Don’t freeze! Expand!

Watch For Wildlife. Large SUV in Front of a Deer in Deep Forest at Night. Road Danger at Night. Deer Crossing. Wildlife Photo Collection.
Deer in the headlights!

Business hates uncertainty. We’ve been seeing real and scary indications all year through that global trade from the UK has been getting paralysed, and now it seems likely that the USA could be slowing down as well. All of this is driven by uncertainty over the future – in the case of the UK, caused by Brexit, in the USA by the election of Trump.

The brave words of UK politicians do not seem to be feeding into business activity. A survey by a manufacturers’ organisation, EEF, shows most businesses freezing or reducing investment, saying future uncertainty is the reason. A report by the Institute of Chartered Accountants points to an expected slowdown in domestic sales, so even if exports increase because of a weaker pound, the overall business outlook is fragile at best. The rising costs of imports are making employers cautious about spending more on new hires and increasing salaries, and most expect that salaries will rise slower than prices, which would mean living standards drop in 2017. Yet another report from Hitachi Capital says that 42% of large and medium-sized UK firms cancelled or put off investing following the Brexit vote

It’s not unusual, of course, to read about British businesses being reluctant to invest in plant, machinery and training – that’s been a recurrent theme for many years. Sadly, however, we’re now seeing businesses not investing in international expansion (or any expansion). Last month I attended  the Global Expansion Summit in London – one of the best-organised events of its type in years – but only a tiny minority of the audience represented businesses ripe for such expansion; the bulk were service organisations looking for business.  Anecdotal evidence points to low audiences in other events targeted at established businesses.

I see this “wait and see” attitude as a terrible mistake.  I’m not into nostalgia, but I think my own experience is relevant here.

Back in 2006-07, when no-one saw the 2008 crash coming, I worked on setting up subsidiary businesses in Australia, Japan and Brazil. All of them were initially very small, and intended just as customer support centres to solve time zone issues and provide a foothold for potential future expansion. The total setup costs were small, and operationally they were cost-neutral as we saved on labour in the UK and USA.

It turned out to be remarkably fortuitous. When, a couple of years later, business dried up in the UK and the USA, we switched sales effort to Australia and Japan, where economies were expanding. We moved backroom operations to Brazil, where costs were a quarter of those in the UK. Result? Global turnover and profits both increased by 50%.  We now had a small multinational valued at more than double the original UK-only business.

I’m not saying that there’ll be another crash – but I do advise all business owners to plan international expansion now. Not only is there no need to wait to see what happens – it would be foolish to do so.

There are great opportunities for so many businesses – and exporting is only one of them. Manufacturers setting up assembly operations in other countries can benefit from free trade agreements already negotiated to sell to a wider region. Most medium and larger companies can benefit from setting up service centres, not only from much lower costs but also a greater availability of the skilled labour that seems likely to become much scarcer here. Those lower costs and high skills can enable some companies to perform R&D that they simply couldn’t otherwise afford.

Whatever the reason, companies benefit from cushioning against risks of recession and exchange rate volatility – and, most importantly of all, massively increase their valuation for that inevitable eventual IPO or trade sale. The answer to all this uncertainty isn’t to wait and see – it’s to expand overseas right now.

by Oliver Dowson, CEO, International Corporate Creations Ltd.

What’s the first step to start your business?

Well the very first step is to have a great business idea!

Then you have all the bureaucratic and legal steps such as choosing the right business structure, the business name, logos, accountants, office and facilities, marketing strategy, etc. But how do you turn the idea into a profitable business? Here are some thoughts.

1 – Start by analysing your own problems

The easiest and most direct way of achieving that a-ha! moment is to come up with a product or service that you want to use yourself. Think about something that you need and cannot find the solution anywhere else. What is your need? And how do you fulfil it? The advantage of creating something for yourself is that you might find out there is a huge market for it as other people are looking for the same solution. You’re passionate about what you do because you’re solving your own difficulties and it works as a simple way of testing the quality of the idea!

