Businesses continue to face challenges, such as supply shortages, rising interest rates and increasing costs. However, according to the HLB’s Survey of Business Leaders 2023, 79 per cent of business leaders are continuing to plan for growth. Some have found that expansion is not a realistic option and so are looking to achieve growth by trading overseas.
As the UK continues to suffer from stagnant growth and insufficient staffing, expanding overseas is one viable option to ensure a business’s success. Expanding a business abroad has never been easier, even with the changes brought in by Brexit. Nevertheless, it is vitally important that any proposed growth of a business overseas is conducted from a place of knowledge, understanding and awareness, of the processes and risks involved to ensure adequate expansion overseas.
Why a risk/reward analysis is important
A risk/reward analysis is recommended prior to making a move abroad as this analysis should demonstrate that the business has the right financial plan in place, identified its target market, has conducted competitor analysis, and has established its KPIs and milestone targets to increase its chances of success overseas. This will look a little different for each business.
A company that wants to introduce a product in a foreign market may need to establish operations there. This includes understanding wider costs to the business, such as:
- Factory, warehouse, and retail space
- Supply chain
On the other hand, a company looking to market an app or deliver a software-based service may not have the same concerns in terms of initial investment, potentially only requiring one salesperson to work remotely or from a shared office location. Such businesses can ‘trial’ the new territory to determine the overseas market’s response, something that retailers and businesses looking to set up factories or manufacturing plants are simply unable to do.
These differences demonstrate how vital it is for business leaders to create a strategy that is based on thorough research to increase their chances of success. For example, what works well for their product in the UK may not translate so favourably abroad or is guaranteed success in other territories. That is why it is essential for a business to spend time in their target country to gain an understanding of the market, its culture, and preferences. Trade missions can assist a company to do this whilst also providing resources and networking opportunities with businesses that have travelled a similar path. Additionally, there could be opportunities to meet and interact with relevant delegations from the target country.
What businesses should be aware of when expanding overseas
Conduct due diligence when planning
It is important to take care and conduct due diligence when planning to enter an overseas market for the first time. It can often be tempting for businesses to view Europe as one big block rather than a series of individual countries. However, each country operates from a different rulebook when it comes to tax and employment law. Similarly, in the US, both state and federal tax systems must be understood and adhered to.
Be aware of varying tax arrangements
Businesses looking to expand into multiple overseas territories at once should be aware that tax arrangements will vary across jurisdictions. Also, multiple registrations may be required for necessities, such as VAT. Therefore, it is crucial that a company seeks support from advisers who reside in and conduct business within the target country, since a team entirely based in the UK is unlikely to be familiar with all the specifics and nuances of how systems work in practice.
Business owners should also consider the business model that they wish to adopt, as it will have consequences for the planned overseas expansion. For example, they could choose to operate a ‘cost plus’ model, where the overseas business will be operating as a sales and marketing or customer support function. The intention here would be to promote the UK business’ product rather than make direct sales, allowing the overseas business to invoice the UK entity for this service.
Alternatively, business owners might pursue a ‘reseller’ model, in which a product or software is obtained from the UK and sold overseas. In this case, the UK entity will need to agree a fair and equitable price for the sale of the product or software to the overseas business to ensure that both countries can make a profit.
It’s natural for businesses to feel overwhelmed or at a loss when planning an overseas expansion. However, it’s advised that the following key factors are kept in mind from the outset:
- Selecting the target country
- Understanding its market
- Identifying key personnel to help run operations, including existing workforce and new hires
Resilience is the key to achieving a successful overseas expansion. This involves a willingness to conduct thorough research and the strength and determination to try again if at first the business doesn’t get the desired outcome. It is important for all business leaders to use any failures as a learning experience to grow their capability. By giving the expansion clear goals and KPI stepping-stones, success will be simple to measure and potential problems easier to spot. With dedication and perseverance, international expansion could take UK businesses to the next level.
To discuss your overseas strategy, please get in contact with Andrew Mosby, or contact us via the form below: