Global trade

Checklist for international growth

Expanding your company overseas is never easy, but the benefits can be great. Our nine-point checklist gives you the tools to create a robust international strategy.

Growing businesses need to consider a wide range of factors when selecting and entering new markets, particularly at a time when global trading conditions are less predictable. From macro-economic forecasts through to business-specific considerations, your planning must be broad, detailed and dynamic.

In addition to identifying these critical issues, our checklist also includes learnings from those who have successfully enabled businesses to grow internationally, as well as some key questions to consider for your business.

Checklist

1. Bring clarity to your global strategy

The global opportunities for ambitious businesses are vast. Yet leaders often face an array of possibilities and a wall of data and information that can be overwhelming. The challenge is getting to grips with your priorities and building the right strategy.

Francesca Lagerberg round.pngFrancesca Lagerberg, Global leader, network capabilities, Grant Thornton International Ltd, says: “Businesses need to appropriately quantify and qualify what and where the market opportunity is, gather the intelligence, and break it down into something tangible.

You need to identify what’s core to the business, where the right investment will grow the business and not damage the brand in an unexplored market and select areas that are not core, so they can be outsourced to focus resources on what is critical to growth.”

In creating a vision, it’s important to understand the values, existing strengths of your business and your competitive advantage. This will help you identify the international opportunities that are the best fit for you and increase your probability of success.

Key questions for your business:

  • Why are you seeking to expand internationally – is it for access international customers or to develop relationships with international suppliers?
  • What’s your company’s risk appetite?
  • How long can you afford to wait before competitors move into potential markets?
  • Do you have clear criteria for investment decisions?
  • Can your business afford further international expansion right now?
  • Can it afford not to expand internationally?
  • How do you preserve and expand your culture as you grow?

How can you grow your business through global trade?

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2. Learn from previous international expansion

Businesses that have already expanded into new markets have a wealth of experience to reflect on. Leaders should consider their current international footprint and make sure both existing operations and future ones are consistent with the strategy and align with business strengths and objectives.

A_Howie.pngAndrew Howie, Partner and international lead at Grant Thornton UK says: “When we asked 300 leaders who are already successfully trading internationally about what they’d learnt from the experience, the top three common factors were: developing plans that go further into the future; building strategies that plan for appropriate contingencies; and making sure domestic strategies are appropriately resourced.”

Keeping previous experiences in mind, assess how well prepared your business is to expand further at this stage and identify what the best structure for expansion would be. For example, the structure that was used in a previous overseas expansion may not be appropriate the next time round.

The structure you choose needs to follow commerciality, so decide what you are really trying to achieve, what you need to do that and then look at the appropriate structure to get that result.

These alternative structures might include direct investment, joint ventures, franchising, exporting via wholesaler or selling directly to customers online. You also need to fully appreciate what impact international expansion will have on existing business operations.

Key questions for your business:

  • What would you do differently from last time?
  • Can your existing business withstand the operational impact of further expansion across borders?
  • Were previous markets chosen strategically or based on an opportunity that presented itself?
  • How will issues such as local regulations, tax implications, potential economic and political changes affect your plans?

Explore the opportunities to trade beyond domestic markets

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3. Narrow down your potential new markets

Establish your decision-making criteria and prepare a structured shortlist of potential markets that meet those specifications.

This will be the most complex and critical part of your planning and could involve looking at GDP, size and growth of potential of markets, consumer preferences, intensity of competition, availability of suitable talent, political risk, cultural and language barriers, and understanding the compliance and tax environment.

It also requires leaders to weigh up short-term opportunities of one market and potential long-term benefits of others.

T_Braun.pngTimothy Braun, partner at Grant Thornton Singapore, highlights just some of the benefiting factors of Singapore as a city driving trade, “the country has a very fair tax regime and it is relatively easy to trade across borders as there are double-taxation treaties with more than 70 countries.

It also incentivises growth and enables businesses to attract and retain the right talent. It has a very skilled workforce with a highly attractive blend of both local and foreign talent.”

Beyond the immediate market opportunity, other factors that may help you narrow down your shortlist further are elements such as innovation culture or a business-friendly environment. A market with a dynamic research and development landscape with generous incentives and high levels of technological readiness, for example, could be beneficial to adapting your product in the new market.

If you require key staff from your existing business to relocate to support expansion, the quality of life in the new territory should also be on your list of considerations.

On regulatory and tax affairs, speaking to trade commissioner offices in target countries, can be especially useful in gathering intelligence and learning about current trade and legal regulations.

Key questions for your business:

  • What are the underlying market dynamics in selected countries, is there consumer demand and is the political situation in the market stable?
  • What is the nature of the competitive landscape in potential markets?
  • Who would be the target market for your product or service?
  • Would any localisation of your product or service be required?
  • Are trade regulations favourable in the new market?
  • How secure is the supply chain to and within the proposed market?
  • Will the new territory be a foothold and gateway to other markets offering future expansion in the region over the long-term?

What are the cities driving trade?