2 – Execute your idea

How many times have you heard people saying – I’ve got this idea – but never tried it – they could have been millionaires by now – who knows? More important than having the idea is executing it. You have a problem, find of a solution, test it and see how much it is worth. It might not be successful the first time around, but do it!

3 – Make the time

“I don’t have the time” – make no excuses. Manage your time efficiently, define the priorities for that day and replace those 2 hours on the sofa in front of a TV to work on your project. As soon as you start, you’ll be sure whether this is something serious enough for a business or just something you could do as a hobby. If, after a while, you see it doesn’t work you haven’t lost anything at all – just a few hours of your life.

4 – Define your limitations

If your product is not for everyone that’s ok, as long as it works for some. Your “customer” (even if this is a friend whom your showing your business idea to) may feel insulted because you do not want to add another service or feature to your product/service – and that is ok if you truly believe in your project. Your limitations are set by answering the question: “Why you are doing this?”

5 -Mission possible

Plan your business in a way that you only commit to what you can do, working within your limitations. This doesn’t mean you’re just being safe, you’re being honest about it. You can promise you’ll provide your product/service to the best of your abilities but don’t fall into the trap of promising the best service they’ll ever get. Set the expectations into a realistic level.

6 –What do you REALLY need

If all the bureaucracy seems a lot to take in and is already scaring you, take a second thought: do you need all of that in the first stage? Maybe you can start in a shared space instead of a river view office with ridiculous service charges? Can you reply to your own emails and handle and all the workload for the first 3 months? Can you start straight away instead of in 6-months’ time? At a later stage, you might need a more complex plan but outline what is imperative to have.

 The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese proverb

 

by Joana Miranda, Manager Admin at ICC – International Corporate Creations

INTERnational Expansion by ICC

icc-expansion-intelligence

Working with ICC,  we’ll take you and your team through a logical 5 step process designed to help that you maximise the value of your business in every possible way, while minimising your risk and ensuring control of investment.

ICC’ll find the best way for your company to:

  • Grow sales
  • Reduce costs
  • Increase your business valuation

We’ve successfully conceived, built and managed international operations for ourselves and our clients in many countries. We know how to do that at the lowest cost and at the same time extract the highest value.

Contact us to learn more!

 

© ICC – International Corporate Creations Ltd

5 key reasons why International Expansion drives up M&A interest and valuations

International expansion should be a no-brainer for SMEs that have achieved critical mass in their home market.   But although I’ve never seen it cited as a reason, perhaps it should be a key consideration for those anticipating eventual exit routes via M&A.

Stating the obvious, increased sales has immediate impact on revenues and profits.   Every country tries to encourage its businesses to export more, but most rely on finding agents and distributors to sell their products and services.  Companies that set up their own international subsidiaries deliver far better results.

But there’s a lot more to international expansion than just increasing sales.   For example, it offers insurance against localised recessions and currency volatility.   As a rule, countries that are resilient when others are suffering recession not only maintain their local markets, but their currency increases in value.   US and UK companies that had operations in Australia benefited massively during the 2008-2010 recession – purchasing power was maintained, and the Australian dollar rose dramatically.   As a result, sales volume increases of 10% translated to revenue increases (when expressed in USD or GBP) of over 50%.  Many companies that had expanded internationally survived when they might otherwise have sunk, and some even grew their global revenues and profits.

Even companies that have nothing to export, but a reasonably sized headcount, can expand abroad.  Setting up Shared Service Centres in lower cost economies – typically to process accounts or manage HR or IT – reduces business costs and increases profitability.  Many companies think they are too small, or have unfounded fears of complications, and may dabble in the water by going to Outsourcing.  However, if it’s big enough to outsource, it’s probably big enough to set up one’s own subsidiary to do the job – and doing that will not only give the company proper control, but typically be 30-40% cheaper.

Future expansion of those SSCs to add in more highly skilled R&D operations can then take advantage of skilled labour that can be difficult to recruit and retain in developed countries.  Such staff often prove far more enthusiastic for the company than domestic recruits, and deliver much higher productivity.

