Accelerating growthInternational expansion
How do you successfully grow
from local to global?
EY Entrepreneurial Winning Women
First video-conference session
Thursday, 23 June 2016
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EY’s perspective on accelerating growthThe road to market leadership
The EY 7 Drivers of Growth
Our research points to seven
critical Drivers for accelerated
growth and business success.
Growing through international
expansion has implications for
each of the EY 7 Drivers of
Growth, so it is critical that your
plans for each are aligned to
support your cross-border growth
aspirations.
To rise to a position of market
leadership, a company must
focus on, and have a plan for,
each of these growth Drivers.
Accelerating growth: international expansion
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International expansion remains a priority … amid a more competitive economic and geopolitical landscape
Middle Market company executives are
expressing increasing optimism in the global
economy. They are being drawn to the inherent
opportunities from today’s divergent economic
performance between countries and regions.
Total foreign direct investment (FDI) is nearly
US$2.2 trillion, and is expected to increase by
11% in 2015 and 9% in 2016. The top five
destinations for FDI are: the Netherlands, China
(mainland), the US, Brazil and Hong Kong
(according to the 2015 World Development
Indicators, published by the World Bank).*
More than 70% of Middle Market companies
pursuing acquisitions in the next 12 months are
looking at cross-border transactions as part of
their M&A strategy, according to EY’s 13th
Capital Confidence Barometer (October
2015).**
* See page five for details. ** EY survey of more than 1,038 Middle Market senior executives in 53 countries.
Accelerating growth: international expansion
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EY’s 13th Capital Confidence BarometerFindings relating to M&A activity in the Middle Market (October 2015)
Page 5
Which of the following megatrends will impact your core business and acquisition strategy most in the next
12 months?
Middle Market respondents
Globalization and digitalization having greater impact on core and acquisition strategies
► Fueled by the convergence of social, mobile, cloud and big data and growing demand for anytime-anywhere access, technology is disrupting all areas of the enterprise, across industries and geographies.
► In the near term (next six months), the growth in economic influence of China, India and the wider Asian economy is expected to have the greatest impact on core business and acquisition strategies.
Accelerating growth: international expansion
Source: EY’s 13th Capital Confidence Barometer (October 2015)
19%
27%
31%
10%
8%
5%
22%
16%
23%
13%
11%
15%
Digital future: Technology is disrupting all areas of enterprise, drivingmyriad opportunities and challenges
Entrepreneurship rising: Entrepreneurship around the world isgrowing, driving the need for more supportive ecosystems
Global marketplace: Economic power continues to shift east andsouth, driving new patterns of trade and investment
Health reimagined: Technology and demographics converge to drivea once-in-a-lifetime transformation of health services and provision
Resourceful planet: Growing demand and shifting supply are drivinginnovation in the energy and resources space
Urban world: Effective infrastructure investment and sound planningwill make future cities competitive and resilient
Core business
Acquisition strategy
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31%
21%
13%
0%
Increase research anddevelopment/product introductions
Exploiting technology to developnew markets/products
Investing in newgeographies/markets
Changing mix of existing productsand services
Innovative approaches to organic growth
30%
5%
More rigorous focus on coreproducts/existing markets
New sales channels
Conventional approaches to organic growth
What is the primary focus of your company’s organic growth over the next 12 months?
Middle Market respondents
Increased R&D and innovative technologies seen as key routes to organic growth
► The focus on core operations is still a key driver – but after several years of emphasis, companies may find
this can no longer deliver growth and just supports earnings.
► Increases in R&D and exploiting technology to develop new markets and products rank highest in organic
growth focus. Nearly a third choose more rigorous focus on core products and existing markets as their
primary growth strategy.
Accelerating growth: international expansion
Source: EY’s 13th Capital Confidence Barometer (October 2015)
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Where is the main focus of your M&A strategy over the next year?
Middle Market respondents
Amid increased globalization, companies are considering all locales for acquisition targets
Accelerating growth: international expansion
Source: EY’s 13th Capital Confidence Barometer (October 2015)
39%
31%
30%
Outside domestic market or immediate region Immediate region (countries close to home) Domestic market (home country)
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Companies taking advantage of attractive asset pricing in emerging markets
► Nearly a third of all Middle Market respondents plan to allocate at least 10% of their acquisition capital to
emerging markets – up seven points from six months ago.
► Currency swings against emerging markets and lower equity valuations have made assets more attractive.
What percentage of your acquisition capital are you going to allocate to the emerging markets in the next 12 months?
4%
6%
21%
61%
8%
2%
1%
21%
72%
4%
Above 50%
25%-50%
10%-25%
Less than 10%
None
Oct-15
Apr-15
Middle Market respondents
Accelerating growth: international expansion
Source: EY’s 13th Capital Confidence Barometer (October 2015)
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Your international expansion journey
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Are you where you want to be on your journey? Like any journey, international expansion requires a clear road map. Through our years of experience helping
Middle Market companies grow, EY has identified five steps that address the phases of successful international
expansion. Each plays a pivotal role in your cross-border expansion process, and we can help you wherever
you are – or want to be – on your journey.
