I talked in the previous section about how the development of management systems, infrastructure and processes which were built on upon the fundamental mission and values of the company were essential before international or geographical expansion should be considered.
The next point to ask yourself is why do you want to do it? Have you completely exhausted your home market? Do your customers, who may themselves be international, require you to expand? Do you like travelling to exotic places and this seems like a good opportunity to do it on the company’s expense? Clearly, the reasons for the company to expand overseas need to be correct and built on sound business and financial logic.
In our businesses, we expanded internationally in Norway, Middle East, Far East and North America and Australia. Some ventures were very profitable others consumed huge amounts of cash and brought risks to parent company. So what are some of the things to consider with respect to international expansion: –
- Do it for the right reasons.
- Send the right person or team with the correct incentive package to succeed.
- Assume that things will take twice as long as your most conservative estimates
- Don’t take currency risks, buy forward.
- Costs can be higher and margins can be lower, make sure it doesn’t affect your overall performance ratios too much.
- Find a good local partner, whose business is complementary and whose knowledge of the local area will be far greater than yours.
- Be prepared to joint venture with the correct partner.
- Set up clearly defined agreements between the parent company and the local company in terms of internal transfer pricing, management fees etc.
- Ensure that your accountant has local representation and from day one make sure that you have the foreign taxation situation sorted out.
Finally and above all learn about, understand and respect the local traditions and ways of doing business. With the right product or service you can get a tremendous response from a foreign market.