Winning GloballyA Playbook for International Expansion Teams

GLOBAL GROWTH EXPERTS

Chapter 2

195 Countries —Where to Go First?

By Larry Harding

Share:2 Winning Globally www.radiusworldwide.com

Chapter 2

195 Countries — Where to Go First?Information You’ll Need to Choose the Right Countries for Growth

You’ve given careful consideration to the issue of international expansion, and many indicators tell you the time is right to make your move. The big question you now face is, where? If you’re going overseas to follow an existing customer base, the answer is easy. If not, you’ve got some thinking to do. With 195 nations to choose from, the world map can look like a smorgasbord of opportunity. Each country, though, has its own unique set of plusses and minuses, making the choice of where to go first far from obvious. To narrow the field, you’ll need to consider a number of factors.

1. Regional Beachheads Often, it’s easier to first narrow your target down to a world region. Asia is home to high-growth economies with large populations. Europe offers a combination of wealthy consumers and highly developed institutions. Latin America is easily accessible to North American companies, especially those prepared to operate in a Spanish-speaking environment. If you have a region in mind, you can often find an obvious candidate or two that’s preferred by multinationals when gaining a foothold there. In Asia, the commercial hubs of Hong Kong and Singapore offer business-friendly environments and a wealth of English-speakers. US firms have tended to base their European operations in the UK, and more recently Ireland, to take advantage of the shorter distance and English-speaking populations. Proximity to the US and a cultural affinity with the rest of North America often makes Mexico the best base for a multinational’s Latin America operations.

Share:3 Winning Globally www.radiusworldwide.com

2. Large, Growing Markets If your strategy depends more on picking individual national markets than targeting a region, bigger is generally better. If you’re going to invest resources in establishing yourself in a new jurisdiction, you want plenty of room to grow. For reference, here’s the IMF ranking of the world’s 10 largest economies in 2013:

But size isn’t everything. Our US clients, by definition, have no choice but to move to a smaller market. Russia’s economy is big, but its allure must be balanced against tough western sanctions, which will hamper growth. Italy’s economy is just barely growing — presenting obstacles to any firm hoping to swoop in and wrest market share from an incumbent in a stagnant industry. That’s why strong growth is another consideration. Take a look at the fastest-growing economies of 2014: 1) Mongolia 15.3%; 2) Sierra Leone 11.2%; 3) Turkmenistan 9.2%; 4) Bhutan and Libya 8.8%; 6) Iraq, Laos and Timor-Leste 8.5%; 9) Eritrea 8.0%; 10) Zambia 7.9%

As you might have guessed, Mongolia and Sierra Leone are not our clients’ most popular destinations. Fast-growing economies skew small and poor. Unless you’re selling in markets such as mining (Mongolia, Sierra Leone, Zambia), oil (Eritrea, Libya, Iraq, Timor-Leste, Turkmenistan), agriculture (Laos) or hydropower (Bhutan) industries, you‘re unlikely to enter the world’s fastest-growing economies. All of which is to say, you’ll want to look for an attractive combination of size and growth. For starters, PwC estimates these six large, diverse economies will exceed the 3.3% global GDP growth in 2015:

Country GDP (Trillions)US $16.8

China $9.2

Japan $4.9

Germany $3.6

France $2.7

UK $2.5

Brazil $2.2

Russia $2.1

Italy $2.1

India $1.9

ChinaIndia

IndonesiaSouth Korea

TurkeyMexico

7.3%6.6%5.8% 4.1%3.8%3.7%

Country GDP Growth

Rank CountryPer Capita GDP

Population (Millions)

14 US $52,800 318

19 Canada $43,100 35.4

21 Australia $43,000 23.5

29 Germany $39,500 80.7

34 UK $37,300 64.1

Country GDP (Trillions)

