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The International Entrepreneur: International Business Readiness Checklist

This checklist was updated on November 17, 2014

Many companies start their international expansion as a reaction to unexpected market demand from overseas. A Japanese customer wants your product and is willing to pay a premium for shipping to Japan. Or one of your clients expands internationally and needs you to send your delivery to their Colombian offices.

As reactive foreign sales begin to expand your company’s scope, it is time to investigate what a proactive international expansion would mean for your company. Here are important considerations to be ready for expanding into your company’s first overseas market:

1.Long-Term Management Commitment. If you don’t have this, then stop right now. For top management to buy into international expansion, it needs to fit well into the company’s overall strategy including any plans for current owners’ exit (M&A, IPO, etc.).

2.Market Research. What is the market’s potential? You’ll never be able to reach an exact number, but it should be a well-researched estimate. I find it helpful to use both secondary data from industry and government sources, as well as primary sources such as interviews/round tables with potential in-country partners and customers.

How much would customers pay for your product? Oftentimes companies are surprised by different cost expectations. Your current cost structure might price your product out of a market or make it highly competitive. Consider potential offering size changes too. For example, a downloadable software product might be better received as a Software-as-a-Service model.

Also, how much localization of your product will be needed for it to be competitive in the market? This includes any local regulations, certifications, market expectations of the product, localizing any marketing promotional materials and approach to sales, etc.

3.Financial Capital to Fund the Expansion. Does your company have enough capital to fund not only the production of products for the new market but also all the start-up costs and extra funds should things not go according to plan? Is the expected payback period?

4. Market Entry and Related Legal Structures. There are many ways to enter new markets, from indirect exporting through distributors to wholly-owned subsidiaries. Each have unique advantages and drawbacks. Know your choices before making assumptions. Many companies new to international markets assume that contracting with local representatives is the best way. That’s not true for all situations, especially when there is valuable intellectual property to protect. It is also vital to research any legal requirements for your chosen entry mode, as well as any industry-related restrictions.

5.The Right Transportation. If you have product to transport, you’ll need an excellent freight forwarder or else another practical way to get your products and/or materials into the new market. An FF knows how to avoid costly mistakes and coordinate delivery of your products to market.

6. Local taxation, profit repatriation and corruption. As part of your research, learn about the local tax requirements and repatriation restrictions. Also, depending on the degree of corruption you may need to plan an anti-corruption policy for your company employees. Those caught bribing in another country may face fines and prison back home.

7.International Staff Experience. You will need managers and other staff who are ready to meet the needs of overseas operations. If your company doesn’t have internal international experience, this can be supplemented with outside assistance from government assistance centers and consultants.

This is only the high-level list. Basically go through every function of your company to ask how international expansion will affect the function. Once you know your initial approach for each function, you’re ready. Just be prepared for surprises when another country’s business environment brings up issues that you didn’t know existed!

For all of its complexities, international expansion can unlock much larger potential than staying in one’s home market. It exposes the company to new ideas for product improvement. And can mitigate the risks associated with doing business in a single market (recessions, etc.).

This checklist was updated on November 17, 2014


The International Entrepreneur: CFO’s Role in International Business

I once heard a group of CFOs describing their firms’ international operations. All but one CFO touted how they had contained the “risk” of international business by convincing their firms to only use local distributors and insist on cash in advance payments in home country currency. These firms weren’t new to international markets, but were so concerned with containing the risks in international business operations, that they missed any form of strategic alignment between domestic and international operations. There was no balance between risk and reward.

The role of the CFO is to balance estimated revenue in international markets with the costs of doing business in those countries. This balance point must also consider the firm’s overall strategy and international strategy. For instance, if the company’s product requires a large capital investment to bring to market and does not require high levels of localization to sell abroad, then the firm can gain from economies of scale. Gains from these economies must be included in balancing cost with revenues. Another example: if your customers typically buy either replacement products or add-on products, then cultivating long-term customer relationships is key to keeping marketing costs low. Over time, foreign customers with a good credit history with your firm should be offered better payment terms that reflect this trust. This also creates a barrier to switching to a competitor’s product and increases loyalty. Distributors, like cash-advance payment terms, are most appropriate for firms that are just starting international expansion. Risk is low but profits are low too. Additional investment can fit strategy better and increase profitability of overseas operations.

As CFO, you should be visiting your foreign operations. Your role is to ask questions, meet customers, and better understand both the risks and rewards. In every financial decision you make related to a foreign operation, you need to be asking yourself: which option fits best with our firm’s strategy? And then which option gives us a projected net gain of reward over risk?

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