Global expansion offers many business benefits but can be risky without careful planning. Prepare for global markets with the right strategy.

At Parker Russell, we provide assurance, Tax and Consultancy services to large and small firms in a range of sectors, from financial services, energy infrastructure and manufacturing to tourism and hospitality among few.? We are also part of Parker Russell International, an award winning and a leading global network of audit and accounting firms. We encompass over 2,700 experts in tax, auditing, legal services and financial advice in 80 different territories.

We have built up extensive experience in helping companies around the world to reconfigure themselves in new markets. We advise on how to comply with the different auditing, tax and legal jurisdictions so that they can escape their national boundaries and do business globally.

As such, we’ve always been interested in understanding the issues that our clients face when they go international and, more importantly, why some are successful while others are less so. This is what I intend to talk about now.

Firstly, why take the risk of going global at all?

There’s nothing but economic doom and gloom in the news at the moment. Domestically, businesses face inflation, fuel bills, staff shortages and even the possibility of power rationing, if they’re not already doing so.

And the outlook doesn’t look any better on the global stage. In recent years we’ve witnessed conflict, disease and economic uncertainty that have disrupted international commerce.

Neither businesses nor national governments can rely any more on international supply chains for critical products, such as PPE, food, medicines, raw materials or energy.

And where there are shortages, nations are looking after their own populations first, putting up protective barriers and trying to become more self-sufficient in nationally critical resources.

Obituaries have been written for the old status quo of globalism since the Covid pandemic. Are we heading for a dog-eat-dog world of inward-looking protectionism?

Why are more and more companies looking beyond national boundaries for new business opportunities?

Nobody likes upheaval, but at the same time, periods of rapid change can also offer new opportunities for organisations that are culturally and structurally agile enough to embrace them.

We hear many different reasons from business leaders when we ask them why they plan to expand globally, but most of those reasons boil down to either increasing revenues or cutting costs – or both.

Firstly, thriving businesses don’t sit on their laurels and are always looking for new revenue streams.

If demand is suppressed at home due to cost-of-living crises and worries of recession, the only way to increase sales may be to look further afield, by exploring areas you’ve not considered before as new markets.

Secondly, companies are always looking for ways to reduce their margins to stay competitive. They can create alternative supply chains and manufacturing centres in regions which are home to large pools of talented, educated and motivated people, combined with a low-cost operating environment.

If you are opening up a new market, it can also make sense to manufacture your products or support the services you’re offering closer to the point of sale, minimising transport costs and limiting the effects of fluctuations in currency exchange rates on the bottom line.

Another reason to expand globally is to increase diversification. Not do companies want to reduce their exposure to a downturn in one particular market, but with a more diverse workforce they get to tap into new talents, skills, language capabilities, ways of thinking and work cultures which can be a great strength when going global.

To be seen as a global company also helps build a reputation and widen brand recognition among potential customers.

Never has the world seemed so “small” and closely connected as it does today, glued together by a widening acceptance of global standards in technology, business and international trade.

Globalisation over the past few decades has built greater understanding, promoted cross-pollination of ideas and free movement of people, services and goods.

Greater connectedness has brought greater wealth to more people, and I don’t believe that trend is simply going to end.

Planning to move into a new market

However, having said all that, expanding your operation to a new country is still easier said than done. You can’t just leap into a new market and expect everything to go as smoothly as it does at home. We’ve seen it tried and we’ve seen it fail.

There are lots of potential barriers to clear and anticipating them is a critical step towards success. These barriers can be both external and internal and they need to be planned for.

Whether your company wants to expand into a new market, reorganise supply chains, acquire or merge with a business in another country, organisational and attitudinal changes need to happen.

What do you need to consider in order to get your organisation into the right shape, mindset and culture to enter a foreign market with the best chance of success?

Some important factors that can make or break a global expansion

The ways that an international venture can founder are numerous. Obvious challenges include:

·??????Working across time zones and over large distances,

·??????Language barriers,

·??????The challenges of melding diverse groups into one international team with common goals,

·??????Lack of knowledge of different national tastes, working cultures and mores,

·??????Not to mention international political and macro-economic events.

But there are plenty of other factors to consider, some relating to the new market, and others embedded deep within your own company structures and DNA.

Here are some examples:

1.?????What is the potential market like!

·??????Do you fully understand the market you’re moving into and its customers?

·??????Does your product appeal to local tastes and meet local needs?

·??????Is there serious competition already and is your offer unique enough to stand out from local alternatives?

·??????Does your product work with local conditions?

·??????Are there language or cultural issues around what you want to sell or make?

It may be possible to test the market online before you commit to a more physical presence, which is a great idea and can identify all sorts of issues. But ultimately, a local presence can make all the difference, a factor sometimes overlooked in our increasingly online world.