But perhaps the biggest reason of all for international expansion is that turning a domestic business into a multi-national, however small, massively increases the valuation of the company for M&A purposes.  EBITDA, the common basis of most valuations, will be higher anyway, as a result of the increased sales and reduced costs that derive from the international operations.  The fact that a business is international as opposed to being in a single country demonstrates the vision and capabilities of the owners.   Further, it also opens up interest from new potential purchasers who may be attracted by exploiting the company as a fast track route to expansion to new markets that they do not already have covered – pushing up multiples of EBITDA.

So why are there so many companies that remain obstinately insular?   Some think the costs will be too high, some doubt they have resources to cope, some still are even scared by different languages and cultures.  All of those beliefs are wrong.  Businesses should grasp the nettle – expansion can be easy.

 

Article originally published in ACQ Magazine by Oliver Dowson, CEO at ICC – International Corporate Creations https://issuu.com/smartwave/docs/gamechangers_five_sixteen/44

 

New countries lead the way in Asia

There are a lot of countries in Asia – but most businesses tend to think only of a few when considering international expansion or investment.   Interest in China has faded as more realise how difficult it is to deal with, and outsourcing to India is drying up as wage inflation eliminates its competitiveness.   The tiger economies of Japan, Singapore, Taiwan and Hong Kong continue unabated.  However, those looking for new opportunities, whether it’s a matter of tapping export markets or seeking better value and quality manufacturing or outsourcing, should look elsewhere. 

The biggest “rising star” country in the last few years has been Malaysia.  The reduction in red tape has been notable, and strong action has been taken against corruption.  The government is pushing Kuala Lumpur as a regional and international financial centre (particularly for Islamic finance).  However, it’s a great country for trade from many other perspectives – good value, good infrastructure and communications, growing market and a well-educated workforce.   Like most of the countries I’m including here, it’s in the ASEAN Free Trade Area, so establishment in any one of them can open up significantly wider markets.

Philippines fell out of consideration in the 90’s for various reasons, but foreign business interest has been increasing in the last few years.  It is arguably the best country in the region for Shared Service Centres and Outsourcing, and has been taking business away from India, with its flexible workforce and excellent English language skills.  Other types of business face difficulties that can’t be overcome – it may be one country, but made up of over 7,000 islands, and plagued by typhoons on an annual basis, so economic activity is centred in just two or three locations. 

Recently, the most heavily promoted country for trade has been Indonesia.  There are many government incentives and the statistics are all encouraging, but many shy away because of security concerns. 

Vietnam’s economy continues to expand rapidly, and it’s a country worth considering as a more manageable alternative to China – although there’s still plenty of red tape.  For a number of years the pace of inward investment exceeded the availability of skilled personnel, but that issue is quickly being overcome.   Trade treaties with China and Japan, as well as other ASEAN countries, make Vietnam an attractive base.

Slightly more intrepid businesses that want to stay ahead of the curve should now be looking to neighbouring countries which are now opening up.   In my opinion, Cambodia will rival Vietnam and Malaysia within another five years, and although smaller, Laos won’t be far behind. 

The country that over the last few years has emerged from nowhere – in business terms – is Myanmar (Burma).  There have been rapid changes since 2010, five years before the new democratic government led by Aung San Suu Kyi came to power – and there were a lot of regional business leaders already negotiating deals there when I first visited in 2013.  It is a big country, most of the labour force work in agriculture, the infrastructure is terrible and the education level is poor, but the opportunities feel terrific. 

Other major countries in Asia have been declining as attractive business destinations.   Thailand has labour availability issues as well as a system that discourages foreign business ownership.  South Korea is a vibrant economy boasting some of the world’s leading brands, but is difficult for foreigners to penetrate, with almost all economic activity in the hands of a small number of powerful “chaebol”, and the country feels to be in gentle decline.   Sri Lanka and Bangladesh continue as important textile manufacturing centres, but rarely figure in any other international business considerations. 

