Turbulent times require an international solution

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Nationalism is resurgent. Brexit continues to be the known unknown, but is looming. The pound has fallen and shows no sign of recovering much. Inflation has started to rise. So have business insolvencies. We’re heading into the unknown of Brexit. We’re in the throes of an election that is at best diversionary.
All the indicators are scary, but despite them, much of British Business is doing what it does best. Keeping calm and carrying on. Waiting for “clarity” before taking any new action or making any investments or changes. Which is, of course, courting disaster.
As you’d expect me to say, the current uncertainties make internationalisation a top priority for businesses, especially those in the services sector. However, I’m coming from a different angle here.
The Brexit priority seems to be cutting immigration. Potential European immigrants, however, aren’t waiting for a change of policy – they’re already going somewhere else – and many who are already in the UK are looking for opportunities to leave. This is a problem for almost all businesses, even those that don’t currently employ any (and it’s not just the health service that’s dependent on foreign labour).
Fewer immigrants means it will be more difficult to hire. Some politicians seem to think that there is a vast pool of domestic labour that is being neglected by employers who would rather hire foreigners. Any business person could tell them that there is no prejudice against nationals in any company here – the vast majority of that pool of unemployed Britons either can’t work, won’t work or are unemployable. To solve the problem, we welcome and hire young, talented and hard working people from Europe and the wider world.
Following basic economic rules, a reduction in the supply of such people will increase the cost of all labour, as employers are forced to offer higher salaries to attract the staff they need from a scarcer offering. Deliberate cuts to profitability are limited, so, coupled with the higher prices now seeping through from exchange rate changes in 2016, we are bound to see an accelerating inflationary spiral.
One solution is to hire abroad, in countries where the skills you need are more plentiful and costs are lower. I’m not advising outsourcing – that takes away your control and generally increases costs – but setting up a subsidiary operation.
Entrepreneurs in the services sectors tend to shy away from this idea, or limit their interest to offshoring back office jobs. But why? The businesses that they serve, especially the younger and more dynamic ones, don’t expect local friendly face-to-face chats with their solicitor or accountant. In the modern world, everyone’s used to online access and video conference calls, and is happy if it means the service costs less or has other advantages such as 24/7 service.
Moving a lot of the work offshore to your very own subsidiary, retaining the core skills and entrepreneurship here, can ensure sustainability for the business and increase profitability.
Making new sales to an international market from that base can also guard against currency fluctuations. Companies already exporting services can, by moving the centre of delivery away from their home country, avoid any new trade barriers and guard against negative and nationalistic sentiments that may arise in their existing markets (think “America First”). Similar benefits can be had by manufacturers moving final assembly abroad.
Done the right way, creating a new overseas subsidiary can be quick and cheap to set up. In most cases, it could be trading within 6 months and be self-financing in the first year. Come on, small UK businesses, what are you waiting for?

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.

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

And now what?

Companies across the world are locked down in emergency meetings as we all face the reality of Brexit. While there may be panic in financial markets, other businesses need now to look further ahead and quickly put in place contingency plans to protect their companies.

No one knows what will happen with the intricate arrangements and rules that tie the UK to the EU but it’s probable that the UK will stay in an EFTA/EEA arrangement. Considering this scenario, businesses that trade in EU countries from branches will need to make some changes, and all will continue to be affected by currency fluctuations.

Companies that only have domestic business – especially SMEs – need to consider the effect of more volatility in currency, commodity and stock markets. Imports and raw materials are likely to cost more. However, exchange rates staying low will hopefully incentivise those that do not currently export or sell services abroad to look again at their business and seek new opportunities.

The picture is arguably more complicated for overseas companies that invested in setting up subsidiaries in the UK on the strength of using it as a base to trade with Europe. Those with little reliance on manufacturing or services delivered from the UK will no doubt be considering partial or total relocation.

At ICC – International Corporate Creations, we didn’t want Brexit, but we’re grasping reality. We can help your company plan and decide your next steps. Whatever your business or location, talk to us for constructive and clear insights on UK and overseas business growth and prosperity.

 

by ICC team, ICC – International Corporate Creations

Remain or leave the EU

Trade deals work both ways

“If the UK leaves the EU, it will be free to strike its own trade deals”.  So say the Leave campaign – but it makes little sense to me.  Whilst I suppose it’s a true statement, is this really something that the UK really wants or needs?

I won’t provide any facts and figures, because in the current nasty campaign there’s a danger of this article getting tagged as scaremongering or just plain lies.   So let’s just think about it in general.

Britain already has pretty good trade deals with most countries through the EU, and has always been one of the major trading nations of the world.  The Leave campaign cites USA, India and China as countries that the EU doesn’t have free trade deals with, and says that the UK needs them.

The USA is already – by a long way – the biggest export market for the UK.  The EU has been trying to negotiate a trade deal for many years – and it’s still negotiating.  Nothing has been agreed because some American demands are unacceptable to Europe.  Yes, trade deals work two ways – a free trade deal doesn’t only open markets for us, it opens up our market to them!

Among the things that America insists on but Europe won’t accept are reductions in data protection and import of genetically-modified food and beef fed with hormones.  Are these things that the UK on its own should accept?   Britain led the way in consumer rights since the 1960’s, and most EU legislation is derived from that – and now we walk away?  I don’t think most voters would agree.

Removal of trade barriers opens up markets to us – but brings with it a clear danger that we will end up importing more than we do now, and tip the trade balance further against us.  We can only benefit when the overseas market is eager to buy UK products and services and we have exporters ready to take advantage – and, sadly, there’s little indication that is the case.

India is a good example.  It’s another of the countries that Leave cite as needing a free trade agreement – but existing barriers are low, and UK trade under the current regime has actually been declining year on year.  Despite special trade missions to India, lots of government-funded activity to encourage exports, and long-standing ties between the countries, recent years have simply seen a growth in imports whilst India’s interest in buying British – and hence exports – has reduced.

And China?  That’s the most difficult market of all to read.  One certainty is that one reason for the “steel dumping” that has led to the virtual obliteration of the UK industry is that, for other political reasons, our own government vetoed the EU imposing tariffs on Chinese steel.   There seems no doubt that China would only agree to a free trade deal if they thought that would increase their own exports more than the new imports they would be letting in.

Conclusion?  Free trade is great, but removal of barriers on their own can create new problems.  The UK has been well served by the EU trade agreements.   Apart from the strength of a much larger negotiating bloc, I’d argue that the EU has added the social responsibility that we lack on our own.  It would be madness to throw it all away and leave.  Let’s Remain.

 

by Oliver Dowson, CEO at ICC – International Corporate Creations

The danger of inaction: “The sooner businesses act, the quicker bosses will reap benefits”

by Oliver Dowson, CEO, ICC – International Corporate Creations

With the pound dropping in value, and many incentives available from the likes of UKTI, British manufacturers should be taking advantage by prioritising their export strategies. Many, however, seem to be falling into the trap of simply doing nothing – and there’s a real danger that could be a result of uncertainty over the outcome of the EU in-out referendum.

“Out” campaigners say that we need to be out of Europe to open up trade – but in fact there are no reasons not to do business anywhere in the world right now! You’d never guess it from the hype, but there are no countries where the UK would be likely to want to seek an independent trade deal where there isn’t an existing attractive EU deal that we can take advantage of. And, whilst exchange rate volatility may worry importers, it should be seen as an incentive by exporters.

Smaller UK companies have an unfortunate tradition of being over-cautious about trading abroad. You’d think that with the barriers to international travel having been broken down over the last 20 years, trade would have expanded the same way – but no. There are countless opportunities going to waste.

The services sector is bigger than manufacturing in the UK, but with the emphasis of government promotion on exporting, there is little done to promote its international expansion. Many do consider expanding to English-speaking countries like US, Australia and South Africa, which is relatively easy. However, this neglects the 90 per cent of countries where English is not the first language.

The “free” advice on offer from UKTI appears wide in scope but, beyond information on exporting, is in fact very limited. Sometimes the free advice even seems to have the effect of discouraging expansion because it only goes so far, and then leaves the company to either purchase services or try to do everything themselves. The problem is acute with SMEs. The charges that the big consultancies make are prohibitive, and “Fear of Foreigners” and lack of language skills completes the dissuasion of doing it for themselves.

One of the biggest risks of Brexit for UK companies – and one of the best reasons for expanding overseas urgently – is that the existing skills shortage will get even worse. Business is already heavily reliant on migrant labour – there simply aren’t enough qualified employable Britons. If the current influx of well qualified young Europeans dries up, it could cause many businesses to fail.

Setting up operations abroad for this reason, especially in developing countries, is a win-win. Firstly, it enables businesses to tap into these labour markets, usually at much lower costs than employing in the UK. At the same time, the new overseas company can sell products and services in its local market, expanding the company’s business. There are many businesses already outsourcing relatively low value functions such as accounting and call centres, and high skill IT and software development.

Now is the time to look urgently at employing more highly skilled job functions abroad. But not through outsourcing. Costs are higher than they need to be, simply because of the high margin added by the overseas BPO company – and companies that send critical functions such as R&D and Customer Support abroad need to own the overseas business.

Setting up a typical overseas operation employing just ten skilled professionals delivering services to the UK would yield cost savings of around £250,000 a year, even allowing for UK liaison costs. The total costs of setup would be recovered in less than a year, and the value of additional sales to the local market comes as a bonus!

It’s neither as expensive or as risky as many assume to set up overseas subsidiaries or JV companies. There are professionals who can provide everything from initial advice through to turnkey solutions – setting up an overseas company completely – using trusted local resources to achieve results quickly and economically. Some are consultants who specialise in certain countries, through to businesses such as my own that offer unbiased advice and help to companies to set up in any country of the world.
The sooner businesses act, the sooner bosses will reap the benefits – reducing costs, increasing sales and stealing a march on the competition. The ones that do nothing now can only come to regret it.

From prime minister David Cameron suggesting London mayor Boris Johnson was a great friend albeit wrong in opinion, to former shadow business secretary Chuka Umunna and Johnson telling each other to man up, the Brexit debate has caused a few UK politicians to squabble with each other.

 

Article originally published on Real Business Magazine: http://realbusiness.co.uk/article/33406-the-danger-of-inaction-the-sooner-businesses-act-the-quicker-bosses-will-reap-benefits