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 business owners who make this move impetuously may soon find themselves on stormy seas, taking on waves of debt and unanticipated expenses.
Chart Your Course Carefully Globalization strategies are typically based on two objectives:
1) selling to a new market overseas, and/or
2) lowering production or administrative costs with foreign supply chain partners.
If you plan to sell to foreign businesses 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 actually turn a profit. 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, and
- 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 sometimes may be limited overseas — especially in high-tech industries.
Prepare Your Crew You may be ready to go global, but are your employees? Unexpected red tape can abound. For example, accounting for foreign subsidiaries requires an understanding of international financial reporting standards and complex transfer tax issues that may be beyond the capabilities of in-house accounting personnel. It also may be unwise to leave accounting and record-keeping to the management of foreign subsidiaries. Lax oversight and informal controls may lead to mistakes, omissions, legal issues and even fraud.
Check The Forecast Will you find a treasure chest of higher revenues and cost savings overseas? It’s tough to say, matey. At this time, it’s also uncertain what impact the new presidential administration could have on foreign business operations. Please contact our firm for help reviewing your financials and forecasting your potential profitability to determine whether the trip would be worth it.
For almost 22 years, Rudy has provided assurance, tax advisory, business consulting and compliance services to foreign and domestic enterprises. His advisory expertise spans a wide range of domestic and international tax matters for clients across multiple industries, including, but not limited to, retail, restaurants, manufacturing, commercial real estate, customs brokerage, auto dealerships, produce distribution and logistics services. He currently serves as the director of the firm’s international division, helping clients plan, structure and implement processes to build their global presence.