Asia as a whole remains as attractive and important as ever – but it’s the emerging countries that are the most exciting.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

8 Do’s and Don’ts for businesspeople facing Brexit

  1. DON’T go to any seminars, conferences or events dedicated to talking about Brexit. You have better things to do with your time. I can paraphrase them all for you in one sentence – “We have no idea what is going to happen, but when we do we will have an opinion”.
  1. DON’T think that because some economic indicators are improving, Brexit has passed, the experts were wrong, we’re all still alive and it’s no big deal. It’s all still to happen…. and it could take a long long time.
  1. DO panic – or at least make plans. Business people are supposed to be permanently optimistic, but this time take a break to be a pessimist. Think what the worst scenario could be for your business, and then plan accordingly. The government won’t tell us what their plans are until it’s too late for you to take effective action.
  1. DON’T lose sleep though. At least, not over Brexit. It won’t turn out as bad as you’ve been imagining it while you made those plans.
  1. DO change any branch offices that you may have in other EU countries to subsidiaries instead. It’ll take a little time to organise and it’s better to do it now in case any new rules come in.
  1. DO discuss contingency plans for any EU staff you have in the UK and UK staff you have in the EU, before they make their own. Most politicians say that nothing will change for employees already in place, but this is a time when it’s wise not to assume anything. Your staff are your most critical asset, and they’ll be worried about this, even if they’re not saying anything to you.
  1. DON’T stop planning your international business expansion. Whatever happens, your business will make more money in the short term and be worth more in the long term if you expand your operations internationally. In the worst case scenario, you’ll have another established business base in a less volatile location. It’s short-sighted to hold back on investment – and in any case, setting up overseas doesn’t have to cost a lot.
  1. DO please ask me and my team for advice on points 4 and 5 (and possibly 2 as well!).

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Georgia on my mind

International business expansion can bring even more successful and rapid results where there are unique opportunities.   So I’m always on the lookout for them, especially in countries that aren’t top of most people’s lists.  Last week I visited Georgia, and discovered an incredibly exciting pace of growth in a beautiful and welcoming country that exceeded all my expectations.  As soon as you step off the plane you start to see the potential.

It’s a small country with a population of just 3.5 million, and from 1921 to 1989 was part of the USSR.  Now it has reverted to proud independence, and is capitalising on its geographic position at the “crossroads of Europe”, a logical transport link between Asia and Europe.   As a result, most Foreign Direct Investment has been in infrastructure – new rail lines and motorways, and a deep water port in Anaklia on the Black Sea coast.   Now the country is starting to focus on other opportunities, and I see excellent potential for mid-range businesses – but it will be necessary to grasp them quickly.

At present, getting there can be a challenge – there are relatively few direct flights from Western Europe to the capital, Tbilisi (and none from the UK), and almost all of those arrive and depart at an unconscionable hour of the early morning.   That’s set to change over the next year, with budget airlines now negotiating access to other airports that are convenient both for the capital and the coast.  Once landed, immigration is a breeze, and it’s just the first warm welcome one receives.

In recent years Georgia has modernised rapidly, with glitzy new buildings and malls, but all the history has been retained.   The old town of Tbilisi is charming, and the remote cave monasteries fascinating – and between the two is some of the most beautiful countryside in the world.  The coastal resorts are similarly stunning.  Costs are low, the people are welcoming, summers are hot and sunny, the food is delicious – and it’s the country where wine was invented.  The potential for developing tourism, therefore, is huge, and arguably the top motive for FDI.

The country is also justifiably proud of being rated the 3rd safest in the world, and ranks highly for ease of doing business, economic freedom, lack of corruption and economic stability.   Taxation, an important consideration for most businesses, is simple and low – it claims to be the 9th lowest tax burden country in the world – and new policies from 2017 will make the system more attractive still.

I met with the Ministry of Economy, and learnt that their other priorities are energy, transport and manufacturing.  Even without the attractive government incentives, the free trade agreements with the EU, EFTA, CIS, GSP and Turkey, availability of a young educated workforce with low labour costs (average US$ 355/month) and inflation at a low 4.2% make a compelling case for considering manufacturing.

One thing there is no shortage of is water, and only 20% of the potential for hydro-electric generation has been exploited.  The value here is not just domestic, but in exports to Turkey and Russia, neighbouring countries with power deficits.