US $16.8

China $9.2

Japan $4.9

Germany $3.6

France $2.7

UK $2.5

Brazil $2.2

Russia $2.1

Italy $2.1

India $1.9

Share:4 Winning Globally www.radiusworldwide.com

3. Ease of Doing Business If your expansion will require more on-the-ground involvement and integration with your domestic operations, the ease of doing business in the host country will be an important factor — especially when starting out. It’s one thing to license franchisees or take a minority stake in a joint venture in a country like India, China, or Brazil. It’s another thing to establish full-fledged operations there. Based on a composite of ten indices, from “Starting a Business” to “Protecting Investors” to “Enforcing Contracts”, the World Bank ease of doing business rankings places those countries middle to bottom: China (96), Brazil (116), and India (134). Other large, growing economies fall in the same ballpark: Mexico (53), Turkey (69), Indonesia (120). Among countries we work in most often, I’ve found the best conditions outside of the US to be in Australia, Singapore, Hong Kong, and the UK.

4. Large, Wealthy Markets If you offer high-end goods and services, you’ll need to follow the wealthy people. Sellers of luxury goods and life insurance products, take note. These countries offer affluence and size:

US7,135,000

China2,378,000

Japan1,240,000

UK513,000 Switzerland

435,000

Rank CountryPer Capita GDP

Population (Millions)

14 US $52,800 318

19 Canada $43,100 35.4

21 Australia $43,000 23.5

29 Germany $39,500 80.7

34 UK $37,300 64.1

If you sell to the truly rich, then these five countries will offer you the largest number of millionaires:

Share:5 Winning Globally www.radiusworldwide.com

5. Technology Acceptance & Innovation Technology marketers often care less about size, and more about early adoption and infrastructure. The World Economic Forum has developed a “Networked Readiness Index” that rates countries based on the quality of their regulatory, business and innovation environments, their degree of IT preparedness, their usage of information and communications technology (ICTs), and the societal and economic impacts of ICTs. The top three countries were Finland, Singapore and Sweden; the US and the UK ranked 6 and 7. Other highly rated countries were South Korea (9), Israel (13), Canada (15) and Japan (21). If you sell innovative products and services, or are looking to hire innovators, you might consider these countries, which all had two or more cities ranked in the top twenty by 2ThinkNow in their “Innovative Cities Program” index: US: Boston and New York (1), San Francisco (4), Seattle (10), Los Angeles (12) Germany: Munich (6), Berlin (13), Frankfurt (15), Hamburg (19) France: Paris (5) and Lyon (17) Australia: Melbourne (18) and Sydney (20) Keep in mind that it’s not only the most-developed countries that are attractive to tech firms. Brazil boasts one of the world’s largest and most active bases of social media users. The Indian city of Bangalore hosts a robust tech cluster — thanks in large part to the efforts of Indian expats who went off to work in Silicon Valley.

Share:6 Winning Globally www.radiusworldwide.com

6. Vertical Potential One of the most important factors to consider is the country-by-country potential for your own industry. Where are sales growing fastest? Where are sales at or approaching saturation? What countries have the most competition? The least? Retailers who face saturated home markets may experience the same conditions in other developed nations. Expansion may be easier in more emerging markets. Consulting firm A.T. Kearney ranks Chile, China, Uruguay, the United Arab Emirates and Brazil as the top emerging countries for retail potential. While a quick indicator of country potential may be where competitors have opened offices, hard data on industry sales, while not always easy to come by, will be the best gauge of where your company should go. If you don’t subscribe to a syndicated research service, try your industry association —many have conducted global sales research, which you can access as part of your membership. Beyond the shape of the markets, there’s also the industry-specific regulatory environment. While India looks like a plum prize for foreign retailers, multinational giants like Walmart have tried and failed to expand there, stymied in part by a requirement that they source 30 percent of their product from small and medium-sized Indian suppliers. Are you in e-commerce or cloud computing solutions? Find out whether national requirements on storing, protecting and moving data affect firms in your industry. For almost any enterprise, there will be these sorts of industry-specific questions to contend with.

