With the rise of technology and global instability, international expansion is a key strategic focus for many successful businesses.
For CFOs, such strategy can raise a range of challenges that must be carefully navigated in order to ensure success in the new market.
Here are the key challenges of international expansion.
For Chief Financial Officers, global expansion requires them to become comfortable in new environments. The target market may present significant cultural or political differences from the domestic market and finance executives face the challenge of both learning about and navigating these nuances.
It’s possible that expansion into international markets may involve operating in a new language. It is not only daily communications that could become challenging but contracts, invoices and payroll will all need to be reviewed. Hiring bilingual staff who can translate and avoid any errors in communication becomes essential. Take particular care when expanding into countries such as Belgium and Switzerland, who have four and three official languages apiece.
If your budget doesn’t yet stretch to hiring full-time translators. Consider freelancers who can handle the most critical tasks: those which present a compliance or legal risk.
But language is not the only thing that will need translating. Global businesses require the help of a cultural translator as well. As a CFO operating in a new environment, it is your job to assimilate with your clients and your vendors. A cultural translator will give you the tools with which to achieve this. Negotiations, meetings, introductions and acquisitions are handled very differently from country to country. What might charm a client in the United States could offend a client in the Middle East. A friendly gesture in Singapore might underwhelm in France. By facing global operations with this local knowledge, CFOs have a much greater chance of success.
Learn to understand the rhythm and pace of your target market, and adapt accordingly. What takes a day in the United Kingdom might take a week in the United States. Myriad factors including laws, regulations, working hours and staff availability come into play. Prepare for this when scheduling time-sensitive tasks, particularly relating to cash flow. Upsetting vendors is never a good way to start.
One of the many reasons for international growth also presents one of the many challenges. Political unrest is often cited as the cause of global expansion as businesses seek to mitigate the risk of placing all their fortunes in one country. As CFO, you need to conduct risk management for any prospective target markets and assess potential threats to trade caused by the political situation in that region. For example, businesses operating in Europe will have been keen to watch the Brexit negotiations play out. Whilst US companies will want to monitor embargoes in the Middle and Far East.
Finally, get to know your international market in as much detail as you can. Understand your competitors, what your market share is expected to be and what the growth opportunities are. Bear in mind that local companies hold the competitive edge, and build strong local relationships to counterbalance this as much as possible.
When starting up in overseas markets, you will often be forced to trust new hires without even meeting them. The challenge is to build a strong, capable team that is loyal to the parent company in both ethics and culture.
The best way to do this is to hire a local market manager to the finance organization. Not only will they have a clearer idea of the target market in terms of compliances and potential risks, but they will be best positioned to hire the new team required to make a success of the local branch and new supply chain.
They will be able to effectively seek and onboard the best local talent at the appropriate price and disseminate company goals and culture in a way that makes sense to the new hires.
Further down the line, keep in mind the importance of managing local autonomy versus global consistency. It’s important to have some flexibility to allow local teams to adapt and manage according to their individual business case. But this must not come at the expense of the common goals of the parent company.
With all this new talent on board, CFOs in charge of international businesses will need a global payroll system that can keep up.
Running the finance function effectively will involve outsourcing to local in-country providers who have an in-depth understanding of local payroll regulations and operations. In-country providers will provide insights into local standard wages, minimum wages, and payment methods. Paying teams in a timely, accurate and convenient manner means understanding transaction lead times and local payment methods. Failure to pay staff in the early days of expansion into overseas markets can spell disaster.
The rules and regulations regarding staff payments in different countries can be confusing and ever-changing. For example, in the US, transactions over a certain amount have to be reported. Non-compliance could result in hefty fines and loss of credibility. Developing nations often change their payroll and tax laws monthly, making non-compliance a very real risk.
The local laws to be considered by payroll include working hours, social security, business tax and transaction limits and fees.
CFOs are held accountable for adhering to local, in-country tax, regulation and compliance laws. To meet their obligations, they will need to ensure their payroll department has access to the resources they need. Payroll teams will need to be able to engage with local payroll providers to ensure payment calculations are accurate and in-country nuances are accounted for. They will then need tools and software to supply the CFO with detailed reporting that proves compliance is being met while also giving much-needed insight over payroll across multiple countries.
Payslip technology integrates with HCM systems to help supply local providers with what they need and then get data back in a standardized format that will form the basis for consolidated reporting. The technology will also automate many of the tasks, saving time and a head office payroll team can have centralized control and visibility over the end-to-end payroll process.
Currency, regulations, tax and accounting
Every CFO expanding into international markets must do their due diligence when it comes to currency, regulations, tax and accounting. This CFO research must include a full review of local statutes, regulations and trading requirements, including permits and accreditations.
Failure to do so could result in serious penalties and a tarnished reputation. Often such things prove impossible to recover from in a new and challenging business environment.
Another potential risk to your bottom line is currency conversion. Review your cash flow in and out of the finance function and work out how best to receive and spend to weather any market fluctuations.
Handling local tax regulations, currency exchange and fees, payroll providers offer an impressive return on investment as their expertise allows you to cut costs in the payroll process. With global payroll software, you can keep track of employee costs by country and even access consolidated reports such as multi-country employee cost. With this knowledge, you have the opportunity to run a truly global, streamlined and optimized business.
As the CFO of a globally expanding company, it’s important to take balanced and educated risks when making business decisions. Do your best to understand the international market, conducting plenty of research and lots of planning. Allow time for the seeds you plant to bear fruit. Enlist the help of global talent, people that you can trust with their local insight and on-the-ground knowledge. Prepare to communicate as a global leader, uniting teams across borders. Gain in-field experience where possible, and above all, remain agile in the face of change.
For more information on reporting and analytics available on the Payslip Platform contact us today!