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Tried and tested vs. expanding and emerging markets: Where are US-businesses looking to expand and invest in 2017/18?
[May 15, 2017]

Tried and tested vs. expanding and emerging markets: Where are US-businesses looking to expand and invest in 2017/18?


Although outbound FDI from the US is forecast to fall in 2017, US-based multinationals still see investment outside the US market as central to their corporate growth plans - according to new research from TMF Group, a global provider of corporate and administrative services, and Forbes Insights.

The study 'Venture Further: what drives international expansion and investment by US businesses?' canvassed the views of 250 US-based C-Suite Executives to explore the motivations and challenges of US-headquartered multinationals in taking their organization into a new international market. Respondents were drawn from a wide selection of industries and from organizations with annual revenues ranging in size from $250 million to over $5 billion.

Respondents were asked into what regions their organizations had invested in the last two years, as well as where they planned to invest in 2017/18.

  • The results showed that the developed economies of Northern and Western Europe (including France, Germany, the UK and Ireland) as well as the rest of North America (i.e. Canada) remain the most favoured destinations for investment over the next two years for half of the businesses surveyed, .though that represents a notable decline from even higher investment activity levels over the preceding two years.
  • Despite the FDI downturn, the emerging markets of South America also remain a destination of choice for over a third (36.4%).
  • However, a significant uplift in interest was recorded for Australia and New Zealand, potentially a precursor for resurgent sentiment toward the Asia Pacific (APAC) region with 9.2% more respondents saying that they would invest in the region over the next two years than had done over the last two years.
  • A smaller increase (+3.2%), but still one that bucked the global downward trend, was also recorded for Eastern Europe, where a number of markets are emerging as nascent innovation and technology hubs

In addition, the survey asked what motivated US-businesses to explore new foreign markets and what challenges they had faced.

  • The most common motivators were to open new markets and gain market share (45.6%) and expand existing operations (42%). However, just over a quarter were looking for new resources to enhance their business: to find new talent and skills (28.8%) and new sources of capital (26.8%).
  • Having entered a foreign market, there was some uniformity across respondents in the challenges they faced. Getting the business established with banking and accounting records (31.6%), identifying premises and/or a process agent (31.2%) and selecting and incorporating the right entity type (30%).
  • Additional issues were presented in finding and providing official evidence of a company's 'good standing' (28.8%) and complying with local data protection and privacy laws (28.4%).
  • Contrary to much of the current conventional wisdom, only 12% of C-Suite Executives surveyed cited cost-saving as a motivator for international investment/expansion, hinting that cost-driven offshoring may have largely run its course.

Commenting on the key findings, Raimundo Diaz, Regional Head of the Americas for TMF Group, said: "It's encouraging to note that, while overall outbound FDI may drop slightly, US-businesses are still actively exploring new markets to pursue their corporate growth.

"After all, the world is full of business opportunities; new markets to enter, new demand to satisfy. Companies are only limited by their ambition."

He continued: "Of course, the challenge of getting established in a new market will be more or less complex according to jurisdiction: everything from selecting and incorporating a new entity, establishing banking and accounting processes and records to complying with local data protection laws. Detailed market knowledge is vital."

Reflecting on their experiences respondents were asked if they could give a peer - considering international investment or expansion - one piece of advice, what it would be.

  • More than a third (36%) stressed the importance of research and pre-planning: to be clear on your reasons for investment or expansion and to thoroughly investigate and understand the territories political, economic, social and legal landscape.

Diaz concluded: "The importance of local knowledge when entering a new market cannot be underestimated. Whether you are looking to extend or enhance existing operations or looking for new opportunities, it is important to fully understand the local complexities of any given market to make sure your operations are - and remain - fully compliant with what could be a rapidly changing regulatory landscape."

To find out more about TMF Group and to download the full report: tmf-group.com/venturefurther.

TMF Group will also host a webinar on the Venture Further study and the trends shaping the international investment and expansion plans of US companies on May 31, 2017 at 1:00 p.m. EDT. Participants can register by clicking here.

NOTES TO EDITORS

TMF Group helps global companies expand and invest seamlessly across international borders. Its expert accountants, legal, HR and payroll professionals located around the world assist clients with their corporate structures, finance vehicles and investments. With business services offered in more than 80 countries, TMF Group is the global expert that understands local needs. www.tmf-group.com

Forbes Insights is the strategic research and thought leadership practice of Forbes Media. By leveraging proprietary databases of senior-level executives in the Forbes community, Forbes Insights conducts research on a host of topics of interest to C-level executives, senior marketing professionals, small business owners and those who aspire to positions of leadership, as well as providing deep insights into issues and trends surrounding wealth creation and wealth management. www.forbes.com/forbesinsights/

VENTURE FURTHER: What drives international expansion and investment by US businesses?

In March 2017, TMF Group - in association with Forbes Insights - canvassed the views (via an online poll) of 250 C-suite Executives from US-headquartered multinational companies to understand their motivations and challenges in taking their organization into a new international market. The respondents were drawn from a wide selection of industries and from organizations with annual revenues ranging in size from $250 million to over $5 billion.

