The global economy is a serious opportunity and challenge for high-growth UK businesses. Whether you're already exporting or just considering it, Steve Purdy identifies four key areas that will help control expansion risks.
Conducting business is becoming increasingly more global as technology, mobility and revenue opportunities in emerging markets are tempting enterprises to expand into new markets in order to reach new customers.
While the world continues to face well-documented economic challenges, from austerity measures in Europe, to the sluggish recovery in the US, and from inflation concerns in Asia to geopolitical instability in the Middle East, going global can deliver a new avenue for prosperity – despite the current climate.
In fact, international trade growth is expected to accelerate from 2014, according to HSBC’s global connections trade forecast. The study asserts businesses with an international presence will recover from the global downturn more rapidly.
In the UK, the government’s business and enterprise minister Michael Fallon recently stated that “targeting new export markets” is one of the top three issues facing the crucial medium-sized business sector.
World trade is predicted to grow by 86 percent in the next 15 years, HSBC forecasters predict as global markets boost their demand for traded goods.
As businesses look to increase profit margins by pursuing new opportunities, reducing the costs associated with doing business globally can be achieved when an organisation takes the time to audit certain processes and considers replacing one approach for a more cost-effective one.
Based on our global experience working with businesses from start-ups to fortune 500s, the cost of doing business internationally can be decreased thanks, in part, to a concerted effort by businesses and governments to develop a more robust and stronger global business community.
The global economy presents immense opportunities for investment and commerce. Evaluating the four key business areas below will present cost-effective options that will help control expansion costs.
1. Market Presence
Once considered a logistical and financial obstacle, having a presence in a new market has never been easier and more cost-effective.
Selecting a new market for a business operation requires balanced consideration of many factors, including personnel, business costs, legal and regulatory concerns. Facility costs represent the second largest cost factor for a business looking to expand. Long term agreements in foreign markets could pose unnecessary financial risks for businesses.
One way businesses are trimming their facilities costs by up to 60 percent is by assuming a more flexible approach to their facility needs. With no upfront capital, a business can establish an immediate presence in any market by setting up a virtual office (VO). While companies want to have a global presence, it’s important they have a local feel. A VO provides companies a local address in prestigious buildings where mail can be sent and a phone number answered in the native language. Office space and meeting rooms can be purchased on an as-needed basis, giving a business that true local feel with minimal overhead.
2. Technology Tears Down Prices and Borders
“New technology underpins regulatory best practice around the world,” said Janamirtra Devan, vice president for financial and private sector development for the world bank group. As emerging markets improve their technological infrastructure they are increasingly becoming revenue opportunity markets for the global business community.
Because of technology, anyone with a good idea or product can now introduce it to a global audience quickly and for little capital investment. The Internet has dramatically compressed the time it takes to send and receive information. Transactions and interactions take place instantly and anywhere.
Social networking and social media has created an online community of product ambassadors that can help publicise a product and streamline marketing expenses.
Now that a business has a worldwide audience, the cost of doing business globally can quickly add up, especially with international travel. Luckily, technology has enabled high quality online meetings in lieu of face-to-face meetings. Using videoconferencing and HD telepresence services has greatly reduced the costs of managing a distributed workforce.It also provides an affordable way to keep in regular contact with clients and partners.
3. Labour Costs
In addition to a local market presence and a strong technology platform, another key driver fuelling globalisation is the top-tier talent pool that can be found in developed and emerging markets. As a result of technology and mobility, work is no longer a fixed place where individuals travel to each day. Given the high cost of corporate real estate enterprises are investing in global talent instead of office space. A flexible work strategy, which gives workers access to a professional workplace when needed has been shown to increase productivity and work-life balance.
By structuring a workforce based on skills, and not geography, businesses have been able to shrink personnel costs over the years. Long-term labour costs and favourable business conditions outside of a business’ borders will help drive the global economy.
4. Ease of Doing Business
A recent world bank report found that more countries implemented business reforms from 2010 – 2012 to make it easier for overseas firms to trade with them. The report noted that governments in 125 countries out of 183 evaluated in the study implemented a total of 245 business regulatory reforms – up 13 percent from the previous year. Emerging markets in Africa and Asia showed particular improvement in terms of business regulations, construction permits and easing the administrative burden of tax compliance.
Being able to deal with the local legal and regulatory red tape should be top priority when a business is looking to expand into a particular market. Investors are looking for transparent and predictable legal and regulatory rules that are conducive for businesses. Reductions in corporate income tax for certain markets has helped increase their ability to attract businesses from foreign countries. Trade agreements that improve new exporting opportunities will reshape the global economy.
With the right focus and commitment, businesses can succeed in the global marketplace. Businesses need to manage supply chains and do business with the best trading partners, regardless of where they are located in the world.
Too often a business assesses its opportunity in a foreign market solely based on potential sales. Ignoring the costs and risks of entering a new market must be equally evaluated before a business moves forward. While there are inherent challenges with global expansion, with proper planning, the wide array of opportunities can certainly yield positive results.
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