There is a wealth of opportunities for businesses that have plans to do business internationally. Many countries encourage inward investment and the UK Government invest significant resource and effort into helping UK companies to export and trade across international markets.

Preparing to expand into a foreign country can be incredibly daunting, no matter what the size of business. Often business owners struggle to get the support they need from the Government and other trade bodies. Many business owners still don’t realise that having a great accountant with international links across the world, can be vital to give you the support you need to launch into new markets.

In this blog, we look at key issues that UK businesses should consider before venturing into overseas markets and considering global expansion.

What are the benefits of expanding internationally?

There can be many reasons and benefits to UK businesses to look to expand globally. Benefits of international growth can be:

• Access to new markets.
• Growth opportunities.
• Revenue potential.
• Competitive advantage.
• Added resilience.
• Minimise risk.
• Boost innovation.
• Tax benefits.
• Cost effective production.
• Creation of a global customer base.
• Access to an international talent pool.

How to select the right international expansion opportunities

Business leaders must invest time and resource into exploring the viability of global markets before they expand internationally. Size of market, trade tariffs, barriers to entry, market fit, and potential launch strategies must all be carefully considered.

Whilst it makes sense to carefully map out your global expansion strategy, some businesses will naturally begin to get enquiries from abroad via their websites and you may begin trading or exporting in a small way. However, don’t be tempted to launch into a foreign market or accept or target new customers wherever they may be found. You need to be choosy, do your homework and seek advice.

Whilst you may feel diversification will reduce risk, it can also diffuse your focus and may mean you end up trading in markets that are less profitable. If you do begin to get a lot of enquiries from a particular country, then it’s worthwhile beginning to think about whether you want to invest more heavily in that market for example, by widening your distribution network, looking for local distributors or local premises.

International market research

Often business owners can identify territories where their business may have potential but may struggle in knowing where to start when it comes to trading there.

Identifying the right market will entail detailed market research to understand which countries may offer the best opportunity for your business.

One of the biggest risks is not having sufficient market intelligence to know the size of the potential market, competitors market share or if your product or service will succeed. You need a good understanding of the local market. This can be done by using local contacts to prepare a detailed market analysis or use online resources.

Overseas trade shows can also be a great way to gain market knowledge and build contacts. The Department for Business and Trade offers help to British SMEs that want to attend or exhibit at overseas trade shows.

Decide your structure

Planning is crucial when expanding abroad. You should begin by determining what the structure of your international trading is going to be. Are you going to open a branch? Or set up a new company? Or acquire a company? Or trade online? Or manufacture abroad or import from the UK?

The set-up options can be vast, and each has its own advantages and disadvantages.  These advantages and disadvantages also vary hugely from country to country and from one industry to another. There isn’t one rule for international trade, there are different rules and regulations for each country.

Building the right team to support your global business

One of the most important requirements for any business expanding outside its own jurisdiction is selecting the people they are going to work with.

There is no substitute for either you or another of your team spending time in the country you are considering launching into. Establishing local links to get your business set up is paramount. This is because it will be fundamental to have people who understand the local business environment, local customs, the opportunities and markets in the country, local regulations and taxation and the way business is generally conducted. All these things can differ greatly to here in the UK.

Look for local partners who know all about your chosen market and industry. They can help you to understand different language and cultural differences and help you to understand things like purchasing habits. A local partner can advise you on how to customise your offering to better suit the local market.

With many industries, a high percentage of business is built on relationships, so having someone local in the area that already has the types of contacts you need, can also be valuable to kick start your business within that country.

Using experienced partners both here in the UK and the country or countries you are looking to expand into is crucial. For example, working with both a UK accountant and an accountant that is familiar with local tax and accountancy legislation is crucial. Here at Barnes Roffe, we are members of international networks that give our clients access to people we know and trust in countries all over the world for both local accounting and legal advice. There is no substitute for professional advice from people with the right networks across the globe and international experience.

It may be worth considering banking with a financial institution that operate both here in the UK and in the chosen country you are expanding to. Not only can you profit from their experience, but the bank may be able to do some more due diligence and offer you advice about the local business environment. They may also be able to secure you funding for your expansion.

Financing your expansion abroad

You need to prepare for funding your expansion and this will require a fully thought-out business plan, that contains forecasts and a clear indication of your expansion plans. Your business finances will need to be strong to support any type of overseas expansion. Often businesses will look an export loan to finance the expansion, but you also need to factor in demands on cash flow, foreign exchange complexity and longer payment terms.

Many businesses struggle to launch and succeed in other countries is because they are trading on normal cash flows and don’t exploit some of the foreign trade instruments that are available to them. If you are fulfilling large orders, then it may be difficult to get any sort of payment up front, so you may need something like a letter of credit, however, these can often take a long time to draw up.

Often businesses expect payments to arrive in the time they do in the UK, but many countries have very different payment terms to the UK, so don’t expect payment in 30 days. Getting paid on time and quality of goods could be covered by a documentary credit.

Things like overdrafts, although more common in the UK may not exist in many other countries around the world. Simple things here like opening a bank account overseas can be a lot harder abroad. There may be rules in place where you can’t form a company without a bank account. There will be due diligence involved in being able to open a bank account in another country, so you must allow time for this.

One stream of financial support worth considering is the government’s export credit agency, UK Export Finance, which seeks to ensure finance is available for UK businesses looking to export.

Again, work with your bank and your accountants to advise you on cash flow, payments, foreign exchange and finance for your venture.

Get you paperwork in order

It’s vitally important when expanding globally, that your documentation and paperwork are in order. Having people in the country you are expanding into will enable you to get a detailed insight into customs regulations, export documentation, local accounting and tax regulations and leal paperwork required to set up a company abroad.

Mistakes made by companies launching into countries outside of the UK

For a business that may have never traded abroad before, it is all too easy to get excited about your first foreign sale, but this can lead to mistakes being made. This can be as simple as staring to trade without truly understanding the market, its regulations, its customs and culture.

Here are just some of the mistakes and pitfalls that companies fall into when expanding overseas:

• Not planning strategically.
• Not doing enough research.
• Underestimating the challenges that physical distance can bring.
• Not utilising local experts and workforce.
• Expanding into too many markets all at once.
• Not seeking help and advice from experts.
• Not understanding local customs and culture.
• Lack of communication and management.
• Being too rigid in their approach and not adapting.
• Overlooking accounting and international tax regulations.

Summary

There is no doubt, that targeting new markets and expanding internationally will put demands on you and your business. However, it is worth taking the time to research the market thoroughly and not just jump in because a new market looks attractive on the surface.

Entering foreign markets can be expensive and time consuming and can present legal and cultural challenges. If you don’t do the right due diligence and planning before launching, you could spend time and money for little reward. But get it right and the opportunities open to you and your business could be endless.

While Europe and the US have traditionally been the primary targets of UK companies when exporting, there are also some great opportunities in other emerging markets such as India, Japan, Brazil and China.

There is a huge amount of support out there for business owners looking to enter new overseas markets and do business abroad. Help can be sought from places like the UK Government, CBI, British Chambers of Commerce, banks and accountants such as Barnes Roffe who have access to international networks of known specialists across the globe.

How Barnes Roffe can help

Barnes Roffe are here to offer help and advice when expanding your business internationally. To ensure you best advice around the world, Barnes Roffe are members of International Practice Group and IR Global. We can introduce and recommend overseas experts and support in key markets through people we know and trust via our international networks.