Despite the global economic disruption that coronavirus has brought and fraught international trading conditions following Brexit, there is no shortage of British companies interested in growing and diversifying by establishing operations in new territories overseas.
Tempting though the idea is, expanding overseas is a huge decision, and SMEs must consider the implications from all angles, especially when it comes to cost management.
The costs of compliance
Every country has its own business laws and regulations, which may change. Complying usually requires a significant financial outlay and there may be the nasty surprise of ruinously expensive penalties if you unknowingly breach any rules.
These might dictate how you manage your data, premises, labour, marketing, labelling, tax and H&S, among many other obligations placed on commercial operations.
You must ensure that you know all policies, have set up systems to fulfil obligations and know how much compliance with each will cost. Consider particularly whether you will need to have a physical base in your new market and if you will have to employ locals, as both are red tape heavy.
This process requires lengthy planning, taking the time to understand what you’re spending your money on in these new territories and why. If you can break down everything into individual parts, you can have more visibility into spending when setting up abroad, whilst also creating formalities for future costs in this new location.
To help navigate these complex waters, secure the right advice before committing to trading abroad – such as the support of an experienced Global Professional Employer Organisation (GPEO) and appoint only on the recommendation of trusted contacts in your sector.
Making your money work harder
Getting the budget right will be key to success. Ensure that you research costs keenly and accurately and that you are financed to cover every area of anticipated expense. As in any other business activity, you must get your bottom line right for international growth.
While there are many different costs to take into account on your move overseas, don’t take your eye off potentially volatile factors like exchange rates, interest rates and inflation rates.
Ensure that you understand how each of these vital mechanisms work in your new operating areas for realistic, healthy financial control. Never assume that everything remains the same from country to country – indeed there can be sharp differences between municipalities or states within nations. There is no getting round the fact that you will need to set aside time for serious, in-depth financial planning.
A top tip for keeping abreast of market conditions is to keep tabs on currency markets and prices with quick online updates, as they are a vital barometer of confidence or the lack of it. This is an absolute must for businesses working across many countries because exchange rate volatility can cause huge financial losses very quickly.
It is vital that international operators enlist a reliable international payments partner who can secure the best available rate on any given day, lock in favourable rates over longer periods, minimise fees and help navigate any regulatory needs. Again, it is important to seek referrals from respected business contacts before commissioning services.
Sargasso & Grey are a great example of a company that has managed this successfully. The shoe company is headquartered in the UK but runs its manufacturing in Spain, and so needs to regularly make international payments and currency exchanges. By outsourcing this to Equals Money, the business can reduce risk and save money on these transactions without spending time and effort watching the currency markets.
Managing an overseas workforce
Investing in tech is not an option in business, it’s a must – and, particularly when building a team overseas, you must have the right tools in place to empower your employees to confidently, yet responsibly, spend money.
If you haven’t already built an efficient financial tech stack, the journey to new geographies is the time to do so. Modern expense management systems are a great first step, as they give SMEs complete visibility over their spending and cut admin time. Businesses should also try to negotiate shorter payment terms and break clauses in their contracts with suppliers, as the lingering economic impact of the pandemic is predicted to continue throughout 2022.
If you are moving staff abroad – whether permanently or for the new operation’s initial launch – another crucial issue is monitoring overseas spending. Credit card expenses can add up; quite apart from interest, there are a lot of hidden charges when they are used overseas. Among these are fees on transactions, point of sales and ATM withdrawals.
By using prepaid cards instead, financial decision makers retain control over permissions, budgets, and visibility on all teams’ spending – no matter where they are in the world – via simple receipt upload and annotated transaction features.
In conclusion, remember that expanding overseas is not the only route to growth and not for everyone. Take your time, speak to companies that have made the move successfully, enlist expert partners and support agencies. If you don’t, you may find that poor preparation and knowledge bring massive, wasted expense and operational challenges that could have been avoided.
Effective research will establish whether your business is ready or when it might be. Apart from regulatory and economic factors, local market conditions and cultural landscapes must be understood and navigated.