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4. Analyse your market entry options

Every international expansion strategy has its attractions and pitfalls. Whether it’s exporting products or services, developing a partnership, making an acquisition or setting up operations, you need to think through all aspects of the approach. Determine the best route and whether it aligns with the business’s overall strategy and the capacity of the organisation.

Le Minh Thang, Head of Business Process Solutions, Grant Thornton Vietnam, says: "Expanding your company overseas is never easy, but the benefits can be significant. Understanding where to invest is the biggest challenge and determining what research to do before you make a decision can feel overwhelming. Working with local advisers can help you with market entry analysis and legal, tax and accounting compliance can lead to a more thorough strategy for international expansion."

Joao Rafael.pngTake exporting, for example. João Rafael, Grant Thornton Brazil transaction services, says: “Marketing and visibility are one of the major challenges for leaders who choose to expand abroad. They need to understand what marketing and distribution channels are available to them and determine what method will work best.”

You can find the right structure for the right market. The conditions in that market will inform your options, whether that relates to an active local labour market or government-backed incentives for foreign direct investment (FDI). Setting up a local office for example can lower legal risks and enhance the business’ ability to adapt products and services to local markets, traditionally this approach is also considered an expensive and time-consuming option. However, some jurisdictions may offer incentives to specific industries to set up locally; in Asia, tech businesses often receive government-backed incentives to businesses that employ local people.

Key questions for your business:

  • What’s the right balance between central control and freedom on the ground?
  • How can you adapt your operations to the cultural norms of each new market?
  • How does your approach affect litigation, reputation, intellectual property (IP), cyber, political and regulatory risks?
  • What kind of risk mitigation strategies do you need to employ?
  • Have your employees received the right training?
  • Are you able to meet an increase in demand, or will you need to expand facilities and buy additional equipment?

Help with preparing and executing your transactions

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5. Balance the risks with opportunities

In expanding internationally, there are many new risk exposures to consider including local compliance issues, intellectual property (IP) protection or infringement, fraud, bribery and tax.

Data privacy and cybercrime is particularly in focus as regulation around international data transfer and storage change and tightens, meanwhile businesses that enter new markets increase their exposure to threats.

Being able to make informed decisions is critical to managing those risks. You need to make sure that you have the right data, intelligence and advice to balance that risk with your ambition.

In Grant Thornton’s latest International Business Report (IBR), 23% of business leaders, globally, perceived regulatory restrictions and complexity as the biggest constraint on international expansion.

W_Stippich.pngWarren Stippich, Global co-head business risk services, Grant Thornton US, says: “Businesses that go global should remember when approached correctly, regulation needn’t be a problem.

It can create a competitive advantage. Building strong relationships on the ground, for example, can lead to better trust from regulators while being proactive in complying to regulation enhances transparency and reputation for your customers too.”

Many international businesses are taking an integrated digital risk approach where data privacy and cyber security fall under a broader digital risk function to more effectively mitigate risks. Where IP is concerned, make sure all appropriate trademarks, licenses and copyrights are protected. You also need to ensure that your IP will not infringe on the IP of any company in your new market.

With regards to seeking international growth through M&A, cross-border deals can be an effective strategy in establishing a footing in a new market very quickly.

However, worldwide enforcement of the Foreign Corrupt Practices Act continues to grow, so a company must have transparency in all transactions, including with acquisition and joint venture partner.

C_Ferreira.pngCarlos Ferreira, Global co-head transaction advisory services, Grant Thornton US says: “Be mindful of environmental, social and government (ESG) issues and the growing responsibility to measure and monitor ESG metrics in a diverse array of items like corruption and bribery practices, diversity, energy and transportation emissions, ethical procurement standards, child labour, carbon emissions, sustainability, employee welfare and development.”

Key considerations for your business:

  • Have you developed a policy for fraud, bribery and corruption risk mitigation?
  • When it comes to cybercrime, are you investing in training and critical skills on top of protective software?
  • What operational changes do you need to make to ensure you can respond to compliance?
  • How do you keep track of countless regulations across multiple markets and different areas of business?
  • Are there some places where these risks pose significant reputational issues to your business that cannot be mitigated?
  • Are there sanctions that could impact on your business, even existing or pending trade wars?

How can you better manage digital risk?

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6. Carry out local competitor intelligence and consumer demand analysis

The latest IBR survey showed that 19% of business leaders cited perceived competition as the most significant barrier to international expansion. To position the business in the best way possible in new markets, leaders need authoritative commercial intelligence to fully understand who is already operating there and attain insight into how their customers behave.

A_Howie.pngAndrew Howie, Partner and International Lead at Grant Thornton UK, says: “You can’t have enough information to help you plan your overseas strategy, so it makes sense to seek as much support as possible. This could be from speaking with other exporters, from government trade departments, or from professional advisers who can be a good source for information and contacts in international markets.”

Speak with businesses from different sectors that are already operating in the market to get a better insight into local customer behaviour.

Key questions for your business:

  • What is driving customer spending habits and how is this likely to change in the future?
  • How responsive are your potential competitors to changing market dynamics?
  • What are your competitor’s strategies in growing their market share, and how would that restrict your growth?

