In an uncertain economy and ever-changing business environment, businesses may be looking to expand internationally. If done thoughtfully and carefully, international expansion and/or relocation can help companies reach new markets, stay competitive, and offset risk by moving to an area with a more stable economic or political environment. Additionally, lower operating and overhead costs in other countries can save organizations money in the long run.
If your organization is considering an international expansion, here are three things to focus on:
Important financial considerations include taxes, exchange rates, transfer pricing, and risk management/hedging. The country of destination may have various taxes on imports and exports, different levels of revenue tax and government tax, and particular rules and regulations for tax compliance that need to be a part of the financial analysis. Transfer pricing is usually easier than it’s made out to be (read more here). Currency hedging is a risk mitigation tactic often used in international companies that should be included in the upfront analysis. An accounting system that can support currency translation, cash management, and inter-company transactions is a substantial investment, but could be the difference between a successful and unsuccessful international move.
Cultural differences can pose an issue when expanding internationally. There are obvious differences like language and customs. But in certain cultures, something seemingly simple, like the way you hand your business card to someone, can be seen as disrespectful if done the wrong way. Meeting etiquette, formalities, timeliness, etc. are all cultural aspects to be researched and respected. Finding middle ground between your company culture and the country’s culture can be an advantage in a strategic international move.
Reporting and accounting requirements vary by country based on standard accounting practices (GAAP versus IFRS). If local accounting practices differ significantly from the parent company’s, consolidation may be a difficult, lengthy process. Statutory reporting requirements also vary by country. The nature of statutory reporting usually depends on company size, and larger companies have additional statutory audit requirements that add an extra layer of complexity. Companies should also be in compliance with the Foreign Corrupt Practices Act, which can further determine the controls framework and structure.
International expansion is becoming increasingly common. How international expansion affects the bottom line is often the only thing executives focus on, but there’s much more to consider to ensure success. The financial, cultural, and political implications are crucial pieces of the process that can make or break the move.