I was quickly convinced that almost every type of business should think seriously about expanding to Georgia – the time is right.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

My 3 enduring fundamentals of successful entrepreneurship

Technology changes, but the Art of Business doesn’t.   Methodologies come into and out of fashion, and get expressed in different ways, but the fundamentals of success are always the same.  My “Top Three” were instilled in me by one of my first employers when I was in my early twenties – and since then, I’ve validated them by reverse observation – the entrepreneurs behind every small business failure that I’ve personally witnessed since then have failed on at least two of these points.

Total commitment

This doesn’t necessarily mean working 7 days every week, but it does mean at least thinking work every day.  It’s essential to always be available – pick up every call, and answer every email, whether it’s day, night or weekend.  The best opportunities are often unexpected and come up at crazy times. Unfortunately, there are very few entrepreneurs who are both successful and lucky enough to be able to maintain that aspirational work-life balance.

Time management

Plan every day in advance to make at least a little time for everything.   If it’s quick, do it now.  Never ever let a day pass without doing at least one constructive thing to generate new sales.   Insist on quality but don’t aim for perfection – assign sufficient time to do each task well, but don’t keep polishing.  Don’t end up skimping on the next task – it could be the one that makes your fortune.

Humility

If you’re an entrepreneur, you’ll spend a lot of your time selling.   Potential customers don’t like hard sells and they particularly hate exaggerated claims.  You’re human and your product or service isn’t perfect – admit it.  Just aim to be the best person you can, managing the best company you can establish, selling the best product your company can make – and remember to ask everyone, especially every customer, how you could improve.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Australia

After 25 years growth, what next?

Although it’s one of the most attractive international investment destinations for UK companies and investors, Australia is always a difficult market to read.  It’s not just the distance and time zone.  Perhaps the conflict comes from the fact that it feels so “British” in so many ways, but is economically so different.  The heavy dependence on mining and a services sector focused on Asia-Pacific tends to mean that economic cycles are almost the inverse of those in the UK and USA.

So back in 2008-2011, when doom and gloom hit the West, Australia powered ahead, with rapidly improving GDP and strengthening exchange rates – almost solely built on Chinese demand for raw materials.  Over the past two years, however, the economy has retracted as mining has suffered.

That’s not to say that the economy has not been resilient.  Despite negative factors, the end of the financial year last Thursday (June 30) brought with it official confirmation of 25 years of uninterrupted growth.   In the last year, though, whilst GDP grew by 3.1%, net disposable incomes actually fell by 1.3%.  So the country is producing more but earning less.  Average salaries have fallen as high-paying manufacturing and mining jobs have been replaced by low-paying service sector jobs, many of which are part time.

Now economists are worrying about what will happen in this new financial year, with uncertainties around Brexit (despite the distance!), the Chinese economy and many other international factors which have significant effects on Australia.  A new government and new budget may mean increased taxes.

As a result, Australians are spending less, and companies have drastically cut back on investment.

So is this a crazy time to consider trading with Australia?  Not at all, if the focus is right.

The Australian dollar continues to trade at around 20% less than in 2013-14 and is around 30% less than its peak in 2012, when its value made it basically impossible for any business to sell anything in to or out of the country.  The costs for visitors, whether on business or tourists, were painful.   Now costs seem more reasonable and the country is once again viable for visitors and investors.

Key reasons for foreign direct investment into Australia are the high skill levels, geographical positioning to act as a base for the whole APAC region and, of course, the ease of doing business and easy cultural fit.  Although salaries are still relatively high compared to most other developed countries, Australia is definitely viable as a base for R&D and other skilled activity in sectors such as Healthcare and IT.  Tourism also presents good guarantees of investment return.

Since the exchange rate is only likely to reverse in the future – albeit it’s unlikely that will happen very soon – it could be a wise moment to make long term investments in Australian companies.  The ones that dominate their part of the world stage, and demonstrate great long term potential, are property investment companies such as Macquarie, AMP, LendLease and Westfield.  Their well-diversified portfolios mean that A$ growth should be reliable, and future exchange rate changes are likely only to improve the valuation.

