For many of today's companies, going global seems like a quick and trouble-free growth strategy. Technological advances and expansive supply chains make doing so easier than ever. But if you make this move impetuously, you may soon find yourself on stormy seas, taking on waves of debt and unanticipated expenses.
Chart your course carefully
Globalization strategies are typically based on two objectives:
- Selling to a new market overseas and/or
- lowering production or administrative costs with foreign supply chain partners
If you plan to sell foreign business or consumers, consider conducting a market feasibility study in key target areas to gauge demand on a smaller scale. Also, learn regulations, customs, and tax rules to determine whether you can truly turn a profit. Through our affiliation with Geneva Group International, an international networking group of consultants and advisors, we are able to help clients exploring this option by connecting them with local accounting and law firms in the areas they're considering.
If minimizing production or administrative expenses is your aim, watch out for hidden costs. Examples may include:
- Inferior materials quality
- Lower productivity rates and high employee turnover
- Shipping delays and hidden tariffs
- Foreign currency fluctuations
- Intellectual property theft
- Fraud, data privacy violations, and other unethical behaviors
- Reduced goodwill from negative customer experiences
In addition, labor materials, and taxes may initially seem cheaper in a foreign country, but wages in some countries, such as China or India, are rising - and the pool of skilled workers may be limited overseas, especially in high-tech industries.
Prepare your crew
You may be ready to go global, but is your team? Unexpected red tape can abound. For example, accounting for foreign subsidiaries requires an understanding of International Financial Reporting Standards (IFRS) and complex transfer tax issues that may be beyond the capabilities if in-house accounting personnel.
Prepare your business and your staff by:
- Developing local contacts to facilitate your business outside the U.S.
- Identifying and researching the specific countries where you seek to conduct business
- Understanding the tax consequences of doing business abroad