According to a new study conducted by IDC and commissioned by TMF Group, a leading global provider of high-value business services, nearly half of the companies questioned (48%) were looking to grow internationally in the next two years – primarily to Asia Pacific (42%) and Europe (36%).
Eight out of ten respondents (82%) cited increasing sales as among their reasons for international expansion, followed at some distance by establishing a shared service center for back office functions (25%).
The most popular territories under consideration for future expansion were the UK and Germany (Europe) and China and India (Asia Pacific).
“The US economy was one of the first recessionary economies to return to growth and this early domestic market recovery has meant that US businesses, having stabilised their existing business, are now in a better position to consider international expansion in other regions ahead of their peers – particularly those headquartered in Europe,” explained John Simcox of IDC, author of the report.
Fifty in-depth interviews were conducted with senior level decision makers at US-headquartered organizations that have set up, or are setting up, operations in new jurisdictions. The interviews examined views, experiences, and challenges faced when businesses are entering new countries as well as best approaches and key considerations when expanding internationally.
The organizations came from a range of industry sectors including high-tech and luxury consumer goods as well as financial and professional services, travel and logistics and biotech and pharmaceuticals. Companies ranged in size from approximately 500 to almost 23,000 employees.
Respondents were drawn from senior roles closely involved in the day-to-day management of territorial expansion: chief financial officers (22%), senior HR executives (32%), chief operating officers (24%) and senior legal officers (22%).
“The growth of online commerce has not negated the need for an on-the-ground presence in international markets,” explained Dennis Day, Head of Strategic Alliances at TMF Group. “The reality is that people still buy from people and this requires physical presence in key target markets, if maximum sales potential is to be realised.”
He continued: “US brands have strong appeal, especially in the aspirational emerging market economies and this creates a strong business case for US-based businesses to expand. However, that can be a time-consuming and expensive process – be it, finding the right people or understanding business regulations – and the risk of failure can be high if appropriate planning is not made or local practices considered.”
“That’s why TMF Group commissioned this research. We wanted to understand what the key drivers were for US businesses to grow internationally, and to offer practical guidance on what to expect and how to overcome some of the more common challenges and barriers to success.”
He concluded: “It’s important for companies to realise that they are not alone. Everyone faces these same challenges but there is help out there and practical measures that can be taken to avoid any pitfalls.”
To download the full report ‘Taking the fear out of international expansion for US companies’ visit www.tmf-group.com/idcreport2014
The report found that some of the key challenges encountered during international expansion included:
1. Finding the right people
The prime issue for US businesses entering new territories is to find, hire and train the right staff. Not understanding the local culture when it comes to recruitment and addressing this lack of empathy in some locations where high staff turnover is the norm is a challenge when it comes to establishing a business in a new country.
2. Keeping on the right side of the law
Working with and understanding the legal processes and regulations in the new location are also seen as a significant issue for businesses in establishing their new operation, especially when trying to ensure they fit in with the way the rest of the business operates.
In particular, the importance of getting the accounting processes and procedures right (including payroll) seems a greater challenge than corporate governance, and is seen as time-consuming, expensive and difficult to change later if done incorrectly.
Consequently, 91% of respondents said they would look to engage external expertise, with payroll related services the most common area where a third party would be used.
3. Finding the right local support
In the case of both finding the right staff, and keeping on top of legal requirements, nearly two-thirds of respondents (64% and 65% respectively) look to work with local partners. However, working with third parties can also present its own challenges in finding the right supplier and managing any associated costs.
In helping companies to meet these challenges the report offers two clear recommendations:
A. Do your research
Start planning early and research the specifics of the territory’s political, legal and cultural environments, as well as into the competitive landscape and the target market and / or workforce.
B. Consider local experts
Give serious consideration to using third parties with a strong local presence, particularly in the early stages of territorial expansion. Third parties include IT and business process outsourcers, as well as corporate compliance services suppliers that ensure new subsidiaries are properly constituted and remain compliant with local legal and working requirements.
It might be beneficial too, to select a partner that operates across more than one location to smooth the transition to further markets should that be your long-term goal. Likewise, a company offering multiple services under a single agreement is likely to be more cost effective and deliver a higher quality and more integrated service.