Understanding the Route to Business Expansion

By Randy Worzala, Vice President - Global Sales, Tmf-group

Published by the Economist Intelligence Unit (EIU), the study“Corporate overseas expansion: opportunities and barriers” also finds that the next biggest motivation for CFOs to expand overseas is to open new markets for their products and services (67 percent). Nearly half (49 Percent) indicated that expansion is also in response to increased competition in home markets, while the same number of CFOs also cite improving R&D and technology resources as areason to take their business abroad.

It was also found that depending on the location the routes and reasons for expansion could be very different.


TOP 5 REASONS FOR CFOS TO CHOOSE EXPANSION INTO FOREIGN MARKETS %
Gain market share in target market 81.8
Opening new markets in products and services 66.7
Improve R&D and technology resources 48.5
Seeking foreign markets in response to increasing competition in home market 48.5
Producing more cost effectively 42.4

Despite these reasons, however, the CFOs questioned are concerned by the socio-economic conditions, environmental considerations and security and safety issues when moving into a new market. 30 Percent of respondents rated these issues as 4-5 (on a scale from 1-5) in terms of the severity of problems their company has encountered when moving into foreign markets.

In terms of other concerns for CFOs, the availability of skilled local workers, visas and immigration issues, and the costs of the local workforce, also. Each of these issues was highlighted as a concern for over 30% of CFO respondents. By contrast, COOs and CPOs are more concerned with local employment customs, practices and laws.

Frederik van Tuyll, CEO of TMF Group, said:
“An increasing number of businesses are looking to expand abroad as part of their growth strategy and to attract new talent. However, moving into new territories can be a time-consuming and expensive process – whether it is sourcing the right people or understanding the local regulatory, tax and compliance environment.”

In order to navigate the various challenges of doing business abroad, different business functions have contrasting views on the extent to which external help should be used. Chief legal officers (CLOs) are more likely than their COO or CFO counterparts to advocate in-house control of the legal and compliance aspects of the expansion.

While just under half of the CFOs similarly opt to undertake some of elements of international expansion in-house, a greater number look to work with external service providers to complement their own knowledge and expertise – particularly in the areas of legal and accounting and tax compliance. Global CFOs are also keen to harness any local support that may be available from the government or chambers of commerce in their destination market, with around half accessing these services across a range of technical areas. In the area of legal compliance, over a quarter of respondents would choose to work exclusively with external experts.

Even once established overseas, firms continue to face fresh challenges as they attempt to manage the many local nuances that influence their business strategy. Businesses should pay careful consideration to local practices and customs or they risk commercial and reputational damage.