Nick Farmer – International Tax Specialist – Menzies Accountant
Many businesses have heard about the benefits of trading internationally, but haven’t yet taken the plunge. Others may have started on this journey, but are still trying to figure out how to improve their international experience.
To make a success of international trade, it is important to approach it as a separate part of your business and draw up a specific international business plan.
So how do you put together a clear plan that will help you realise your international ambition?
The easiest way to start is to map out your plan into the following key segments: reasons, research, resources, relationships and review.
Steps to create a global business plan
Step 1 – Reasons for going global
To start with it is important to define your reasons for wanting to trade internationally. It could be the perfect next step, but just because someone says it would be a good idea doesn’t necessarily mean it is right for your business. So really challenge yourself to understand why you are taking your business down this path. Here are a few reasons that often arise:
- Spread the customer base;
- Reduce dependency on home economy;
- Next stage of business development;
- Helps the business innovate and remain competitive;
- Increases status of the business;
- Fulfils personal ambition
Taking time to deliberate on your reasons and being able to articulate them will give you a greater sense of purpose and help you galvanise the team around you.
Step 2 – Research the market
Once you have determined that trading internationally is right for your business, then it’s time to start doing your research.
Firstly, there is now a considerable amount of data available from behind your desk. From spending time undertaking this research you are trying to find answers to questions such as:
- What markets are right for your products or services?
- What’s the competition like and are there gaps in the market?
- How easy is it to do business in the target market?
- What changes need to be made to the product; branding, colours, name etc?
- How do you comply with local regulations?
- What documentation and translations will be required?
At the same time as researching the market, you will need to think through what operating model is going to be suitable for your business in each of your target markets. Will you be looking to sell directly from the UK, or instead use in-country agents or distributors. Maybe your product can be licensed to a local business, or franchising arrangements will work for you. If you are prepared to make more of a commitment then it could be worthwhile looking for a local joint venture partner, or even set up your own operations in the local market.
Once you have exhausted the desk based research, it’s then important to carry out some in-country research to really get a feel for your audience and the opportunities that exist. It may be possible to join a trade delegation, and these can often be a good way to get introductions, but only if the visit is particularly relevant to your sector. Alternatively you might sign up for a trade show, or contact potential customers from online marketplaces, before you leave and put together an itinerary for your visit. Part of the reason for your visit will of course be to better understand the local customs and culture and to make sure you go into the market with your eyes open.
Step 3 – Resources
Whilst it is crucial to do your market research, it’s also vital that you clearly analyse the resources that are available to you to make sure you have the capacity to accommodate the desired international activity within your business. Carrying out a health check on the existing business will help you determine if you have the capability and resources to make international a successful part of your business. This will include:
Time
Do you and your team have the time and capacity to devote to international trade or do you need to recruit appropriate expertise?
Management team
Who is going to be involved in managing the process and making sure control procedures are in place?
Employees
What employee involvement will be necessary, and will any movement of staff or local hires be required?
Funding
What funding is going to be required to support the initiative and what is the payback on this?
Language skills
What language skills will you need and are these available to you?
Website
Is your website set up for international trade or does it need to be ‘internationalised’?
Step 4 – Relationships
There’s no doubt that trading internationally could be rewarding for your business, but to be successful it is certain that you are going to need to get some outside support. There’s a whole community of businesses set up to support international traders and understanding who is who, and getting the right people behind your business, is all part of the key to success. Collaboration partners would include:
Accountants
Providing commercial support and making sense of the numbers involved, as well as sourcing local advice from overseas network partners.
Tax advisers
Tax will play its part in any cross border transaction, so it will be important to understand the implications before it’s too late, such as VAT, Customs Duties and Withholding taxes.
Insurance
Trading outside your home market will require specific insurance, and you may wish to have credit insurance to protect against non-payment.
Immigration
Where your activities involve the movement of people, there may be local visa requirements that need to be fulfilled.
Lawyers
There will be legal paperwork involved, such as contracts, commercial agreements and invoices, as well as the labelling and need to protect your intellectual property.
Logistics providers
To help you transport and distribute your product and ensure you have the right export documentation.
Finance
If additional finance is required you will need to explore the alternatives and find out what export finance is available to you.
Foreign Exchange
Trading internationally will usually involve foreign exchange exposure and the need for specialist FX support.
Review
Drawing up an international business plan is only the start, and this will need to be kept constantly under review so that you are able to assess the benefits for your business. Key to this process will be the data that you collect, as this will enable you to determine the profit that you are actually making from your international activities. Making sure that your accounting system is correctly configured to provide you with this information, and that there is a regular review process (monthly, quarterly) including comparison between budget and actual, is part of the process of going international.
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