To make expansion work, companies must be able to adapt

International expansion is fraught with risk and can seriously strain company resources — not just financially, but also in terms of human capital. That cost tends to stem from human error, in both the time and effort spent avoiding it, and the emotional and logistical impact of the mistakes themselves.

To make expansion work, companies must be able to adapt to different business rules, regulations, and cultural expectations.

The most effective way is to centralise, and automate some processes. One solution to do a lot of the heavy lifting is an enterprise resource management (ERP) platform, which will enable a business to manage multinational and multi-subsidiary operations. Efficiency gains can be seen quickly through the delivery of real-time operational visibility and consolidation.

So in which business areas can ERP make the most impact?

1. Complex business structures

Although more complex, the subsidiary structure has its advantages over opening a branch office, including protecting the parent company from liability. However, it also makes the accounting process more complicated.

As a separate business, the subsidiary needs to follow local accounting rules and generate its own financial statements. Those results must then roll up to the parent company, where different accounting standards may apply.

Consolidating data from subsidiaries in different countries and following different rules increases the time and effort required to close the books, and is a common source of reporting errors.

Adopting an accounting solution specifically designed for companies with multiple legal entities allows you to post every transaction to multiple accounting books at once. In doing so it ensures the correct standards are applied at local and headquarter level, enabling employees to identify and deliver information faster.

2. Language barriers

Another challenge businesses face when expanding internationally is deciding how to communicate with customers, staff, and other stakeholders. People generally prefer to buy from companies that speak their language; despite its ubiquity in business environments, an English-only marketing strategy will limit growth.

Employees are also more comfortable using their native language and tend to be more productive as well. This isn’t just about comms — it also applies to the tools and technology people use to do their jobs.

3. Exchange rate volatility

When entering a new market, companies are expected to conduct business in the national currency. This isn’t just a convenience for local trading partners, but a legal requirement in most countries.

However, dealing with multiple currencies adds uncertainty, risk, and complexity to financial processes. Exchange rates rise or fall throughout the day and this means the value of international sales fluctuates relative to a company’s base currency.

Understanding the impact of the exchange rate on earnings is critical. Monthly financial statements only capture the results, so managers need more frequent updates to mitigate the effects of exchange rate volatility.

Converting financial data into a common currency for analysis is often a time-consuming, manual process. Automating currency conversion using the latest exchange rates produces more timely insights, leading to better — more accurate — results.

4. Local tax policies

Companies expanding internationally will need to keep up with tax policies. Changes are likely as economic conditions continue to put pressure on countries to raise taxes, as governments look for ways to increase revenue.

Dealing with indirect taxation — including VAT, sales, and use taxes — can be particularly challenging when entering a new market. For example, working with The Union One-Stop Shop (OSS) portal that businesses now need to use to comply with VAT obligations on ecommerce sales in the EU.

Tax rules and rates vary from country to country, and at a regional level too. Knowing when to collect these taxes and what rates apply can be confusing, and it becomes more difficult as you sell into more markets.

According to NetSuite research, almost a third (28%) of UK businesses rate government regulations and tax reform as high threats to their business. Keeping up with tax policies is too often done with spreadsheets. Automating tax collection within a single, fully-integrated system is an easier and likely more accurate approach to managing risk and compliance.

5. Complying with local regulation

Navigating the regulatory environment in a foreign country can feel like trying to untangle the Gordian Knot.

The roles of different government agencies often overlap, making it difficult to know where responsibilities lie. Add to this the myriad legal statutes, banking regulations, and other rules that specify how that business must operate and you realise how big an undertaking international expansion can be.

Compliance may be the biggest challenge companies face when entering a new market. It’s easy to misinterpret regulations and that can lead to costly fines or other penalties. It helps to draw on local expertise to ensure rules are being followed, and automate compliance by embedding those rules within the applications you use to run your business.

With a governance, risk, and compliance programme you can confidently anticipate and act on customer, third party, compliance, enterprise, and financial risk while elevating corporate governance and controls across your organisation.