From the exporter’s perspective, the opportunities for selling goods seem poor.  On the other hand, it could be a better time to be selling services, especially those that can be delivered into Australia from lower cost economies.   For example, “in time zone” outsourcing to Philippines has been undersold in the past, but must now be increasingly attractive as businesses seek to control costs.  More cost-effectively, Australian companies could be encouraged to invest in setting up their own offshore Shared Service Centres for even greater economic benefit.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

Starting up in the UK

The ultimate step by step guide

 

Probably one of the most asked questions during the 65, 619 new company incorporations in the UK (according to the latest statistics for April 2016) was “how much?”. Well not a lot to register it… but quite a bit to set up and  maintain it.

There are definitely some factors to take into account that, if overlooked, can be deadly for your business, even before you start trading.

Yes, the idea motivates you, and your will is stronger than ever, but how solid are your finances and how long can your business survive without profit? It is vital that you think  through all the potential costs properly, and include a contingency plan. There are always unexpected expenses. Those, along with poor budgeting are the most common reasons for start-up failure.

Once the money is sorted and your idea is finally turning into reality, you should be able to answer these basic questions and include them in your business plan along with all projected costs.

  • What is your market?
  • Who are your competitors?
  • How useful is your product and how will you position it?
  • What is your Unique Selling Point?
  • Are you going solo or setting up a limited liability company?

Now, all you’ve got to do  is make sure you include all these costs before you get started:

  • Business premises: after staff salaries, probably the biggest operating cost. Whether you use serviced offices or retail business premises, bear in mind that normally these come with agency fees and service charges. You may also have to pay a big sum upfront on your lease, as some landlords and agencies operate on a quarterly rather than monthly basis.
  • Professional advice: Include these services in your budget. The planning stage is one of the most important. It’s OK if you are not an expert, but find some legal and financial advisors to help you with your plan. Keep these contacts for future occasions – when you employ staff or have questions or on projected costs and profits, taxes… Then you’ll definitely need an accountant, payroll agent, lawyer or solicitor.
  • Business travel: when starting a new business, you’ll probably have to attend meetings outside the office. Have some budget allocated to travel, either by public transport or using your own vehicle.
  • Stock, tools and equipment: if you’re not operating a service this can also mean a significant upfront cost. You need to make sure that you’ve got all the material needed to carry out your work smoothly from the start.
  • Insurance: this should be done straight away. It’s important that you protect yourself and keep your company from any type of liability. Insurance is not that expensive but it is important to get the right type of cover. The most common (and essential) is Employer’s Liability Insurance. The certificate should be displayed in your office along with the Certificate of Incorporation or Business Name Registration. Don’t make your business vulnerable.
  • Marketing: as you’re starting a new business, you need to make people aware of its existence! Include events and networking on your budget as part of your awareness strategy. You can opt by traditional methods such as direct mail or spend a small amount in ensuring your website is well placed in search engine results. Invest some time and money in creating your brand: leaflets, logo, corporate brand sheet, business cards, etc. Create an identity that makes your company unforgettable!
  • Staffing and employment: refer to your professional advisers to have guidance on recruiting new employees, wages, tax, National Insurance or any other payroll or HR matters – again, no need to be an expert, just seek some help to save time and effort and ensure you “do it right”. Companies nowadays tend to outsource these services, and there are various packages sold depending on the size of the company.
  • Other expenses normally overlooked:
    • IT and other equipment- computers, printers, toners
    • Office furniture
    • Business stationery and office supplies
    • Website development
    • Postage
    • Utilities – electricity, water
    • Phone and internet charges

Go ahead!

  • Choose your business structure
  • Find a location
  • Register your company with Companies House
  • Register for tax and national insurance
  • License your business (if applicable)
  • Get a website
  • Good luck!

Any questions? We’d be happy to help – get in touch with me or any of my colleagues at ICC -International Corporate Creations.

 

by Joana Miranda, Admin and Finance at ICC – International Corporate Creations