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Thinking and acting global: the challenges of international expansion


The BDO Thames Valley Business Barometer featured in last month’s magazine focused on reporting how the local market is responding to continued economic uncertainty. You may recall that one of the key findings was that 'Thames Valley businesses were significantly more likely to seek opportunities in global markets….' So, this month we share some of the key findings of a recent BDO global survey into how firms are meeting the challenges of international expansion, writes Ashley Carter, director, BDO LLP


The direction of flow and motivation for international business is by no means uniform. Many manufacturers reported shortening their supply chains after the shocks of the tsunami in Japan and flooding of vast areas of mainland Asia. Meanwhile retailers, heartened by the global appeal of UK luxury brands and the flight from the UK high street, are looking literally to the four corners of the world to find new markets.


Two key themes were however reported consistently across all sectors and all geographies.


Firstly the accelerating freedom brought by information technology (IT), particularly the internet, cloud computing and the ever increasing sophistication of Enterprise Resource Planning (ERP) systems. These technologies appeal irrespective of whether cost reduction or rapid expansion is the strategic driver.


Secondly the decelerating burden of regulation, everything from the red tape associated with forming a new company to the ever changing tax regimes that are different in every jurisdiction. Sometimes even basic bookkeeping must be performed onshore even if there is a global ERP system somewhere in 'the cloud'.


Despite being opposing forces, the result for most business is rarely steady state, it all depends on the business imperative. Not surprisingly almost all respondents reported cost reduction as a key, if not dominant, driver. Reaching new markets ahead of the competition, risk reduction, cost control and simplification were all reported as significant.


Where cost was reported as the dominant strategic factor, IT is the vital enabler. Inconsistent processes can be harmonised and inefficient sub-scale operations can be brought together into shared service centres. Less than 20% of multi-nationals reported their operational structure as “fully mature” whilst more than 50% reported continued investment in centralised facilities for support activities such HR, IT and finance. Not all were headed far offshore or into third-party outsourcing agreements. For some, Northern Ireland brings sufficient benefits of a readily


THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2012


available, skilled and affordable workforce – in contrast to the vibrant economies in Asia that are becoming victims of their own success with skill shortages and spiraling salaries undermining cost savings. Yet this suction of centralisation has a side effect of stripping local expertise in local regulation, leaving firms vulnerable to the consequences of breaking a rule which has changed without being noticed.


Where rapid expansion was reported as the dominant factor, IT – along with the availability of cash/credit – and an efficient back-office structure both registered high as essential pre-requisites. The critical benefit most sought was the freedom to focus purely on core activities, be that sales, product development or manufacturing without worrying about the drag effect of setting up finance and HR infrastructure.


It


is a nirvana, but one that all bar the most foolhardy realised must be tempered by an accurate understanding of the nuances in local regulations, lest the newly awarded trading license is suddenly withdrawn just because a tax return was a little late or incomplete.


It seems that both cost reduction and global expansion exacerbate the risk of non-compliance with local regulation. The majority of respondents reported that they were not happy with their global compliance organisation. Over 25% feel they have lost control and want to bring everything in-house; yet another 25% realised that in-house is no longer feasible because activities are too sophisticated, too localised or not a full-time job for any one employee; and more than 10% feel overburdened not by the regulation but by the effort of managing multiple outsourced providers.


The most commonly reported concern of all turned out to be lack of visibility and lack of control. Despite IT bringing huge benefits to the main support functions of HR, IT and finance – the compliance function appears to be a generation behind.


So no matter what your motivation and direction of travel across the global market place, it is clear from the BDO global survey that the majority of firms realise that they


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struggle to attract sufficient investment or expertise to deliver the visibility and control required to demonstrate that a business is complying and managing risk appropriately.


If you would like to learn more about the challenges and the way businesses are responding contact the author or visit the website – details below.


Ashley Carter is a director in BDO’s global outsourcing team. He is based in Reading where over 50 staff focus exclusively on controlling finance, accounting, compliance and IT outsourcing operations in 145 countries. Carter is a chartered engineer with an MBA from Henley Management College. The global outsourcing team won the European Outsourcing Association - Outsourcing Service Provider of the Year 2012.


Details: Ashley Carter ashley.carter@bdo.co.uk 0118-9527315 www.bdointernational.com/outsourcing


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