When considering international expansion, there are many challenges facing business. From understanding a new regulatory regime to securing finance, there is certainly a lot to think about. DWF recognises this and understands that different regions pose different challenges: what may be a challenge in Asia may not be an issue in Europe.
Brexit in the UK and economic tensions around the world have brought international trade in to sharp focus, prompting many businesses to assess how their plans for international expansion will be affected and to consider alternative markets overseas. However, businesses may be wary about expanding into another country in this climate. So what are the areas to consider?
Policy and Regulatory Context
All businesses will be required to obtain relevant permits and licenses, as well as ensuring compliance with applicable policy and regulation. This may include environmental licences, construction permits or complying with financial regulations (e.g. taxation, VAT and accounting). Navigating these new regulatory regimes can be a long and complex process, often hindered further by a language barrier and different hours of work.
The TMF Group's Financial Complexity Index 2017 identified the most complex jurisdictions for accounting and tax compliance and found that Turkey, Brazil and Italy were the three most complex. As such, businesses may think twice about expanding into these countries. To combat this, DWF's international offices offer skilled overseas lawyers who are experienced in ensuring compliance with foreign policy and regulation. Our expertise will reduce the risk of delay and exposure to penalty/fines.
Financial Risks and Project Funding
Any business will assume a degree of financial risk when setting up abroad. However, that risk is likely to vary between countries. For example, The World Bank has ranked countries based on the performance of the economy and the difficulty of starting a business in that country; the higher the score, the more efficient it is to start a business. France is currently rated 93.28, whilst India is 75.40 and Philippines is at 68.88. This index serves as a good indicator of the financial risk associated with certain regions.
Additionally, the cost of starting a business can vary greatly. According to the TMF Group, when starting a business in India, "There are 12 procedures to complete in the initial set up of a business costing 49.8% of income per capita. It takes almost a month (27 days) to complete the tasks on average, which is well above the OECD average of 12 days." Businesses should be aware of these costs and the timeframe involved, and carefully consider whether DWF can assist in securing finance and minimising risk.
Infrastructure, Logistics and Technology
Businesses must consider shipping, logistics and whether there is the skill set required to start up the business. However, perhaps most pressing of these issues is technology and the ever changing technological landscape. The Global Competitiveness Report 2015 – 2016 looked at "Technological Readiness"; Luxembourg, Switzerland and the UK were ranked the best, whereas Chad and Burundi were the worst. However, where some technologies may increase the gap between established and emerging markets, others can enable emerging markets to use a lack of existing infrastructure as an opportunity to adopt the most advanced methods. This 'leapfrogging' may be realised through a wide range of developing technologies such as off-grid renewable energy or blockchain. One of today’s most celebrated examples of leapfrogging is the M-Pesa mobile payment system in Kenya and Tanzania, which lets people bank in their national currency using only their phones, leapfrogging traditional banking practices and creating a mobile banking revolution.
Some of the key challenges facing businesses that are looking to trade across borders have been highlighted here, although much more indepth analysis is required to assess the specific challenges in different countries. In May 2018 DWF will publish a report that assesses the challenges facing the renewables sector in Africa, looking at development in Egypt, Morroco, Kenya, Tanzania, South Africa, Zambia, Ghana and Senegal.
Authored by Catherine Haslam, Christian Hellmund and Elinor Webster.