Cost And Market Share Drive US Companies To Expand Overseas

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As the US economy returns to strength following the financial crisis, businesses are increasingly looking across borders for growth. However, there are many potential hurdles to consider...

Research commissioned by TMF Group, a leading global provider of high-value business services, has found that the key motivator for over half US companies for expansion beyond their home market is to gain market share (54%) and produce more cost effective

Published by the Economist Intelligence Unit (EIU), the study ‘Corporate overseas expansion – opportunities and barriers’ also finds that just under half (48%) of North American businesses wish to open new markets for products and services and over 45% look to foreign markets in response to increasing competition at home.

Steve Novak, Managing Director of TMF Group New York said: “The US economy was one of the first economies to return to growth after the global recession and this recovery has meant that we are seeing greater appetite from US businesses considering international expansion.

“However, moving into new territories can be a time-consuming and expensive process – whether it is sourcing the right people or understanding the local regulatory, tax and compliance environment – and the risk of failure can be high if appropriate planning is not made or local practices and nuances considered.

“North America, for example, is one of the biggest investors in Latin America, yet this is the most difficult region in the world for companies to operate in from a regulatory and compliance perspective, according to TMF Group’s annual Global Business Complexity Index.”

When expanding overseas, it is crucial for businesses to have a deep understanding of the markets they are entering, something which may require the use of third parties. As Joseph Smith, General Manager EMEA at Hootsuite, a social media management tool business, says: “When you are aligned, relationships and business are more effective. It is not just about having employees who speak many languages in the same time zone. It is the understanding and experience of business culture, localised trends and buyer behaviour that makes it important for North American companies expanding overseas.”

On resources, while half of US businesses opt to undertake the various components of international expansion in-house, around a third look to external service providers to complement their own knowledge and expertise. Nearly a third of respondents use both in-house and external advisors for HR admin and payroll services. Meanwhile, a quarter might exclusively seek external help in the area of legal or accounting and tax compliance. Excessive bureaucracy in local tax systems was rated by respondents as the biggest accounting issue for expanding business.

According to the research, the US market is heavily reliant on the services of the Chambers of Commerce, both at home in the US and in the destination territories. Around half of US companies (50-54%) looking to expand beyond their home market use the US Chamber for assistance in the physical set up and legal incorporation / compliance of its business. A similar number also seek complementary support from their destination chamber; seeking assistance in physical set up (58.7%), legal compliance (52.2%) and HR administration and payroll (50%). 67% also look to them for help and accounting and tax compliance.