You don’t know what you don’t know – and that can lead to costly mistakes when expanding internationally
How do you get international expansion right? It all may seem intuitive until reality hits and you find yourself scouring the internet for experts who can help you untangle the latest regulatory challenge, whether it’s entity management, data protection laws, payroll and benefits outsourcing, or something else.
At HSP, we have pretty much seen it all – the good, the bad, the very bad, and the even uglier. With over 200 years of combined experience, we know everything that goes into creating an effective global expansion strategy that helps companies easily and compliantly expand across the globe. Pre-empting and circumventing the known pitfalls in every country are indeed crucial to avoid making costly mistakes (read our e-Book on this topic).
So, what’s the cost of getting it wrong?
Assessing the costs of a flawed global expansion strategy
Well-known traditional economic risks include:
- interest and penalties charged on lack of tax payments;
- fines for failing to comply with certain pieces of HR legislation or data protection requirements; and
- charges and court summons for failing to file accounts or other corporate governance documents.
But there are other ways to count mistake costs.
International expansion is an expensive commitment. Companies should not underestimate the amount of time, thought, effort, teamwork, and collaboration required to pull off a cross-border venture, even though may be difficult to quantify. There’s no denying it entails a massive commitment to:
- Understand the range of considerations to hire and operate in a specific country.
- Analyze the commercial impacts on a business.
- Produce timelines and plans.
- Pull the trigger to ‘make it happen’.
This is not an overnight undertaking. Although everyone, for good reason, wants to move through the steps as fast as possible, doing so without the right expertise or consideration for the variables at play increases the risk of mistakes. We have fielded more than a few phone calls and emails from distressed HR or finance contacts with urgent requests for help (“We’ve hired someone starting on Monday and I need to figure out how to pay them, and, by the way, it’s a new country where we don’t currently have anyone or any operations.”)
Getting it right from the outset – or not
It’s important to keep in mind that as much as a successful global expansion strategy can boost shareholder value, a poorly constructed plan risks having the opposite impact. Due diligence review of business operations and compliance will accompany any exit. Prospective buyers often engage firms like ours to examine and find not only the skeletons within the international operations framework (negative impact) but also to identify areas for efficiency gains and cost improvements (positive impact).
Whether you are on the buy or sell side, you should know both the positives and negatives of a transaction. It serves sellers well to have clarity well in advance so they can take corrective actions to improve that exit valuation. Needless to say, it’s even better to get it right from the outset.
Why “saving on professional fees” can backfire
At the beginning of an expansion initiative, individuals from across the finance, tax, HR, and legal teams often end up spending many unproductive hours on details better suited for experts in their respective fields. They tend to get bogged down in minutiae, which may or may not matter, as they search for answers that their business has pre-determined to be relevant and important in an effort to save on professional fees.
But this research is only as good as the questions being asked. Without in-depth knowledge of potential issues, you simply “don’t know what you don’t know,” making it nearly impossible to determine which questions are relevant. And failing to identify the right questions frequently results in a shortfall of pertinent information. Understanding the topic and the relevant questions is an art. Then, you can “join the dots” to ensure that other connected technical topics are well understood.
Experience leads to taking the right actions
Let’s look at an example:
Researching how to obtain a work permit in a country, let’s say the UK, is not so hard. The UK government has a fairly user-friendly website that lays out the options pretty clearly. But for a company that is newly established in the UK without any filed corporate accounts, it is not so easy to obtain the necessary sponsorship license required for the work permit. Other elements are required to secure that license for a new company, but these details are not necessarily published in a digestible format on the UK government website.
In turn, the research falls short. Not knowing this upfront leads to the inevitable “blame game” when expectations (particularly timings) are not met within the business.
In this case, one option may be that the company has to open a local bank account to aid their validation with the immigration office; however, this is not something that would necessarily be required for a newly incorporated entity in the UK. This illustrates the interdependency of variables and how they need to align to secure success. Only experience can help a company navigate these hurdles.
What the key to success looks like
So, is international expansion intuitive? It certainly can be, but only if you have:
- the technical knowledge to know the questions to ask,
- enough experience to know what you may not know and that you should seek help,
- the understanding to make linkages related to technical interdependencies, and above all,
- the network of trusted subject matter experts to ask and validate required advice.
Then, you need to be able to make sense of it all and present it in a logical way, prioritizing actions and decision-making. What would your implementation plan with assigned responsibilities look like?
The technical skill set required is wide – accounting, payroll, tax (corporate, indirect, expatriate, personal), HR, immigration, legal, and data protection – to name a few. Additional skills such as commercial acumen, project management, team management, and communication skills are also vitally important.
The dynamics are not unlike the story of the retired train engineer who is brought back as a consultant to fix a steam engine that no one else can. He ponders, then takes out his hammer, taps a spot, and the engine whirrs back into life. The invoice read: Tapping with a hammer $1.00; knowing where to tap $9,999.
HSP‘s team of industry veterans know – so to speak – how to wield the hammer. We are ready to help you navigate the common sense required to support your international journey and to create a global expansion strategy based on your goals. Contact us today about your needs.