When you’re expanding your business overseas, it’s important to fully understand the resources available to you. Nick Farmer, International Tax Partner at Menzies, specialises in helping SMEs to get established overseas, and shares some of his initial thoughts with you.
Undertaking sufficient market research can significantly reduce the cost and risk of expanding into a new market. There is usually no substitute for actually visiting the market concerned, but these days it is also possible to carry out online research to get an understanding of where to go and what to expect. This should help you to obtain key insights about potential markets so that you can better manage your resources, cash, time and skills, and help assess your route to market.
It is important to do as much as you can to understand the markets you are entering, and making assumptions about overseas markets can be risky. So what online tools are available to help you expand internationally?
The market identification process should help you determine where to expand internationally. It should be focused on understanding which marketplaces will be right for you and which foreign markets will be most profitable for your products and services. This is about being able to identify the attractiveness of an international market and building up a compelling reason to expand into it.
Country economic surveys can be insightful, as these usually cover a range of information such as economy, risk, regulation, business and industry. These are available from several sources, such as the Organisation for Economic Co-operation and Development (OECD) as well as The Economist Intelligence Unit (EIU) (although some of this is only available on subscription).
The World Trade Organisation also produces a wide range of publications on various trade-related issues. These include The World Trade Statistical Review that provides a detailed analysis of the latest developments in world trade, and The World Trade Report about trends in trade, trade policy issues and the multilateral trading system. There are also Trade Profiles that provide a series of key indicators on trade in goods and services for 196 economies, highlighting the major exports and imports for each economy as well as their main trading partners.
Analysis of the business environment
Having assessed the attractiveness of a market, it is necessary to start getting under the skin of that country. This analysis should look at factors such as the regulatory environment, trade barriers, culture and language. There are plenty of online resources available to assist with this cultural and commercial homework, and this can help you to make a successful market entry.
A good starting point here is the World Bank ease of doing business ranking. This highlights the regulatory environments across 190 countries, giving you a feel for how conducive each country is to starting and operating a local firm. Each country is analysed across 11 areas of the life of a business, including starting a business, paying taxes, trading across borders, enforcing contracts and labour market regulation.
Can you guess which country is top of the charts in the World Bank’s business rankings?
View a useful overview of the World Bank’s ease of doing business rankings.
HMRC’s website is also a useful source of information about overseas business risk; helping businesses to identify and mitigate security and political risks when trading overseas. The guide also provides information on potential risks including human rights issues, bribery and corruption, terrorism and criminal activity along with links to other useful resources.
Each country will also provide its own market information, so it is always useful to look at the local resources that are available. Local Chambers of Commerce, both in the UK and overseas, can be a useful source of information, as can governmental organisations. For example, if an SME wants to establish itself in the US, the government agency SelectUSA provides information, tools and connections that may be helpful. Another tool that I often use in relation to the US is the State Business Tax Climate Index as this provides a useful comparison of the business climate on a state-by-state basis so businesses can judge where might be best to locate and do business in the US.
Establishing operations overseas
Once you’ve carefully selected and analysed the market, setting up your business in another country will give rise to an assessment of various market entry strategies and operational models. It will be important to get to grips with realities such as banking, finance and foreign exchange, immigration and employment law, insurance, taxes, shipping and logistics. These will generally be fact specific so it is important to use specialist service providers in each of these areas, and we often put companies in touch with these professionals so that they are well supported and understand exactly what they need to do and the timelines involved.
It is also at this time that it is important to reach out to overseas advisers to get a deeper understanding of how to actually set up and do business in a particular economy. As part of an international network, HLB International, we have access to this level support, and this can really start to focus on specific issues to determine how the business will be organised, operated and managed in that country. On the HLB International website you will also find a range of useful publications aimed at directly helping clients doing business abroad such as a series of “Doing Business In” booklets, insight on current trends and issues, and regional and sector-specific information.
There are some online resources that may still be useful at this stage. For example, raising finance may be an issue, particularly if the business has no track record of trading internationally. While they are not free at the point of use, the UK Government’s export finance initiatives are a useful resource and can help business to secure the finance needed to fulfil their expansion plans. Additionally, it is worthwhile being aware of the range of options for how to how to send money overseas, and this is quite usefully summarised by the Money Advice Service.
Another issue that shouldn’t be overlooked is Intellectual Property (IP) rights, and as these are territorial, businesses should consider getting IP protection if they are looking to trade overseas. This is a complex area and a useful starting point can be the World Intellectual Property Organisation (WIPO) that provides a comprehensive source of data on intellectual property. This includes a knowledge section with reports, factual information and country profiles on IP. The government also provides some tailored IP information for key markets throughout the world.
On a more basic and practical note, problems can sometimes arise with co-ordinating between time zones, and having a go to time zone converter can also be a useful tool to help you stay in touch.
At the end of the day, there’s always going to be uncertainty when you expand overseas, but the more upfront research and groundwork you do, the better prepared you will be for when you finally set up in another country.
For more information on business tax and to find out more about establishing your business overseas, contact Menzies International Tax Partner Nick Farmer by phoning 01784 497153 or by emailing email@example.com.