How do you overcome political, economic and cultural barriers to trade in 2020? The secret lies in understanding the risks and collaborating with local experts.
Go global or stay local. It’s a question many companies will face as they weigh up the pros and cons of doing business in new territories and markets in 2020.
The most successful organisations do both. They combine global expertise with local knowledge to expand into different jurisdictions. And they quickly adapt to change.
International expansion provides an opportunity to develop the brand, increase revenues, reach new customers and access new talent. It can also help organisations withstand disruption at domestic level.
But venturing into new territories presents new business challenges and there are significant political, economic and cultural barriers to overcome. Even the best laid plans for international trade may need to be radically changed to reflect changes in market conditions.
Support at local level
So, where can you find the support you need to minimise the risks of expanding into new locations?
Damian Sutherland, business advisory director at Australian accounting firm William Buck, says it’s important to work with local experts with knowledge of setting up and doing cross-border trade in specific jurisdictions.
This is the model pioneered by Praxity – the world’s largest alliance of independent accounting firms. The Alliance provides a platform for accounting professionals to share expertise on setting up business and doing cross-border trade anywhere in the world.
Damian explains: “Launching overseas is often a logical and productive next step but it is amazing how many clients are not particularly literate of the requirements and processes to do this. Collaboration through Praxity has been enormously important in assisting our clients trading internationally and absolutely critical when getting established overseas with a local operation.”
This collaborative approach is likely to become increasingly important in 2020 as organisations seek to overcome difficulties posed by trade wars, tariffs and immigration, not to mention language and cultural differences.
Let’s look at some of the key challenges at global and domestic level:
1. Global uncertainty
“We are in an era when around the world politics have gone a bit haywire. This is adding a lot of complexity to global growth,” says Denis Usher, managing partner and head of the US desk of Mazars in Singapore.
He says instability is causing companies to change tack on international operations, especially in Asia, adding: “Some companies are holding back moving into China or moving out of China.”
Other companies are moving to new territories in the region to escape the impact of trade tariffs. “There is so much uncertainty with tariffs,” Denis explains. “Some businesses are moving manufacturing to Vietnam from China.”
2. Trade tariffs
The world is unfair. Global trade is no exception. Nearly half the world’s population (44%) live behind the highest trade walls while only 14% of people live in the freest markets, according to the International Trade Index 2019.
Hong Kong and Singapore lead the world in barrier-free trade. Recent events have demonstrated, Hong Kong is subject to growing political and economic uncertainty whereas Singapore is seen as much more stable. This, together with tax incentives and a high standard of living, is attracting companies from around the world, especially tech startups from Israel, although living costs are high.
India and China impose the toughest trade barriers, with high tariffs, services restrictions and non-tariff barriers. These countries can be more difficult to expand into but the rewards can be greater for those organisations clued-up on how to do business here.
3. Finding the right people
Immigration laws are also having a big impact on cross-border trade. A lot of countries are tightening up their immigration laws and this is impacting resources. “It’s making it harder to find the right person for the right job. Therefore, companies are having to make do with somebody who is not as well qualified as they would hope,” Denis says.
Damian adds: “When establishing a local office, branch or even distribution centre or provider, finding the right contact or employees is very difficult.”
Sourcing local contacts and talent can be particularly tough for mid-size organisations. This is where collaboration between accounting professionals within Praxity can provide a stepping stone.
“Praxity is enormously important in providing a connection point with a local accountant,” Damian explains. “This in turn leads to the Praxity contacts providing local legal, real estate and even relocation services, if required. The introduction goes beyond just accounting and tax services to include other local service providers. For our typical mid-market type of client with turnover of say $10m – $100m, these contact points and introductions emanating from Praxity are very valuable.
4. Overcoming red tape
One of the biggest requirements of firms expanding into new jurisdictions is corporate secretarial work. “It’s about helping companies get through the red tape and immigration challenges when setting up operations in new territories, and helping companies bring in the right resources,” Denis says.
Commenting on Asia, he adds: “Singapore is quite business friendly and it can take about three days to set up but it’s navigating the immigration laws and cultural differences that takes time. We have a consulting team that does a lot of internationalisation work. We will do things like market studies in multiple jurisdictions and help organisations to navigate the structural and legal side of things. In countries like Indonesia foreign companies can’t hold 100% of a company so we help them navigate this.”
5. Language barriers
Understanding local markets, regulations and immigration is only part of the story. Depending on the jurisdiction, a major obstacle is language.
English may be the global language of business but the level of proficiency varies enormously. This can have serious consequences for organisations ill-equipped to deal with language differences.
“A lot of the time, especially when doing business in English, the person you are speaking with may be ‘proficient’ in English but they may not have the same understanding of the language. That can lead to misunderstanding,” Denis explains. “Sometimes there have been occasions when we thought we have agreed something but we then discover that’s not what has been agreed. This type of misunderstanding may create mistrust.”
To avoid misunderstandings, it’s important to ensure you have people who can converse in the native language, or at least be aware of potential language difficulties.
6. Cultural differences
It is also important to understand cultural differences. In a lot of Asian cultures, it’s impolite to say no, which can be difficult for people from other cultures to interpret.
Denis, a US national with experience of working in Europe, the US and Asia, says cultural differences show up everywhere. “When I wanted to buy a camera in Tokyo, nobody would tell me that they didn’t have the camera in stock. They kept bringing out other cameras because they didn’t want to say ‘no’.”
Business culture can vary significantly from one country to the next. “When I went to France, I discovered the Anglo-Saxon way of doing business and the French way of doing business are vastly different,” Denis says.
Warning of the dangers of complacency, he adds: “Organisations can come to a new country holding on to the same ideas and perceptions that they have in their own country. You have to accept you are in a new environment really.”
With so many complex, interwoven challenges to address, international collaboration isn’t just useful, it’s paramount.
An example is the biotech industry in Australia, where small research and development businesses are looking to expand internationally but lack the contacts and resources to do so without support.
These businesses, specialising in areas such as stem cell research and immunisation from certain diseases, typically start on a small scale and work in cooperation with a local hospital or medical university.
“Biotech businesses are challenged by the lack of venture capital and financial support within the business community in Australia. At a certain point, usually after first or second-stage trials, many of our small, successful biotech companies will establish an office or even ‘relocate’ to the US for larger scale funding and support,” Damian says.
By collaborating with accounting professionals in the US through the Praxity Alliance,
William Buck Australia provides “an important conduit” for these businesses to achieve their expansion and funding goals.
“We have directed a lot of referral work to Moss Adams in San Francisco and the support they have provided to our clients has been critical to them successfully establishing a new base,” Damian explains.
Firms within the Alliance collaborate worldwide. In Taiwan, for example, accountants at Mazars work with Moores Rowland. In Western Australia, it’s William Buck. There are also strong ties between Mazars Singapore and firms in the US including Moss Adams, DHG and BKD.
Denis states: “We work closely with Praxity members to help our clients expand and there are many cross referrals between firms. We can trust firms in the Alliance due to Praxity’s robust vetting process which is very stringent. Praxity looks at the quality and the size of firm so we are more likely to refer our clients.”
He adds: “It really does help the clients source the right people in the country they want to do business in. It allows them to feel comfortable, knowing that they are going to be taken care of.”
This article was written by Ian Lavis for Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms.