Newport Board Group and TMF Group Release a 10 Step Business Guide to Expanding Operations Overseas

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Guidance for Emerging Growth Businesses Considering Going Global

For small and emerging businesses, going global is a significant undertaking that could disrupt existing business activities. Thus, it is for critical for CEOs to understand its full impact and to determine if the rewards out-weigh the risks

By definition, “going global” is defined as the worldwide movement toward economic, financial, trade, and communications integration. While globalization can be traced back millenniums to the Roman Empire and before, in this century, it was best described by the journalist Thomas L. Friedman who popularized the term "flat world", arguing that the pace of globalized trade, outsourcing, supply-chaining, was quickening and that its impact on business organizations and business practices would continue to grow.

For small and emerging businesses, going global is a significant undertaking that could disrupt existing business activities. Thus, it is for critical for CEOs to understand its full impact and to determine if the rewards out-weigh the risks. Stakeholders across the organization will be called on to carry more responsibilities to continue to execute on day-to-day activities and the global initiative.
Taking a small business global is very complex and dynamic. Gaining a deep understanding of the targeted markets, the competition, current local market trends and the requirements to successfully launch and drive growth lays an important foundation.

It’s therefore important that US-based businesses, while embracing the drivers for international growth, fully understand the potential challenges or barriers to success. But they should also remember that they are not alone. There is an abundance of third-party help for those that want it and practical measures that can be taken to avoid any pitfalls.

Ten Steps to Successfully Expand a Business Overseas

1.    Perform a Deep Dive Due Diligence
Going global is a significant undertaking that will disrupt existing business. It is critical to understand the full impact.

  •     Prepare a market segmentation analysis to determine if the product will sell in the local market.
  •     Prepare a product “gap” analysis against local products – is there a demand that is not satisfied by a local company?
  •     SWOT Analysis against competition – your product will likely be higher priced than local products. Will the market buy the product over locally produced products?
  •     Market opportunity/sizing – how big is the market and how long will it take you to capture the targeted sales?

2.    Strategy & Business Plan Development
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.

Each market has its own nuances due to economic, cultural, governmental, and market conditions. It is important to develop a localized strategy and business plan that drives local success while remaining integrated with the overall corporate strategy and objectives.

  •     Define short, medium and long-term strategy – set reasonable goals to measure progress and cost/benefits.
  •     Define goals, objectives, and success metrics.
  •     Complete the business model and structure – will you set up a separate company, a branch or a sales office.
  •     Develop a top-down annual budget.
  •     Develop a tactical project plan with commit dates.

3.    Establish a beach-head team
The primary issue for US businesses entering new territories are 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.

Many global companies try to launch with executives from the parent company or rapidly build a local team from scratch. This is time consuming, risky and slows time to market. Utilizing proven senior interim executives allows the company to hit the ground running, quickly validate assumptions, drive key readiness initiatives as company hires right senior management team.

  •     Bring on senior interim executives with deep domain expertise or outsource interim leadership to executive leadership organizations.
  •     Establish the financial infrastructure – consider outsourcing this to local service providers.
  •     Begin the recruiting process for the permanent leadership team.

4.    Product Readiness
Based on the product gap analysis take the necessary steps to market-ready your offerings to achieve high-impact product differentiation.

  •     Review government and industry specific regulations to ensure compliance and certifications, if needed, are obtained.
  •     Determine if any localization of the product, if any, is needed. Pay close attention to the translation of the name of your product in the local language.
  •     Initiate a patent and trademark review – some countries are known for “copying” good ideas.
  •     Initiate testing and quality assurance review based on local standards.
  •     Do you have a local logistics and distribution network? Who will sell your product and how will it get to them?

5.    Organizational Readiness
Cultural differences, whether it is language, regulations or customs, requires a firm to be flexible in the policies and procedures implemented in an international operation to ensure employees are engaged and executing on the company’s plans. The mindset of one-size fits all does bring short-term benefits but will have negative long-term effects.

  •     Evaluate the organization structure needed to successfully execute the company strategy.
  •     Develop policies and procedures and handbooks that comply with local requirements while maintaining balance with overall company policies.
  •     Develop competitive benefits programs to attract qualified local employees.
  •     Develop competitive compensation packages based on local standards and customs.
  •     Develop a local information technology infrastructure that is compatible with your domestic infrastructure.
  •     Manage payroll and human resource functions – again, a process that lends itself to outsourcing.

6.    Establish a Go-to-Market Strategy
The effective selling and marketing of your products and services requires a comprehensive and cohesive strategy that addresses sales strategy, sales delivery, branding/value proposition, marketing strategy, marketing programs, and pricing, which together create clear market differentiators that propel market acceptance and revenue growth.

  •     Determine your optimum sales model – direct, indirect, OEM, Distributor, hybrid?
  •     Determine sales methodology – solution, feature, consultative, price.
  •     Determine if a new brand will be created or use the parent brand.
  •     Develop a comprehensive marketing plan and KPI’s.
  •     Evaluate the pricing model – consumers in less developed countries are very price conscious and the product may not fit the local economic environment.

7.    Legal Readiness
Some countries are known for being litigious so critical that that strong legal processes are put in place to minimize unnecessary commercial risks. Also, government agencies have strict requirements that necessitates legal documentation be in place prior to operating within the country. Being proactive does require upfront money, but more than offsets downstream risks and liabilities.

  •     Create localized commercial agreements.
  •     Review industry specific regulations to ensure compliance and certifications, if needed, are obtained.
  •     Perform general corporate services such as dispute resolution, immigration, customs & shipping.
  •     Maintain corporate records and governance – again, an outsourced function might work well.

8.    Tax and Finance Readiness
The proper tax and finance infrastructures need to be set-up up-front to ensure that you are receiving timely reporting and that your foreign entity is adhering to local corporate policies and procedures.

In particular, the importance of getting the accounting processes and procedures right (including payroll) – according to TMF Group, a leading provider of outbound services, - seems a greater challenge than corporate governance, and is seen as time-consuming, expensive and difficult to change later if done incorrectly.

  •     Consider outsourcing accounting, payroll and tax.
  •     Establish local banking relationships.
  •     Develop a risk management plan.
  •     Develop a transfer pricing study.
  •     Develop a cash repatriation plan.
  •     Prepare and report sales and VAT taxes.

9.    Final Budget Preparation
Results from the above steps should provide sufficient data for stakeholders of the foreign company to develop a final budget that is aggressive yet attainable and one that will be owned by your local team.

  •     Develop a 3-year budget and a 12-month business plan with detailed key performance indicators - update every 6 months.
  •     Perform quarterly operating reviews.
  •     Establish a real-time )or at least weekly) budget to actual reporting with variance analysis.

10.    Establish close relationships with local businesses
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.

A strong competitive advantage is creating a supporting eco-system of complimentary products and services, which can come via 3rd party relationships. These relationships can support the scaling of the organization while minimizing the financial risk.

  •     Negotiate alliance/partner/distributorship programs.
  •     Develop an eco-system strategy and business model.
  •     Build an internal alliance team to manage and foster relationships.

Expanding your business overseas is not for the faint-hearted but for most businesses, it will be inevitable as global markets offer greater opportunities for growth. By paying attention to details and outsourcing administrative functions, the difficult job of “going global” can produce great results.

Michael Evans is the National Managing Partner for Newport Board Group

Dennis Day is the Head of Strategic Alliances at http://TMF Group.com [TMF Group __title__ TMF Group].

To download the full report referred to above ‘Taking the fear out of international expansion for US companies’ visit http://www.tmf-group.com/idcreport2014

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