Every business wants to grow revenue. And the next logical step when you’ve conquered local markets is to consider global expansion. Right? Maybe not. Not every business has the wherewithal to successfully operate a business halfway around the world. How can you be sure of success?
In this post, I’ll share lessons learned in my experiences with companies both large and small as they’ve pursued international expansion. This topic is a natural extension of my previous blog posts on building, buying, and partnering to achieve growth.
Exporting the brand
The world is a big, complicated place. As CFOs, our role is to help determine if the business can successfully make the investments required to operate in another country. Corporations that expand globally without having a full perspective of the impact of their brand in other countries and on the public’s perception of their products and services may have a tough road to travel. Think about Google. In the United States, Google is perceived as a beloved brand in many respects. But in Europe, it’s viewed in a less favorable light because of privacy concerns.
Beyond branding, companies need to consider the impact of expansion on the company’s culture, its business model, and its pricing. All of these variables become relevant because the business will no longer be operating in a homogeneous environment.
Safeguarding stakeholders’ interests
There are risks and rewards associated with every business decision. The potential risks are much greater when pursuing global markets. CFOs are expected to mitigate these risks and ensure that the business is getting the right return on investment. This means taking the right steps to ensure that your stakeholders’ best interests are being served by an expansion. These steps begin with a fundamental premise: that the business must maintain control once it’s become a global operation. Much of that control depends on the back office and the IT infrastructure. Having this foundation helps to ensure that the business is maintaining compliance with everything from regulatory reporting to taxes to government relations, which minimizes risk and helps protect your company’s interests.
Fundamentally, there’s a tradeoff between leveraging established, proven people, assets, and brand versus duplication of some or all of these elements or functions to allow for local tailoring. The former creates the potential for much more profitable expansion through economies of scale and may provide the most oversight and control. But a one-size-fits-all approach won’t work in all markets, and this approach does carry great risk. There is no right or wrong answer. Indeed, many global companies will employ all strategies in parallel, or may look to partners to gain necessary local knowledge.
Standardizing to simplify
It makes sense to expand in manageable stages and begin with expansion in culturally or geographically close countries. Recognize that it will take capital and management bandwidth and that the expansion needs to be judged against domestic expansion opportunities through new products or sub-markets.
In a previous company where I worked, we expanded internationally through acquisition. We then let the businesses run standalone. There was very little process or control around our operations. Essentially, the business was comprised of an independent set of companies that operated under one common brand. This is one model for international growth, but it can raise compliance and control issues. Case in point, this company had a serious financial restatement that resulted in a shareholder lawsuit.
At SAP, we tend to buy companies that are regional and then globalize them. We do this by integrating the operations of the business on a common IT infrastructure and use shared service centers around the world. The businesses are able to maintain their brand and some of their own independence, but we gain greater efficiency, transparency, and control. This makes it easier to achieve compliance in the 190 countries where we do business. Imagine the complexity of this task if every business were running independently.
Running efficient operations to get it right from the start
It would be shortsighted in today’s digital world to not have a common IT platform that allows you to extend operational efficiency and transparency globally, standardizing processes, practices, and controls across the business. Technology is faster, cheaper, and better than ever. Consolidating on a common platform before expanding mitigates the effort involved in integrating disparate systems and supports a unified expansion strategy.
It also frees you to perform the kind of due diligence involved with global expansion in the first place. A common platform allows you to automate financial tasks so you can focus your time and energy on being a strategic adviser to the business that enables transformation and growth.
To continue the discussion on the pivotal role finance will play in leading growth and operational efficiency, read the Forrester report Digital and Automation Enable Finance Operations Efficiency.