Recent CFO Survey: Companies Pursue Outside Help to Navigate Unfamiliar Overseas Markets
By Bill Thomas, Executive Vice President and Chief Operating Officer
When American businesses venture abroad, they face serious challenges: ensuring compliance, managing tax implications, and aligning their goals with the local culture. According to CFOs and senior finance executives who participated in a recent survey conducted jointly by HSP and our partner CFO Magazine, those challenges only grow when a firm’s expansion takes it into emerging markets.
Those same markets, in regions like Asia, Latin America the Middle East and Africa, are increasingly central to American firms’ global expansion plans. So, what do you do when your company’s growth requires operating in an unfamiliar business environment? The answer we heard over and over from executives: Seek outside help.
Our survey asked executives to describe a challenge they’ve faced while conducting business in international markets and to explain how they handled the matter. It was immediately clear that in response to a wide range of issues, executives frequently elected to enlist independent expertise to help them be efficient abroad. That option broke down roughly into two subsets: recruiting locals with a native understanding of the business environment; or enlisting the help of experts who specialize in advising businesses entering foreign markets.
Hiring locals was especially popular when addressing cultural understanding or building new relationships. One executive who listed his company’s issue as “language and customs” solved the problem by “hiring local talent.” Another had a problem “understanding local market dynamics” and so “hired a local partner to understand the market.” Yet another firm “hired competent and connected locals” to address its “lack of market knowledge.” You get the idea.
While working with local experts can be of great assistance for a particular market, we heard that it also creates a new challenge of how to keep the company’s corporate governance requirements consistent across global operations. A single partner who can support expansion in multiple countries addresses this issue. Indeed, for the more technical aspects of tax and regulatory compliance, retaining experts in international business was the more popular option. When “developing an understanding of regulatory requirements in India and China,” one company “hired a third-party provider to support us on all regulatory, financial, and tax compliance in each country.” One executive relies on an international law firm. Another reached out to consultants for help “identifying applicable tax rules.” Translation: executives frequently decided that learning all of the ins and outs internally was not a good use of their organization’s resources.
Many companies also went local for the more technical aspects of compliance, but the appeal of that option usually depends on the specific market. Some of the most difficult markets to navigate are in less-developed countries with a dearth of qualified local experts, making a specialist firm closer to home the more viable option.
To be sure, going it alone is always an option. In fact, several executives did describe how they responded to challenges internally with good old-fashioned blood, sweat, and tears. The advisability of such a strategy will always depend on a number of factors, including the specific challenge you face, and your firm’s appetite for relaxing its focus on its core competencies. Still, some of the responses sure did make it sound painful. One executive listed their company’s challenges as “Chinese prices, volatile currency exchange rates, and local practices that surprise later.” Their solution? “Work harder, sometimes learn the hard way.” Then there was this: “In the healthcare arena, reimbursement and payment systems are very complex, but are critical to the customer’s buying decision. These structures are ever-changing and hard to navigate.” That firm addressed the issue with “brute force — working through each country's systems.” Ouch.
It’s our advice that when you’re expanding into unfamiliar markets, you learn from others’ painful experiences, rather than repeating them.
Want to find out more? Read the full CFO Research report.