How do you optimize your global expansion for international market success? Putting a strategy in place is one thing, but what steps should you take to minimize the risk of failure? In this essential guide, we set out six ongoing actions for all companies entering international or foreign markets.
Understand ongoing economic and political changes
You may have identified the country or region where you predict that your business is likely to succeed. In your initial SWOT analysis for entering that ‘target country’, you probably considered the existing economic and political circumstances in that target country. These can change quickly, however. You need to ensure that you are up-to-date with these broader changes that can affect your ongoing business prospects.
Your best option for achieving this is to join forces with an experienced global partner, on the ground, who can support you through any ongoing changes.
Summary: Ensure you understand any ongoing economic and political changes in the international market that you are expanding into.
Carry out ongoing international market research
While you should have carried out comprehensive market research before moving into the target country, you can’t stop there. Just as you need to understand the impact of economic and political changes, you need to be aware of how your market position might be changing. Just because you are first-in-market, doesn’t prevent a competitor of yours arriving and edging you out of top position. You need to ensure that your market research is ongoing to ensure that you do not become ‘second-in-market’.
Summary: Pay attention to any competitors who also enter into your target foreign market.
Keep up-to-date with compliance changes
Failing to comply with tax, employment and other compliance obligations in your chosen target country poses a major risk to the success of your business. As well as penalties and fines, the reputational damage of non-compliance is significant. For example, the corporate social credit rating system in China scores companies operating in China, primarily based on how well they comply with their obligations. The scoring systems used by the national and local governments are continually being refined to capture a wider range of compliance obligations. You need to make sure that you are familiar with these changes as they occur to maintain an excellent social credit rating.
Summary: Keep track of changes in your compliance obligations and their consequences.
Ensure that the right funding is in place
When entering foreign markets, every business needs to determine how the international expansion will be funded. If the expansion is funded through excessive debt, for example, there is a risk of ‘over-trading’ – expanding too aggressively, and at such a speed that ongoing profits are unable to service the expansion debt. Such businesses are particularly vulnerable to small fluctuations in interest rates.
As well as maintaining appropriate debt levels, when doing business in a global environment, every company needs to take into account a range of funding implications, including:
- Managing corporate tax liability in the foreign market. This includes checking whether a permanent establishment is in place, and exploring the possibility of partnering with an International Professional Employer Organization (‘PEO’) who are able to employ your workforce;
- Checking whether there are any incentives available in the target country for direct foreign investment. For example, New Zealand, which has attracted the Lord of the Rings and Avatar franchises, has a generous film incentive scheme in place, allowing grants for 20 percent of production expenditure;
- Establishing whether there are any other general subsidies or incentives available in the target country that could benefit your business. For example, in some countries, Research and Development (R&D) tax credits may even result in a cash payment where a loss is made in the target country (see, for example, the tax relief scheme in the United Kingdom).
Summary: Ensure reliable ongoing funding to fuel your expansion. In assessing this, make sure you are across the taxation and incentive structures in the target country.
Scale your expansion strategy
Your plan for global expansion should recognize the distinct stages of your growth journey. This means looking at the legal structures that you have in place for your company’s operation. At the early stage of your expansion – where it is still explorational – you may seek to limit your ‘footprint’: This might include, for example, using agents to conduct business on your behalf or engaging a PEO in the country to employ your workforce. Then as the expansion succeeds, you could consider whether it is worth taking the more substantial step of incorporating a company in the target country.
Summary: Choose the legal structure that is right for you at each stage of your global expansion.
Grow your workforce in stages
Most globalized companies pay careful attention to how their workforce is organized in a target country. As with the enterprise’s legal structure, international market success means ensuring that you have the right workforce growth strategy in place. This could include:
- Seconding employees from the headquarters of the company to the country in question via an intra-group transfer. In this case, consider whether it would be wise to use a tripartite agreement to formalize the relationship;
- Setting up a distinct subsidiary in the target country, with workers being the employees of the subsidiary;
- Using a PEO or ‘Employer of Record’ solution to directly employ workers in the target country;
- Outsourcing specific functions, such as payroll or human resource management, to a company in the target country.
Any or all of these options might be appropriate for different companies, depending on their stage of growth in the target country.
Summary: There is no ‘one-size-fits-all’ solution for your international workforce. Make sure you choose the workforce solution that is right for your company’s particular situation, and stage of the growth journey.
At the point in which your company enters into a foreign market, you should have a robust strategy in place for your expansion. However, your strategy needs to be responsive to the continued change and growth of your company. This means understanding:
- Economic and political changes in a target country and how they may impact on your company;
- The market entry and rise of any competitors;
- Compliance changes and their impact;
- Appropriate funding arrangements;
- The need to scale you expansion strategy, taking into account appropriate legal structures;
- The need to scale your workforce.
Partnering with an expert in your target country, such as New Horizons, gives you the best chance of international market success by providing ongoing compliance and employment support. This includes help with setting up legal entities, managing tax issues and PEO services.