With 95 percent of the world’s population residing outside the United States, the decision to export products, or manufacture or distribute internationally would seem to be an easy one. Surveys have shown a strong correlation between companies that are active on a global scale and those that thrive and grow.
The challenges that companies face when they operate on a global basis are formidable and range from transaction barriers to strategic issues, from foreign competition to market acceptability. Yet companies are willing to enter offshore markets and endure the hurdles because they see the potential for corporate growth, operational efficiencies, financial savings—or some combination.
According to the Bureau of Economic Analysis, the majority of U.S. manufacturers are investing in Canada, China, Mexico, Germany and the United Kingdom. When it comes to learning how to navigate the difficulties of unfamiliar shores, nothing resonates more than the voices of experience, especially when these emanate from industry peers and colleagues.
Following are highlights from interviews with middle market CEOs, chief financial officers, RSM practice leaders and other management-level manufacturing industry professionals who are working on a global basis. Their collective insights—earned from years of working primarily in Canada, China, Germany, Mexico and the United Kingdom—offer unique perspectives and pragmatic advice from the field. From the drivers encouraging the establishment of an offshore presence to the challenge of identifying the right market to setting up operations, these professionals speak from years of experience doing business on a global basis.
Drivers to a new market
An offshore presence can range from sales representation to distribution facilities to manufacturing sites. Each company has its own priorities supporting their look abroad. For example, sometimes the best defense is a good offense: With foreign rivals continually entering the North American market due to the strength of the U.S. economy, companies may set up operations in the home countries of the competition. However, extending across borders can be driven by other forces such as customer requirements and labor costs, or opportunities such as market access or product acquisitions. In other words, there isn’t any single reason for a company to go global.
Typically, foreign market expansions start with establishing a foreign sales representation or a physical presence, whether a sales and service unit or a manufacturing facility. Acquisitions, joint ventures or temporary partnerships come with their own challenges, but may serve strategic necessities for distribution channels or for opening up access to new markets.
The challenges companies face when they initially expand into a new market appear to change as the impulse to grow evolves into a specific strategy. Following the first foray into an offshore market, the issues become more transaction-related, and include challenges in shipping, regulatory compliance, human resources, distribution, patents and trademarks. Management executives need to understand exactly what it means to do business in another country, weighing the benefits of the market with the challenges of working in it.
The World Bank, for example, offers an “ease of doing business” ranking based on criteria ranging from getting construction permits and electricity to paying taxes and enforcing contracts. Depending on their company goals, executives may prioritize the importance of the ranking differently. In the World Bank’s latest report, for example, China ranks 78 out of the 190 countries studied. Yet one would be hard-pressed to find a company that doesn’t see the enormous business potential of the Chinese market. Companies continue to set up in China, despite the obvious obstacles. Due diligence must be performed on the target market’s taxes, credits, tariffs, labor laws and a host of regulatory and cultural issues. Long-range business planning forecasts should be conducted to ensure the business is sustainable in the new market.
Ultimately, management must answer the questions: Is doing business in this country economically feasible? Does this offshore strategy align with the long-term goals of the company?
To help answers these questions and more, RSM has published an e-book which can be downloaded here. The e-book was authored by Steve Menaker and his colleague Frank Le Bihan, Principal – International Services and Foreign Desks Leader at RSM.