Local agents can network for you by attending events and engaging with local bodies, increasing your company’s visibility while collecting valuable feedback,

I don’t need to tell you that setting the right prices is also important and local knowledge of the local market and your competitors gives a baseline to work from.

It will also inform where in the market to aim your product. Bear in mind that what may be commonplace in your home market could be exotic luxury goods elsewhere.

Timing your entry into the market can also make the difference between success and failure. By timing, I’m referring to the season in which you launch, the speed you plan to expand, and even whether your new market is ready for you right now.

2.?????Cultural differences

It is important to take the time to immerse yourself in a new culture with an open mind and don’t assume you have all the right answers just because of your experience within your own business sector.

You can’t just enter a new market and make assumptions, especially if you’re not already familiar with the country, its culture, and its people.

Don’t be afraid to ask for help from local organisations, trade bodies or employees to help you understand the environment you want to do business in, but there’s no substitute to spending time there yourself.

Meaning and intent can easily get lost in translation. If you're not careful, you could unknowingly launch a marketing campaign that either doesn't make sense or is outright offensive. Plenty of multinational corporations have made this avoidable mistake.

It may be a smart move to hire local expertise in sales, marketing and advertising to avoid any cultural or linguistic misunderstandings, but ensure you’ve done your due diligence and use recommended or proven partners.

At the same time, though, you need to make sure that the office culture you adopt locally can work within a consistent, brand-wide culture and vision, especially if you want to be seen as a genuinely global business, rather than a patchwork of local entities.

Expanding abroad can be an opportunity for you to redefine your global vision.

And cultural misunderstandings happen both ways, so ethical consistency must also be taken into account. Abiding by local environmental or labour law standards may not be acceptable in your home country.

Stakeholders and customers are taking more interest in the sustainability and ethics of global supply chains and the effect of your activity in different environments, so it’s important to have a strong ESG policy in place that can be audited and communicated.

3.?????What will your new operational structure look like?

Will you be setting up a fully independent office and sending your existing staff overseas, or will you be hiring local employees who can help you integrate with the local population, market, and culture?

Do you need to create new departments, re-form into regional divisions or even move your HQ?

If setting up a local office, who will you hire and how? How long will you need before a launch?

Or you may be looking for a local business partner who will follow your direction and adhere to your brand standards. In which case, do you need to create a guide for them to follow so that they can replicate all the different aspects of your core business as well as your plan for expanding into their country?

4.?????Employment and payroll

If you do decide to hire all or some of your new office locally, what sort of talent do you need? These are the people who will deliver what you’re offering to the local market and the managers who can provide a deeper understanding of how the local workforce should operate.

But don’t forget that they also include the men and women who drive your vans, staff the office or work on the factory floor and clean your premises.

Will you recruit raw talent, retrain staff or bring in expertise from outside?

Do you need new recruitment and employment policies and payroll processes? How do local labour laws affect you? What about salary levels, income taxes, benefits and holidays you have to offer to comply with local laws and custom.

You will probably have to review your Ts & Cs while ensuring no structural discriminatory factors disadvantage employees from one country over those from another.

5.?????Payment and currencies

Do you need to set up new payment systems that take into account currency rates and monitor fluctuations that impact on profitability?

You may decide to reduce the effect of exchange rates by switching to local supply chains and production, but this brings added complexity and the need to ensure ethical standards as well as the potential for regional factors to disrupt your operation, such as conflict or climate.

6.?????Tax and legal compliance

We live and work in a rules-based system and wouldn’t want it any other way. However, legal and taxation systems vary hugely across jurisdictions globally.

A lot of the work that Parker Russell undertakes is to help companies navigate around not only around their own home regulations and systems but new ones, when they take the step to go global.

Starting with legal systems, around the world they tend to fall into one of two groups: common law (found in around 80 countries) and civil law (used in 150 others). Many countries also use a mix of features from both systems.

If your business is likely to have dealings with a local legal system, it’s important to understand the differences not only in the statute book but also the procedures and the roles typically performed by legal representatives, judges, juries, lay specialists and the parties taking a case to court.

In common law countries, case law, in the form of published judicial opinions, has primary importance, whereas civil law systems rely on codified statutes.

In common law countries, lawyers present arguments to a judge (and sometimes to a jury), examine witnesses and try to persuade the court that right is on their side. The judge is a referee and may have a role in deciding a suitable solution to a dispute.

In civil law countries, judges are more like investigators, and while lawyers represent the rights of a client, they have a less central role.

Working under different tax regimes, as companies become liable to tax or duty abroad is no less complex and diverse.

