It can happen without notice. Your largest client asks you to become a supplier to their European subsidiary. A domestic supplier refers you to a new manufacturer in Asia. A large order from South America comes in through your website.
Just like that, you’re an international company.
Unexpected growth can lead to pitfalls
Global trade is more prominent and easier to facilitate than ever before. With today’s vast supply chain networks, e-commerce platforms, and ease of communication, even small organizations can compete effectively with global conglomerates.
What many first-time businesses overlook is the strategic planning that creates a strong foundation for global expansion. Unless you’re thinking long-term or seeking guidance from experienced advisors, you can miss opportunities for revenue and profitability. Even worse, your initial efforts can end up hampering future international growth.
Take a long-term, strategic view
Here’s what the path to globalization and maturity looks like for most middle market companies, and what your organization should consider at each stage.
Early. Most companies begin international sales by invoicing and collecting in U.S. Dollars. It’s a familiar currency and requires few changes to your domestic processes or banking relationships.
Many businesses, however, make the mistake of requiring stricter terms for foreign buyers, which weakens your competitive position over time. Instead of requiring cash up front, work with your bank to determine the best international payment solution. When you understand your options for cross-border payments, you can choose the best method to mitigate your risk and manage your costs.
Once you get traction with ongoing orders, the path to globalization starts to take shape. A logical next step is recruiting an international sales agent or distributor who can operate in the same time zone and speak the same language as your international customers. This adds complexity for finance. In addition to overseas receivables, there’s now the need for international payables. There are also tax, insurance, supply chain, transfer pricing, and offshore working capital implications.
At this stage, many companies engage outside advisors to help navigate these complex global issues. Look for experienced professionals with on-the-ground knowledge of the regions you want to target. Remember, no one person or firm will have all the answers; instead, gather trusted resources who can speak to global finance and banking, risk management, regulations, taxes, and insurance. Then, hold honest conversations about your long-term strategic goals and business concerns with these experienced resources.
Middle. Establishing your first overseas facility represents the next stage of international growth. This can be as simple as a sales office or warehouse, or as complex as a manufacturing plant or international subsidiary.
Where you locate should be thoughtful and strategic, rather than simply in close proximity to current customers or suppliers. A number of items can impact your long-term success, from political, tax and legal issues to international shipping, logistics and human resources. Creating a business plan will help you and your advisory team stay on course.
From a banking perspective, you can build a budget from the business plan and use it for strategic discussions with your banker.
Mature. The final stage of globalization occurs when middle market companies merge or acquire complementary global firms. As your international footprint grows, so will your banking relationships and your access to international solutions, such as customized credit and capital for acquisitions, working capital, and fixed assets in foreign jurisdictions.
Staying profitable and competitive at this stage often means stepping back to rationalize and centralize your financial controls. Automating processes, establishing consistent governance policies, and gaining visibility across your operations become key.
Size up your bank’s international abilities
No matter where you are in your global expansion journey, the right banking resource is essential. Evaluate your options with these best practices in mind:
- Develop trusted relationships. Find a bank with dedicated expertise, subject matter experts and financial solutions that can support your company at each stage of globalization.
- Understand your options. It’s a common misconception that doing business abroad requires numerous banking relationships—or, that a single large bank can handle everything. In today’s rapidly changing environment, new liquidity and risk management solutions exist that support global expansion. With the proliferation of multicurrency accounts and electronic banking through clearinghouses and fintechs, many companies may no longer need a bank account in a foreign country.
- Stay current with trends. From tariffs and Brexit to tensions with trading partners and the global pandemic, the past few years have been particularly rough on U.S. companies selling internationally. At present, demand for raw materials and imports of finished goods are creating inflationary pressures through the entire supply chain. However, with trade tensions easing and the global economy reopening, many middle market companies are re-evaluating their global expansion plans.
A strong global bank can help you navigate these and other economic conditions proactively with economic reports, industry guidance, and recommendations specific to your circumstances.
Wells Fargo supports the needs of many middle market companies as they branch out overseas. As you plan your next step, our team can deliver the same exceptional service and expertise at home and around the world. Look to us for tailored solutions that support your goals and mitigate your risks.