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Long Distance Calling

For small and midsize businesses, expanding overseas can lead into unfamiliar — and sometimes unfriendly — terrain.

“All politics is local,” former Speaker of the U.S. House Tip O’Neill famously said. As it turns out, so is a lot of business.

The key to successful international expansion, after all, is to get the help your company needs to fill the gaps in its expertise. And —especially if you’re a small or midsize business — those advisers must be both knowledgeable and trustworthy.

That’s one of the main conclusions that emerges from CFO Research’s recent report, “Pushing the Boundaries of Business Overseas,” published in collaboration with High Street Partners, an international business software and services firm. (Download the full report.)

The report is based on an online survey of 161 finance and other senior executives at U.S. companies with annual revenues of between $50 million and $1 billion, all of which have either experience with or an interest in pursuing non-U.S. business. Among survey respondents, 89 percent are already conducting business outside of the United States, and the rest described themselves as “likely to do so” within the next five years.

For one CFO of a professional services firm, the best way to get started overseas is to “pick one country and get someone on the ground that you trust,” as he wrote in the survey. Partners with local knowledge, echoed the controller of another professional services firm, “can help us navigate our way to success.”

13Sept_FieldNotes_p56bSuch advisers can offer invaluable guidance, providing insights into government regulation, for example, or clarifying customer requirements. More broadly, they can save inexperienced companies from succumbing to frustration. “We would have to take a hard look before engaging with any Japanese customers in the future,” said the CFO of an aerospace/defense firm. “Japanese customers have been extremely difficult to work with.” The alternative may mean having to “learn the hard way,” as the VP of finance at a manufacturing firm put it.

For the most part, these companies aren’t scouring the globe in search of lower labor costs. In fact, three-quarters of respondents said that their primary business objective for international expansion is to increase revenues or gain customers. Given the sluggish pace of the U.S. economic revival, it’s perhaps not surprising that SMBs are turning their gaze toward other markets, hoping to diversify their mix of customers.

The survey respondents aren’t seeking to plant their corporate flags in utterly untested terrain. Nearly 75 percent of executives rated entering new markets in developed economies as “moderately important,” “important” or “critical” for their companies. By contrast, 57 percent saw entering new markets in emerging economies as at least “moderately important,” indicating that respondents prefer to do business in developed countries where they can establish themselves more quickly, and with a smaller investment and potentially less risk (see chart, “A Developed Preference,” above).

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