Despite Challenges, International Expansion Can Be the Path to Success for U.S. Companies

Michael Evans
Fri, 19 Aug 2016 11:33:37 +0000

By Henry Reynolds and Michael Evans

In an increasingly global marketplace, U.S. companies exploring international markets can be handsomely rewarded. The world at large offers a wealth of opportunities to sell or source products across a market comprising more than seven billion people.

Valuable potential to be rewarded

Importantly, looking beyond domestic borders can be the driver that sees U.S. companies fast-track their way to growth, with benefits spanning several core goals:

Diversity – Overseas expansion can shelter U.S. companies against downturns in the domestic economy. This has been especially valuable in an election year when consumers, investors, and businesses tend to maintain a “wait and see” holding pattern for spending and investment decisions.

Security – Multinational companies (MNCs) don’t just hail from North America. The U.S. economy itself is a target market for many global businesses. Instead of competing against the world on its home turf, it can make sense for American companies to compete on a global playing field.

Cost savings – Some U.S. firms are drawn to global expansion by the need to grow markets. For others it’s all about the potential to cut costs. That said, in an interconnected world, maintaining cost competitiveness is no longer a domestic challenge—it is a global problem.

40% of MNC sales can come from overseas

No matter what the reasons behind international expansion, the reality is that the commercial marketplace is increasingly becoming globalized, and at an escalating pace. The bottom line is that few, if any, North American businesses with long-term plans can afford to disregard the opportunities that lie beyond the domestic market.

In fact, according to the U.S. Chamber of Commerce, overseas affiliates can account for about 40% of U.S. MNC’s total sales. Many of America’s largest companies earn more than half their revenue in this way.

Tackling the unknown calls for more than courage

For all the potential benefits, exploring overseas markets means tackling new sets of circumstances, unknown cultures, and, more particularly, unfamiliar accounting and tax legislation.

It’s not just a question of confronting the unknown. Some of the world’s most appealing markets from a commercial viewpoint can be among the most challenging from an accounting and tax perspective, and no two jurisdictions work in exactly the same way.

TMF Group’s Global Benchmark Complexity Index found some of North America’s nearest neighbors are among the most complex environments from a compliance perspective.

To the south of the United States, Argentina ranks as the world’s most complex jurisdiction. Indonesia ranks second, with Colombia and United Arab Emirates (UAE) following closely behind in third and fourth position respectively. China has increased its ranking by seven places in this year’s study from 12th in 2015 to 5th position in 2016.

America’s southern neighbor, Mexico, remains unchanged since 2015 and is still in sixth place. The Mexican government has implemented a series of reforms that impact the telecommunications, energy, tax, financial, education, and labor sectors, yet the underlying causes of complexity (bureaucracy and red tape) still exist. Although complex, the opportunity to make a savvy investment in Mexico exists, and the jurisdiction is ranked within the top 10 most attractive countries for investors worldwide.

Lack of familiarity can elevate compliance risks

Faced with limited knowledge of local requirements in countries they want to operate in, U.S. companies can face serious compliance headaches. Moreover, the burden of meeting local requirements while fulfilling home country requirements (for example, U.S. GAAP reporting) can be especially challenging. All too often we see U.S. companies with a desire to “get it right” but a mandate that encourages a quick fix solution.

Nonetheless, there is a strategy that allows U.S. MNCs to have the best of both worlds. The answer lies in partnering with a trusted provider, who can take care of all in-country details quickly and efficiently, while facilitating reporting in your home country.

Henry Reynolds is the Commercial Director in Strategic Alliances at TMF Group. Michael Evans is Managing Director at Newport Board Group.