If you want to grow your company internationally, how do you do this in order to minimise the risks and maximise your chances of success?
1. Market insights
Expanding into any new market requires research – you need to gain an insight into how the market operates and what the market wants. Researching an overseas market is a greater challenge than the domestic market, but there are plenty of resources available to you to help (we’ve listed some below), many of which are free.
2. Exploit the ‘been there, done that’ factor
Use your contacts, others who have been there and done it, and learn from their lessons.
3. Make use of government resources
The UKTI and the British embassies and consulates when you are in overseas territories are invaluable sources of information and contacts.
4. Find relevant support organisations
Many other business organisations have units dedicated to helping businesses to export or invest overseas: the Chambers of Commerce, Trade Associations, the CBI, and many others are all worth approaching for advice.
5. Seek professional advice
Don’t forget your own professional advisers, who should also be able to introduce you to their overseas affiliates to help you understand the local environment and maybe introduce you to relevant contacts.
6. Set up good aftercare
The most often heard question about potential business partners or customers is ‘How do I know I can trust them?’ Do your due diligence, making use of the contacts above, and maybe also instructing specialist agencies to make enquiries. Think carefully about how you will manage the business after agreements are signed. Will you have any of your own people on the ground? How often will senior management visit? Are all parties clear on the reporting lines, performance requirements, responsibilities? Who will be authorised to sign cheques and move monies?
7. Stick to what you’re good at
If you aren’t a foreign exchange dealer, talk with your bankers about your overseas investment or trading plans. Foreign exchange volatility is a fact of business life, and a risk that needs careful managing. For an investment, look to raise finance in the same currency if possible, or consider how to put in place an effective hedge against possible fluctuations.
8. Check your tax position
Depending on the jurisdictions, you may find you can’t get tax relief for losses on foreign exchange, or you may be taxed on gains which you won’t have recognised. There may be restrictions on how much you can finance by way of loans rather than equity capital.
9. Banking facilities
If you are trading overseas, consult your bankers about what facilities might be available. Apart from the exposure to exchange rate risk, you might not want to provide open account facilities to new customers, especially where there are difficulties in ascertaining reliable credit risk information, or where the local legal environment does not seem to support contractual rights as strongly as you might wish. So letters of credit – and there are many differing types – or other trade financing instruments may provide a solution.
10. And finally…In short, take advice. It is cheaper than writing off a bad debt on your first shipment, or abandoning your joint venture investment.
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This post is an edited extract from Grant Thornton’s 2010 report on Financing your strategy.
Image: © Kevin Poh