1. Has your company reached a limit on growth and profitability due to competition or local economic factors?
2. Have you ever considered expanding your operations into other countries to continue increasing company value?
3. What has kept you from doing so?
You don’t have to be a Fortune 500 company in order to take advantage of growth into overseas markets. In recent years, there has been a significant increase in the number of companies much smaller than the Fortune 500 that have established a foreign presence.
However, in smaller to medium sized companies, the resources and knowledge regarding International business operations is usually very limited or nonexistent. The establishment of a foreign operation may seem daunting, if not impossible.
There are numerous risks involved in such an undertaking, however, many pitfalls may be avoided by following the appropriate process.
The major contributors to failure in foreign operations are:
1. Incorrect or ineffective strategy for cross-border expansion
2. Lack of knowledge and experience in managing international operations
3. Lack of knowledge of the culture, language and nuances of doing business in the foreign country
4. Lack of knowledge of the local laws governing doing business in the foreign country
5. Lack of knowledge of the local qualified management pool
How do you overcome these challenges?
The first step, if you do not have anyone in your company that is knowledgeable and experienced in managing foreign operations, is to find the individual(s) who can help you develop and implement strategies for attaining profitable growth beyond your home market.
The second step is to determine the objective of establishing the foreign operation. As follows:
1. Do you just want to have additional distribution points for your products or services?
2. Do you want to have a sales office in the country?
3. Do you want to have a full production operation in the country?
4. Do you wish to repatriate earnings to the U.S.?
For companies that have no prior experience in establishing and managing an operation in a foreign country, that task is both daunting and difficult. To try and avoid pitfalls that may lead to failure in doing business in a foreign country there are many facets to consider, including: Geographic, Political, Economic and Social.
As an example, in the political arena alone, the following are some of the key considerations that should be determined and evaluated:
Through my 35 years of experiences with KPMG, advising clients working outside of their home markets around the world, I have concluded that the most profitable fast-growing companies are those that have called on expert resources to guide them. Avail yourself of local knowledge to gain advantage and avoid the pitfalls related to culture, language, regulation, taxes, and competitive practices.
Robert A. Rivero