Share:7 Winning Globally www.radiusworldwide.com

7. Sourcing For companies looking to source overseas, there are a number of factors to consider, such as availability of resources, labor costs, proximity to sales markets, skills, and business environment. SourcingOnline, a Washington DC-based research firm, rates countries on an array of factors. Topping their Sourcing list are these six countries:

8. Tax Minimizing tax, while controversial these days, is often a high priority for companies looking to set up operations overseas. It’s always a good idea to keep an eye on the tax implications of your move, and how the structure and location of your overseas operations will affect considerations such as transfer pricing. But be warned, the regulatory ground in the world of international tax is shifting, which adds risk to any expansion strategy that’s driven purely by tax considerations. For example, Ireland’s forgiving corporate tax rate has made it a popular destination for many years. But the UK has struck back by lowering its own tax, tilting the scales, for many firms, back in the Queen’s favor. Meanwhile, the Scottish public is considering seceding from the UK and undercutting both the English and the Irish on taxes. In the US, a renewed spate of corporate inversions — in which domestic companies merge with or acquire foreign entities in order to move their registration overseas and avoid high American corporate tax rates — has prompted widespread calls to ban the practice once and for all. Amid all this international jockeying, the OECD has made cracking down on tax leakage a top priority, meaning that many favorite tax minimization strategies could become obsolete. When choosing countries for tax minimization reasons, always ask whether the advantage is likely to last.

EstoniaRank: 3Composite Index: 6.6

IndonesiaRank: 2Composite Index: 6.7

ChinaRank: 5Composite Index: 6.4

IndiaRank: 1Composite Index: 7.1

SingaporeRank: 4Composite Index: 6.5

BulgariaRank: 5Composite Index: 6.4

Share:8 Winning Globally www.radiusworldwide.com

9. Conclusion There’s a lot to consider here. Those that have trod this path before you — our clients — most frequently target these 10 countries: UK, China, Germany, France, Australia, Singapore, Canada, Hong Kong, India, and Japan. But there’s no universal formula for selecting a country for overseas expansion. The guidance above should give you a foundation to begin conversations with key stakeholders. You’ll have to evaluate the field based on the unique position and needs of your specific enterprise. It’s a time-consuming and potentially risky process — one where a professional with expertise in this field can really help. That’s where we come in — at Radius we have nearly 30 years’ experience working in 80 countries, with hundreds of corporate and non-profit clients.

If you want to accelerate the process, consider working with us.

Radius helps businesses move into new markets, manage overseas operations or outsource entire global accounting and administration functions. We offer integrated international accounting, finance, banking, tax, HR, legal and compliance services, as well as a cloud-based software platform that allows you to manage all of your global operations from your desktop.

If you’d like to learn more about Radius, visit our website at www.radiusworldwide.com. To schedule a phone or in-person meeting, please call +1 888 881 6576.

Share:9 Winning Globally www.radiusworldwide.com

©2014 Radius

US Tel: +1 888 881 6576UK Tel: +44 (0) 203 005 5518Email: sales@radiusww.com

Radius USA31 St. James AvenueBoston, MA 02116 United States Follow Us:

Radius HeadquartersWhitefriars, Lewins MeadBristol BS1 2NT, United Kingdom

About the Author

Larry Harding knows a lot about what it takes for successful international expansion. He spent 15 years as a global financial executive. He helped grow a telecomm start-up into a multi-million dollar company through global expansion. He founded and ran High Street Partners, a US-based firm that helped businesses expand and operate overseas. This year, High Street Partners merged with Nair & Company to form Radius, one of the world’s leading international business software and services companies, with over 500 clients around the globe. As Vice Chairman of Radius, Larry consults with dozens of companies and non-profits each year, helping them to know when, where, and how to expand their businesses internationally. Larry’s peers recognize his expertise: in 2013, he was awarded the Ernst & Young Entrepreneur Of The Year® award in the Maryland Region; he is a past recipient of the Maryland World Trade Center Institute’s annual International Business Leadership Award.

Contact Larry at larry.harding@radiusww.com