Some of these options can get quite expensive and need to be included in the expansion plan’s budget. The individual will also need to establish how his or her  tax position will be affected and seeking advice from expat tax specialists is essential.

Property

As well as considering people issues, you’ll also need to make decisions about property. When setting up a new international venture, renting is generally preferable to purchasing premises – not least for controlling costs. An introduction to local realtors and property agents can give you insights into optimal locations for your specific business needs.

You’ll also need to find reputable local suppliers – businesses you can rely on to help you build up a successful international operation. You could start by considering existing suppliers in your home market that have operations in your target international locations. 

Question 5: What is the local culture?

Adjusting to new cultures can be one of the most challenging aspects of international expansion. Ways of doing business that you take for granted at home may no longer work but  local professional advisers can guide you.

Issues you might want to consider include office culture (e.g. working hours and levels of formality) and expectations around developing business contacts and sealing deals. It will be important to establish governance procedures to ensure, for example, that your company’s ethical standards are maintained.

Question 6: What are the accounting, tax and legal matters to consider?

There are many detailed issues to consider in your international expansion, so it’s vital to involve key departments, such as finance and human resources, from the very start. Here are just some of the questions to address:

  • What is the preferred company structure for your international operations?

  • How does this interact with cross-border tax structuring – for example, are there any differences if you set up as branch or a subsidiary?

  • Will head office be providing certain services to support the local operation – if so, what are the tax consequences?

  • What are the local filing requirements for financial statements and tax, including payroll taxes?

  • How will you pay suppliers in the foreign location?

  • From a legal perspective, how might your product or service terms and conditions be affected? Do they need to change?

You’ll also need to review supplier terms and conditions carefully, including the detail in any property leases, which will need careful negotiation.

Help is at hand

At Moore Stephens, we have produced a series of guides to highlight what’s involved when setting up activities in countries around the world. Our ‘Doing Business In…’ guides are available here http://www.moorestephens.co.uk/services/business-outsourcing/international/global-guides  

We regularly help companies in their international expansion, whether large or small. To discuss how we can help you, please get in touch.

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*Office for National Statistics publication, November 27 2018. Non-financial business economy, exporters and importers in Great Britain (Annual Business Survey): 2017 - http://bit.ly/2CnMmRy

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