central south mid market report CENTRAL SOUTH MID MARKET


OPPORTUNITY SEIZING THE


BEYOND EUROPE EAST OR WEST: WHICH IS BEST?


Facing unprecedented uncertainty, many of the boundaries that govern the way companies do business in the UK and globally are changing or disappearing. But that shouldn’t stop you looking further afield. BDO’s Kim Hayward and Arbinder Chatwal investigate the opportunities


You’re at a cocktail party for the business world. Being British, you’re eyeing the room slightly warily over your glass. Over by the buffet is India, smiling warmly. You wonder, frankly, why, given the British Empire’s ignoble history with her – but as you chat India is, as ever, warm and helpful.


China is leaning on the far wall, with a plate of food. Does China want to chat? You can’t be sure. China is always hard to read. Most of the European countries are eyeing you with dislike right now but then America arrives, slapping your back and talking sport and bragging rights.


Canada wanders in behind, giving you a quiet salute and an eye-roll, because you both know what America can be like.


And on the steps outside, Mexico, Brazil and Argentina are having a lively skirmish. They probably won’t even come in.


Where should you be expanding your business? Having supported many ambitious mid-sized businesses in new markets, here’s our take on the East v West debate.


WEST – IS IT REALLY BEST?


BDO works with the Mayor’s International Business Programme which has signed up 200 of London’s fast growing technology companies in the past year. We expected a 50-50 split of interest between the US and India, China and the Far East – but about 90% want to go to the USA. Why?


1. We have history. The UK-US trading corridor is over 100 years old, pre- dating WWII and the majority of eastern trade relationships, other than the Commonwealth. Trade between the UK and the US is huge.


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2. We speak the same language, for the most part!


3. Setting up a business – and closing down a business and firing people – is incredibly easy in the US, compared to Europe.


But the US is also incredibly challenging, because:


1. It’s big. Geographically it’s huge. Travelling south to north in California takes nine hours. Where to base yourself is a crucial decision. East coast is closer, but West coast may have the market or suppliers you need. Getting it wrong can cost dearly.


2. Tax is a nightmare, varying wildly from state to state – and then there’s another federal level to wrangle.


3. At best, the new administration suggests the country is becoming worryingly inward-looking.


EAST – FAMINE OR FEAST?


The uptake in the past 12 months with companies engaging with BDO’s China and India advisory teams has been really strong. It’s definitely getting more attractive. Why?


1. India’s new government has done much to stamp out bribery and corruption over the past three years. New policies and procedures have opened up many new sectors and investment is coming in.


2. China is investing in support and manufacturing, bringing more certainty to those markets.


3. Many supply chains already exist in the east.


But here are the challenges:


1. Cultural and language barriers mean building a local team, navigating the laws and tax and safeguarding investment will be extra challenging.


2. Stability. China is still seriously communist. The government can make one decision and the whole country obeys. While it is changing, there is limited democracy and that introduces a risk.


3. Fear of bribery and corruption.


KEY LEARNING POINTS


• Local knowledge. Businesses try to import a copy and paste mentality, assuming what worked in the UK will work in India or China. That’s just not the case. You need someone local on the ground, not just a visiting director or short-term ex-pat from your office.


• Geography. Not just distances but cultural geography can thwart you. An automotive business set up in Delhi, got it wrong and had to close down and set up again in South India.


• Tax. It’s complicated, different to here, and getting it wrong can cost you dearly.


• Bribery and corruption is an issue everywhere. Even with ethical business practices, you will still encounter it.


THE BUSINESS MAGAZINE – SOLENT & SOUTH COAST – MARCH/APRIL 2017


BRAVE


INNOVATIVE


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