While international expansion is an exciting goal that offers many benefits, gaining access to overseas markets is one of the biggest barriers to growth businesses can face, bringing new complexities that require careful navigation. In this article we highlight some key considerations for businesses with their sights set on global growth, alongside practical tips and learnings from business leaders that have successfully made the leap.

Select the right market

Selecting the right market to enter is a crucial decision that should not be underestimated. Choosing a market that aligns with your business strengths, offers growth potential and fits your strategic goals can significantly influence your success abroad.

For example, direct bank-to-bank payments provider, GoCardless, originally assumed its UK product could be applied directly to other markets, but that wasn’t the case. Through diligent prior research, it tailored its offering product to each local market it moved into – a longer initial process for entering each new territory, but one which led to significant long-term success.

It's equally important to check out the local competition too. This can help you identify gaps in the market, understand the barriers to entry, assess if it will be difficult to get a foothold, and shape your marketing strategy. While desk research can be done remotely, there is no substitute for visiting target destinations in person and investing time in building relationships overseas.

To fully realise your global ambitions, you need to understand the complex nature of international expansion, from operating model and supply chain design, through to compliance with local legislation, tax and governance when setting up overseas.

Preparation will be your saving grace and ensure your entry into overseas markets is right first time.

Get the business model right

Choosing the right business model is one of the hardest decisions when expanding overseas because each option comes with its own set of pros and cons. For example, setting up a subsidiary overseas can simplify contractual arrangements, streamline recruitment, and build customer confidence. However, it can also lead to increased administrative and legal obligations, as well as complicate reporting.

On the other hand, using an in-country sales agent and exporting may keep the corporate structure simpler, but you might still face legal and tax requirements, and customers could perceive lack of a local presence as a barrier to doing business.

Alternatives such as franchising or licensing to other companies might protect the core business but could compromise profits and revenue potential, while also impacting brand integrity, compliance, and reputation. While for manufacturing and retail businesses, additional challenges arise in deciding whether to produce goods locally, buy from local sources, or use existing suppliers.

As a business leader looking to scale, it’s essential to understand how each of these potential operating models might affect taxation and your ability to repatriate profits. Selecting the wrong structure can be costly and difficult to unwind, especially when contracts and employees are involved.

Implementing an efficient supply chain

Managing your supply chain is one of the most complex challenges in global expansion.

It involves not only the logistics of moving goods across borders but also ensuring that this movement is cost-effective, timely, and compliant with all relevant regulations.

You’ll need to carefully choose logistics partners who can meet your specific needs, considering factors like shipping times, costs, and carrier reliability. Each of these elements can strain your working capital and increase organisational overheads.

Customs and duties are another often underestimated aspect. Each country has its own customs regulations, which add layers of complexity to the import and export process. To avoid delays, unexpected costs, and potential legal issues, you’ll need to familiarise yourself with these regulations. Engaging customs brokers or consultants who specialise in international trade and optimising free trade arrangements can be an effective way to manage these challenges.

Moving employees overseas

There’s a lot to unpack here – and not just for any employees who are relocating.

If you enter a new market, there’s a high likelihood that at least some of your team will need to move across borders on a temporary or permanent basis. This introduces a host of legal and financial considerations.

Visa requirements and work permits are among the first hurdles. Every country has different laws and regulations on how to enlist workers, under what conditions and for how long; these regulations must be complied with.  Of course, as a company you’ll also need to ensure you comply with all tax obligations related to employees, such as income tax, social security contributions, and other mandatory deductions making sure to take account of obligations in both the local country and here in the UK.

Compensation packages will need to be restructured to account for differences in local tax regimes and other local deductions and living costs. This also includes looking at tax rules around share options that may form part of employees’ compensation packages.

Be on top of cross-border tax

This topic deserves a whole article on its own, but to quickly sum up one critical factor: you will need to determine if your activities in another country create a taxable presence.

If they do, your company will be subject to corporate income tax in that territory. So, it’s important to understand the relevant thresholds and plan activities accordingly to effectively manage liabilities.

You may also need to look at developing robust and transparent transfer pricing policies around any transactions between related entities you create (i.e. parent companies and subsidiaries), to ensure that profits are allocated fairly across different jurisdictions to avoid falling foul of regulations in this area and facing significant fines and back taxes.

Stay compliant globally

As the above alludes to, it’s essential to comply with all local laws and regulations when you expand into a new territory. This includes everything from employment laws and data protection to environmental regulations and consumer rights. There is a lot to consider. Failure to adhere to these laws can lead to fines, legal action, and serious reputational damage.

Governance at a group level is also another key factor that can’t be ignored. What’s legal in one country may not be in another and this can create challenges in areas such as contracting, banking and raising finance, among others. It’s vital to put controls in place to mitigate in-country risks and ensure timely central reporting of any breaches to obtain prompt advice.

Maintaining compliance across regions was one of the biggest challenges facing Whalar Group, a company founded in 2016 to connect influencers and content creators with brands globally. 

As it rapidly moved into multiple countries, it realised that it would be impossible to keep track of all the different regulations and deadlines alone. It found that working with a global accounting firm like BDO, with specialists in regional offices in each country, ensured the company remained compliant with local policies as well providing the necessary guidance to scale the business effectively.

International success story

International expansion can offer a fast-track to future growth success, however, it also comes with challenges and complexities.

With the right planning, support and due diligence, the downsides and threats can be limited, leaving business leaders to get on with driving their business through the next phase of its international growth.

For more startup news, check out the other articles on the website, and subscribe to the magazine for free. Listen to The Cereal Entrepreneur podcast for more interviews with entrepreneurs and big-hitters in the startup ecosystem.