BDO: 15 areas to consider when expanding overseas
While the economy looks to be stabilising, many professional services firms are looking for opportunities to expand their business overseas. Any firm hoping to successfully expand, should, according to BDO, consider 15 key areas before committing to an overseas expansion strategy.
With experts saying the world is moving back to financial stability, many firms are reviewing their business priorities and, for many, this means seeking to exploit the opportunities available in thriving overseas markets. For many UK professional services firms, international expansion is a key strategic priority.
To successfully expand abroad, a great deal of thought needs to go into understanding the key drivers and the underlying rationale before committing to such a strategy. In its recently released ‘International expansion for professional services firms’ report BDO explores the key areas that firms must consider before making the decision to expand overseas.
Consultancy.uk provides a brief summary of the 15 key areas as defined by BDO:
Rationale
A business planning to expand overseas must have a clear idea of what it hopes to achieve to ensure stakeholders understand the strategic reason and what this can mean for them in the short and longer term.
Structure!
Once the decision is made to establish a presence overseas, the firm needs to consider which structure of entity to use, with each structure coming with a variety of consequences, including employee/partner status, taxation and public filing requirements. One option is to merge or acquire an existing firm.
Funding
Any business planning to expand should have the ability to fund the expansion. An initial capital to establish the operations will be needed, as well as working capital once the business starts to grow.
Culture
Businesses should be aware of country cultural differences as well as of specific cultures within teams overseas. Expanding via a merger or acquisition will result in combining established cultures.
Cross border profit sharing
For professional service firms structured as a partnership, a clear of strategy concerning cross border profit sharing is essential in terms of communication with the partners so that expectations are managed for the longer term benefit of the business and the partners personally.
Reward
When expanding, a business should have to decide on its reward strategy. Different options are possible all of which with significant personal tax and corporate tax implications.
Gaining permission to expand
Gaining permission is critical and varies for different entities. Corporate entities may need approval from their shareholders, LLPs and partnerships need permission from their members and partners.
Talent mobility
For some businesses expanding overseas means moving domestic talent as well. This could bring immediate awareness of the domestic firms’ policies and practices in the new location as well as assist in culture transfer in order to bring alignment to the way work is undertaken.
Taxation
Considering the tax impact is also important. Not just in terms of the administration of the tax affairs, but also the interaction of various taxes on each other and the resulting consequences.
Currencies
When operating overseas, businesses will be become exposed to currency fluctuations which can impact reported earnings and cash flows.
Setting up
Once a business has decided to set up in new territories, it is essential to get good advice from local advisors as an understanding of the local legal and filing requirements is needed.
Regulation
Businesses should be well-informed on the regulations of the overseas territory.
Management and control
It is important to decide how to run overseas operations, a decision that depends on many factors including personal style of management and the level of trust in the local team.
Post set up
Once a business has been set up overseas, senior management should be allowed the time needed to manage the operations, acknowledging the importance, risk and benefit of those operations, in order to ensure alignment of the international firm.
Withdraw
BDO concludes its tips by exploring the question of “What if it doesn’t work out?” According to the firm, the management team of the business planning to expand should also consider the consequences and costs of this option beforehand. “The original plans should show an expected budget for the new operations and these should be carefully monitored. Plans will always change but occasionally a decision will need to be taken to withdraw […] Walking away before a deal is done could be the right choice – despite the time and effort taken to that point.”