Explore the opportunities to trade beyond domestic markets

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7. Understand finance options and choose appropriately

Businesses need to assess how financially fit the business is to expand to new territories and determine if the existing business can weather new financial pressures. Thoroughly analyse the costs of your international expansion project and how you will finance it.

Those that lack financial firepower may find their growth constrained, in the latest IBR survey, 19% of global business leaders cited a shortage of finance as the most significant external barrier to expanding internationally.

Before looking for finance you will need some sense of when your new market venture will become profitable and how to manage stakeholders through that uncertainty.

There are various financing options available for international projects through export loans, private equity and subsidies, depending on where you are growing from or how you intend to grow.

When bank support may not be guaranteed, alternative finance is increasingly stepping into the breach. These options range from peer-to-peer lending platforms or a full blown Private Equity solution, depending on the maturity and needs of the business raising funding.

The range of capital solutions available has evolved significantly over recent years, with funding platforms migrating from exclusively suiting small-scale ventures and start-ups to more established businesses, and a proliferation of hybrid debt and equity solutions.

A_Morgan.pngAndy Morgan, Partner, head of corporate finance advisory, Grant Thornton UK and Global head of M&A, says: “One possibility is the secondary market, or so-called ‘private initial public offering’. This was launched to cater to growing companies that wish to offer shares privately, rather than through a full IPO and the subsequent regulatory burdens.

The profile of private offerings has been boosted by well-known tech companies, which has attracted a growing pool of investors including mutual funds, hedge funds and sovereign wealth funds.”

The different financing options are linked to the decision about the appropriate market entry structure. Establishing a joint venture with a local partner may reduce some of the financing costs and risks but also means losing some of the potential upside.

Depending on your industry sector, it may be possible to locate your international operations in a special economic zone with a favourable tax, regulatory and legislative regime.

Key questions for your business:

  • Are you open to outside investment as a means to growth?
  • Can you get a foot in a new jurisdiction without any funding or could your centralised treasury function serve your new entity?
  • What tax considerations, forex issues or or currency restrictions are there?
  • What happens when you outgrow your local or national funding capacity?
  • What investment models should you use to guide in your planning?
  • How much equity are you prepared to give up to attract capital?
  • How do you protect your ownership rights in the future?

How can you remove the burden of back office operations?

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8. Identify future operational and reporting considerations

Once up and running, leaders need to make sure that operations can continue without disruption. Managing operations remotely can be a challenge despite the wide variety of communication tools that allow for regular and flexible reporting.

In some instances, you may need to make technology investments so that operations in your new market run as efficiently as possible, and that reporting channels and technology platforms align with your headquarters.

Back-office processes and reporting requirements can also be a distraction from driving the business forward in new markets. Leaders need to assess what internal resources they can commit to processes such as compliance, payroll administration and local country filings for multinational organisations or whether they would benefit from outsourcing them.

R_Flynn.pngIf you are extending your supply chain in the region, businesses need to be fully apprised of the risks and have contingencies. Rodger Flynn, APAC regional head, Network capabilities, Grant Thornton International, says: “Traditionally, in Asia Pacific where many operations have supply chains in China, any company worth its salt has a China plus one strategy in case of disruption. In the current US-China trade war, it pays to have multiple supply chains in mind as a contingency.”

Carry out rigorous checks on your supply chain to certify the labour rights of employees, and make sure the quality and provenance of raw materials meet international and domestic standards of compliance.

Key questions for your business:

  • How will you manage remote operations and what operational risk management processes need to be set up?
  • What reporting regimes are required?
  • What sustainability credentials will you be able to deliver in your new market?
  • Do you have a plan to contribute to the communities in which you have a presence and enhance your social license to operate?

How can you remove the burden of back office operations?

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9. Align human capital and global business objectives

Businesses entering new markets have to quickly access the talent to be able to grow, from senior roles to the shop floor. Leaders also need to navigate the complexity of operating in a different culture and implement solutions to attract the best local talent. Understanding local legal and financial implications requires access to the right expertise.

R_Tonge.pngRichard Tonge, Principal, global mobility services leader, Grant Thornton US, says: “Many countries address the ‘war for talent’ with incentives that can reduce employer or employee tax costs. However, regulatory challenges and complex tax legislation still exist that can make attracting and retaining talent in key markets difficult for growing businesses.”

Make sure you have access to HR professionals in your global organisation who can support leadership in managing talent needs globally. Whether you need to rely on professionals on the ground to provide guidance or have regional specialists managing multi-jurisdictional, they provide navigation to help the business deliver on strategy.

Key questions for your business:

  • How will your business structure develop?
  • What is the depth of your existing management talent to support foreign operations?
  • How will you manage local hiring and global employee mobility?
  • What cultural nuances are important in attracting and retaining talent?
  • What balance will you strike between local talent and expatriates?
  • What is your business able to offer to secure talent which is far broader than financial rewards but will also include the working environment, development potential etc?

Get the latest insights on tax changes affecting internationally mobile employees

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