Despite globalisation and greater connectivity, tax systems vary widely around the world – and not just corporation tax. You have to think about how payroll tax, consumer taxes and import/export dues will affect your international operation.

However, one thing they generally have in common is their complexity.

The national differences aren’t just in terms of the amount you might have to pay but in their overarching principles and aims on top of paying for state services: (encouraging business, attracting inward investment, maybe they reflect redistributive priorities or are intended to change behaviours).

Tax requirements also vary in consistency of application and levels of complexity as well as paperwork requirements and deadlines. More centralised and better organised governments tend to collect more taxes from a wider tax base.

However, don’t let me put you off. Companies expanding globally do so for compelling practical reasons and the local taxation and legal regimes, so long as they are stable, consistent and not actively hostile, shouldn’t prove to be a showstopper. There should be no barriers which locally sourced knowledge and experience can’t overcome.

When expanding operations into another country, it is essential to take the time to review government and industry-specific regulations and ensure your business has obtained all the necessary certifications, for example trading standards, privacy, data protection and cybersecurity regulations, as well as in HR and taxation

It is more important to understand the rules and regulations you will be working under, and not make any assumptions based on how things are done in the home country.

The importance of self-reflection - the 7 “tudes”

Organisations can put all the right conditions in place, but the fact is that some international ventures still stall.

Sometimes it’s down to an external “black swan” event or some element overlooked in the eagerness to move quickly.

But it’s also important to take a pause for some self-reflection, to examine whether your organisation is in the right mindset for a successful global initiative and to cope with the unexpected.

In 2016, a group of eminent experts and academics in the field of global business, management and marketing published their research into this topic. They also wanted to know why some ventures succeeded and some failed.

Global executive Douglas Quackenbos, along with Professors Richard Ettenson, ?Martin Roth and Seigyoung Auh developed a diagnostic tool which could be used as a pre-emptive reality check into an organisation’s capabilities and its readiness to expand abroad, in advance of any international venture.

They identified 7 internal characteristics which they considered critical for global succeed, setting a benchmark against which a company can reveal and measure its strengths and weaknesses. They called these characteristics the “7 ‘Tudes”:

·??????“attitude” – the level of prioritization a company gives to its global plans,

·??????“aptitude” – the knowledge and skills already existing within the company,

·??????“magnitude” –the ability to align opportunities with capabilities,

·??????“latitude” – the level of flexiblity to adapt,

·??????“rectitude” – this is the robustness of a company’s legal and ethical practices to operate outside its usual jurisdiction without compromising values,

·??????“exactitude” – in any global venture, there’s a likelihood that unforeseen events arise or a variable will prove difficult to measure until you’re in situ. Exactitude is a measure of your tolerance for uncertainty. And finally,

·??????“fortitude” – the level of commitment driven by your leadership.

Their tool asks how strongly, on a scale of 1 to 5, subjects agree with a series of 28 statements (four statements per “tude), for example: “The company is prepared to modify after-sales support and offer local customized guarantees.”

The overall score is a measure of a company’s readiness and maturity in each critical “’tude” to going international.

This tool was used to survey of 300 executives at VP level in a range of different industries, with extensive and direct experience of a recent global expansion.

The companies were split into 2 groups: The first was considered to be global “winners” who met their performance objectives, such as sales, profit and market share.

The second group were considered to have fallen short of their goals and whose initiatives were therefore classified as less successful.

The results showed a clear alignment between those companies which displayed a strong positive response to the 28 questions and those who enjoyed success in the global market.

Fortunately, some of the ‘tudes are low-hanging fruit, requiring only quick fixes. However, others require more profound organizational or cultural change and greater investment in people and training to address revealed shortcomings in advance of your venture launch.

Preparation and doing your due diligence are critical for international success. This requires not only a deep understanding of a new environment, its cultures, legal, tax and regulatory frameworks but also a process of self-study and a deep understanding into your own organisation’s strengths and weaknesses.

There’s a lot to think about but fortunately, there is also a wealth of external advice and support to be had outside your organisation to help you.

Some of this information will be available from local partners and some from organisations that have successfully undergone a similar process of expansion and specialise in supporting companies internationally.

Companies such as Parker Russell make it their business to stay abreast of national and international tax laws, policies, accounting and commercial principles, and international tax treaties so we can use that knowledge for the benefit of clients.

Conclusion

In conclusion, and despite reports to the contrary, globalisation is thriving. It’s becoming an increasingly important part of doing business as regional economies become ever more interconnected.

Neither customers nor companies need to be limited by international borders, distances or time zones. And by a combination of self-reflection, seeking local and specialist advice and the willingness to make necessary changes, a company can introduce its products and services to new customers abroad.

That’s good for business and when done well, it’s good for everyone.

Jason Parker

CEO and founder

Parker Russell International?