The UK’s relationship with the EU has claimed yet another Conservative Prime Minister, adding a further twist to the tortious shape of our departure from Europe. US President Trump’s visit to the UK in June may have given headline writers something different to focus on, but for those in business it will have been his comments on international trade that will have been most closely followed.
One of the underlying promises behind our decision to leave the EU was the ability to trade freely around the world with the US a particularly attractive market.
Yet, as our own research showed, published in our report Going for Growth, many UK businesses remain focused on domestic markets. So, what do businesses need to consider when looking to grow overseas?
Businesses may expand overseas for a variety of reasons – to build an international customer base targeting specific countries where it believes a market exists, to diversify, reduce costs or recruit new talent. Whatever the reasons, businesses should consider the following four points.
Understand the market and culture
Every country will have its own unique regulations, rules and challenges that need to be understood and met. These might include particular product standards, restrictions on moving money in and out of the country, through to challenges around language.
There are also geopolitical issues to consider. The US’s trade restrictions with Iran and tariffs on certain products or restrictions on particular companies – famously Huawei – will also have an impact.
And then there are cultural considerations. Many countries, for example, place great importance on building strong personal relationships that take time to nurture as a driver behind a commercial relationship.
All these need to be understood to ensure successful and profitable international growth.
Build the right connections and have the right team
Expanding overseas can stretch a business to breaking point – it is often too much for just one person. Building and making the right connections in your chosen markets is essential.
Building relationships and making the right connections can take time and will involve having feet on the ground but will pay dividends. They will help navigate cultural sensitivities, find distributors, and open doors that may be closed to an outsider. For many businesses this may be all that is needed.
As a business grows overseas having your own team on the ground may be the only option. This might mean moving a team from one country to another or hiring locally. Either way, there will be many things to consider including:
• Company registrations and associated legal documentation
• Employment law issues
• Banking relationships
• Payroll matters
• Tax and VAT issues
• Government assistance programs
• Currency exchange rates
All these need to be planned and prepared for beforehand.
Do not forget the tax implications
Whilst tax will not necessarily be a decision maker in deciding to expand internationally, it should not be ignored. Areas to be considered include:
• The tax regime in the local country
• Structure of the overseas operation – will it be a permanent establishment in that country and, if so, a branch or new foreign company
• Transfer pricing for goods and services between countries
• Other taxes such as VAT, customs duties, payroll, income and corporate tax
Bring on board local assistance in that country
Just as you need the right team you will also need the right advisers guiding you through your overseas expansion. That team will include your bank, accountants, lawyers and government agencies (both in the UK, via the Department for International Trade (DIT), and the local country).
Those advisers need not only to understand your business but the peculiarities of the market and geography. That can rarely be done by a firm sitting solely in the UK.
Kreston Reeves works closely with member firms in the Kreston International network consisting of over 200 accountancy firms in 125 countries, bringing more than 25,000 professionals, helping businesses grow around the world. Our membership means that our UK clients expanding overseas are in safe hands with local accountancy firms and advisers that share the same standards and values as ourselves. They will help you locally with your business needs.