Foreign Expansion : Some Considerations – July 2014

This topic involves strategy.

Business conditions today make the option for expanding abroad a relevant question for small and medium sized businesses. This option is driven by the need to broaden the customer base, attract talented employees, and to keep emerging competitors in check. Such efforts can result in lower costs for quality inputs and a foothold in markets with a developing middle class. Many businesses have adopted the attitude, “if it is on the up and up we’ll go there.” A good aggressive approach, but one that calls for careful assessment and management of risks.

If a company is not familiar with the customs and laws in a foreign country, it faces significant risks. The biggest of these risks are talent recruitment, fraud, taxes. Thus, the need to familiarize management with the customs, laws, and culture of the emerging market is equally important to calculating the costs, revenue, and profit of a planned expansion.

To find management and operational talent in emerging markets, small and mid size companies can counter their lack of resources by tapping peers and local vendors. Other useful efforts include partnering with universities or crowd-sourcing. These efforts will help the company identify talent. A thorough interview process with local andUS employees is critical to avoid bad hires.

To prevent fraud, appropriate measures include robust internal controls, independent audits, and a whistleblower hotline. In these matters, managers with experience in emerging markets are a distinct advantage.

Tax planning is also an important consideration. Advance tax planning drives how a company’s overseas operations are set up, how products should be priced, and how a company manages its cash. A firm must be particularly wary of currency controls and changing interpretations of tax laws already on the books.

Competitive conditions today are often driven by the need to broaden the customer base, attract talented employees, and to keep emerging competitors in check. Accordingly, option for expanding abroad a relevant question for small and medium sized businesses. Such efforts can result in lower costs for quality inputs and a foothold in markets with a developing middle class. This approach calls for careful assessment and management of risks.

For additional information on this topic see the following link:

http://www.journalofaccountancy.com/Issues/2013/Feb/20125941.htm

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