In today’s increasingly global economy, many U.S.-based companies are exploring opportunities to sell their goods and services beyond their native shores. The reasons are varied, including slow domestic growth and burgeoning international demand.
While there are some inherent risks regarding international expansion — not the least of which are unstable political and monetary conditions — many U.S. firms continue to strive to build a global presence.
International markets will certainly be impacted by the incoming Trump administration, although to what extent remains unclear. While as a candidate he vowed to renegotiate trade deals, for example, he must collaborate with Congress to carry out those initiatives.
Recent data indicates a steady move toward globalization. According to S&P Dow Jones Indices, S&P 500 companies attributed just 52.2 percent of their revenue to U.S. sales in 2014 — the most recent figures available — reflecting a continuing trend toward companies adopting an international approach to business growth.
Key Questions for CFOs Leading Overseas Growth
Finance chiefs need to carefully consider a number of important issues as they build the business case for international expansion. The most essential questions revolve around the desired market and the timing of the expansion, experts noted.
“One of the most overlooked issues that should be discussed early and often is, ‘Why are we going there?’” said Sean King, President and Managing Director of Align Global Consulting, a consulting firm focused on globalization strategies.
The stability of the country’s currency and political climate also merit vigilant scrutiny, according to experts. “From a financial as well as legal and tax standpoint, you want to examine the stability of the foreign exchange as well as the government,” said Michael Dwyer, Regional Head of Financial Markets Sales, ING Americas.
Other essential issues to explore before taking the plunge of international expansion include compliance with local regulations and evolving international market demands.
Global Expansion Requires an Expanded Skill Set
Global expansion requires a specific set of skills, and it can be challenging for companies that have not operated beyond their local markets to successfully navigate an unfamiliar financial and political environment.
Due to the complexities of global expansion, many CFOs are working with third parties to build their businesses overseas. “From a legal, payroll processing, and human capital perspective, there are certainly aspects of global expansion that may be new to the CFO,” according to Bernadine Bacon-Irwin, CFO, The Avascent Group, a strategy and management consulting firm.
Familiarity with local regulations and business practices can help overcome some of the inevitable bumps in overseas expansion. “You really need legal compliance experts on the ground who know the market inside and out and understand the potential rules in a dynamic environment,” added Michael Baudo, Head of Financial Markets, Americas, ING.
CFOs should seek financial partners with the ability to collaborate on strategies such as long-term structured export financing to help mitigate risk and structure companies’ investments to bolster liquidity.
Another working capital concern regarding funding overseas expansion involves trade receivables. Trade receivables financing is scalable to finance trade growth and can help to improve cash flow. When used as a risk management and balance sheet optimization tool, trade receivables financing can be an attractive source of non-recourse funding for ongoing cash management needs.
Bacon-Irwin concluded that CFOs need to take a long-term view when it comes to assessing the success of their international expansion efforts. “I don’t think companies should look at it in terms of one year or one project. The goal should be growing relationships overall, and building new relationships in the region to position the company for steady, measured success.”
For an additional resource on global expansion for CFOs, click on ingwb.com/Americas to download the eBook “A CFO’s Guide to Expansion Through International Growth.”
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