  • 250 US-based C-Suite Executives from multinational companies: CEO, CFO, COO and CLO.
  • Nearly three-quarters of respondents (71.6%) worked for organizations with annual revenues of over $1 billion.
  • The majority (70.8%) were also responsible for overseeing operations in more than 6 countries, while one in four (24.8%) for operations in over 10 international markets.


Top 10 global investment and expansion destinations for US-based multinationals in 2017/18

 
           

2015 -
2016

   

2017 -
2018

   

Ranking change
(2015 - 2016) /
2017 - 2018

    + / -
WESTERN EUROPE     Austria, France, Germany, Liechtenstein, Monaco, Switzerland     58.4%     51.6%     (2) / 1     -6.8%

NORTH AMERICA
(Excl. USA)

    Bermuda, Canada, Greenland, Saint Pierre and Miquelon     59.2%     50.0%     (1) / 2     -9.2%
NORTHERN EUROPE     Channel Islands, Ireland, Isle of Man, United Kingdom     44.4%     43.6%     (3) / 3     -0.8%

AUSTRALIA &
NEW ZEALAND

    Australia, Christmas Island, Cocos, New Zealand, Norfolk Island     33.2%     42.8%     (5) / 4     +9.6%
SOUTH AMERICA     Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Falkland Islands, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela     39.2%     36.4%     (4) / 5     -2.8%
EASTERN EUROPE     Belarus, Bulgaria, Czech Republic, Hungary, Poland, Republic of Moldova, Romania, Russia, Slovakia, Ukraine     26.0%     29.2%     (10) / 6     +3.2%
SOUTHERN EUROPE     Albania, Andorra, Bosnia and Herzegovina, Croatia, Cyprus, Gibraltar, Greece, Italy, Macedonia, Malta, Montenegro, Portugal, San Marino, Serbia, Slovenia, Spain, Vatican City     32.4%     28.8%     (7) / 7     -3.6%
SOUTHERN ASIA     Afghanistan, Bangladesh, Bhutan, India, Iran, Maldives, Nepal, Pakistan, Sri Lanka     32.8%     28.0%     (6) / 8     -4.8%
EASTERN ASIA     China, Hong Kong, Japan, Korea (North), Korea (South), Macau, Mongolia, Taiwan     29.6%     27.6%     (8) / 9     -2.0%
CENTRAL AMERICA     Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama     28.4%     25.6%     (9) / 10     -2.8%
 

What motivates US business to explore new markets?

 
To open new markets and gain market share     45.6%
To expand existing operations / service lines     42.0%
To create / improve R&D and technology resources     30.0%
To find new talent and skills     28.8%
To find new sources of capital     26.8%
A customer contract required local presence     24.8%
To establish a shared service center     23.6%
Financial and corporate restructuring/establishment of special purpose vehicle (SPV)     22.8%
To buy a competitor     20.8%
To decrease operational cost/operate more cost effectively     12.0%
Other M&A activity     10.0%
 

What are the biggest challenges that US businesses face when entering a foreign market?

 
Establishing banking and accounting measures and statutory records     31.6%
Identifying the right premises and / or process agent     31.2%
Selecting and incorporating the right entity type     30.0%
Finding and providing official evidence of 'good standing'     28.8%
Data protection considerations and privacy laws     28.4%
Operating within trade union and collective bargaining agreements     28.0%
Finding the right local talent and adhering to labor laws     27.2%
Rules on transfer pricing and/or repatriation of profits     25.6%
Appointment of local directors and/or representatives     22.4%
Additional licensing requirements and/or revised constitution following merger or acquisition     20.0%
Rules relating to the transfer of staff from acquired/merged operations     20.0%
Compatibility of local financial reporting rules with international reporting systems and standards     21.6%
Intellectual property agreements and enforcement     19.6%
Unique cultural expectations and language barriers     19.6%
Rules relating to 'restricted' industries     18.8%
Detailed record checks of company directors (including disclosure of ultimate beneficial owner (UBO))     13.2%
Antitrust or competition law     10.4%
 

With the benefit of hindsight, what one piece of advice would US business leaders give to their peers?

 
PLAN THOROUGHLY AND DO YOUR RESEARCH     Be clear on your reasons for investment/expansion and don't make false assumptions about a local market. Make sure that you investigate the territory's political, legal and cultural environment, as well as the competitive landscape, target market and/or workforce.     36.0%
CONSIDER JOINT VENTURES AND ACQUISITIONS     Consider joint ventures and acquisitions. One way to avoid some of the effort, cost and risk of setting up in a new territory is to buy an existing operation or create a joint venture with an existing operation. However, these options come with their own risks and professional assistance should be sought.     23.6%
CONSIDER A SINGLE SUPPLIER TO MANAGE YOUR MULTI-TERRITORY RELATIONSHIPS     One of the key issues in managing expansion is the gathering, processing and reconciliation of operations, financial and legal data across multiple territories. Using a single strategic supplier to handle these as outsourced functions could help provide consistency across processes and standards.     18.8%
GET HELP FROM THIRD PARTIES     Local service providers, chambers of commerce and advisors are invaluable, particularly when creating a new legal entity, recruiting and training staff and setting up your back-office function.     10.8%
CONSIDER OUTSOURCING     Don't under-estimate the operating costs in a local market. The boundary between what you do in-house and what you outsource should remain fluid, and be constantly reassessed over time.     10.8%


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