International expansion: planning your course
Accelerating growth: international expansion
• Determine strategic
direction: export,
acquisition, greenfield
operation, alliance and
joint venture
• Agree investment return
requirements
• Consider ability to finance
and staff
• Prioritize potential growth
strategy vehicles
• Define structure for long-
term view e.g., wholly
owned, joint venture,
partnership
• Understand market,
customer and product
needs: assess market-
appropriate products in
order to maintain
competiveness
• Understand brand
positioning and affinity
• Understand channels and
routes to market
• Consider location and
availability of talent,
incentives required
• Consider acquisition
candidates and
access to channels or
partners
• Integrate new
operations, including
IT and finance
• Put in place
processes and
systems to capture
and track growth,
return on investment
and accountability
• Create policy to
attract, develop and
retain local talent
• Integrate tax and legal
planning to enable
entity to compete
compliantly
• Conduct growth and risk-
based analysis to
measure market
attractiveness
• Assess customer and
consumer needs
• Consider cost structure,
tax and transfer pricing,
custom duties and free
trade agreements,
regulatory regime and
supply chain factors
• Assess threats and risks
e.g., infrastructure and
political stability, cultural
dynamics
• Identify expansion team and key
resources at HQ, regional and
local level
• Create day-one & 12-month
deployment and integration
plans embracing multiple work
streams
• Create a robust finance process
and control
framework, including tax and
legal structures
• Consider future tax
developments, particularly in
light of BEPS*; structure
expansion to take into account
incentives
• Consider impact on existing
operations
* Base Erosion and Profit Shifting
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What are market-leading companies doing
to improve international expansion success?Steps in the
journeyInsights into market-leading practices
Your company’s practices:
how comfortable are you?
Low Medium High
The international expansion strategy is aligned to the business’s long-term growth objectives.
Project management and financing are in place for the international expansion strategy.
The growth strategy incorporates differences in culture, preferences and pricing, and accounts for
competitors in those markets.
Target expansion markets have been analyzed and assessed for variety of attractiveness
measures, including customer preferences, infrastructure, socioeconomic factors, politics, security,
available talent, regulatory issues, changing tax environment and risk profile.
Challenges that could adversely affect supply chain and distribution channels have been
addressed, including regulatory requirements for imports and associated tariffs.
Operating models will be able to support business on a larger scale through different entities and
customers who may want new products or services.
Brand loyalty in target market has been analyzed and strategies to engage consumers identified.
Company products or services are compatible with consumers’ buying habits and local regulations.
The right talent is in place to manage complex transactions; integration of businesses, and
language and cultural differences have been addressed.
Finance, tax and legal structures are in place, and key controls have been established, including
addressing foreign corruption risks and requirements.
Regulatory and compliance issues for the new market have been addressed.
Metrics that determine success have been identified and processes put in place to capture this.
A strategy and plan are in place for how “business as usual” will be achieved, including talent
management, communications and reporting.
Processes are in place to build effective and efficient supply chain management and achieve
consistent product quality.
The benefits in increased competitive strength from expansion are known and are being leveraged
to accelerate growth in the business as a whole.
Determine
strategy
Evaluate
market
attractiveness
Determine
ability to
compete
Assess ability
to execute
Achieve
expansion
effectiveness
Accelerating growth: international expansion
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Ten challenges toward successful expansion
$
International
expansion
challenges
2 Different customer
needs
Erratic suppliers or
sourcing and poor
infrastructure
3
Uncertain local politics and
complex regulatory
environment
1
Currency
fluctuations,
rising costs and
wages
4
Tax compliance,
transparency
and changing
environment
6
Customs, import and
export restrictions5
Language
barriers and
cultural
considerations
7
Inadequate
project
management
8
Inability to
secure required
local talent
9
Stakeholder
management
considerations
10
Accelerating growth: international expansion
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How many challenges have you planned for?
Capabilities Financial considerations Market conditions
1. Uncertain local politics and complex
regulatory environment – even
perceptions of local political instability,
corruption or lack of transparency
can adversely affect business
development. Monitoring evolving local
political activity and related regulations
can be complex, time-consuming and
resource-intensive, and requires focused
attention to risk management procedures.
2. Different customer needs – knowing
who the customer is today is not enough.
Being able to anticipate who they will
be and what they will need can help
drive success.
3. Erratic suppliers or sourcing and
poor infrastructure – inadequate
infrastructure still presents tremendous
risk for the supply chain and customer
value. Analysis of the current state
of the target area’s infrastructure grids
can help reduce risk.
4. Currency fluctuations, rising costs
and wages – exchange risk due to
local inflation and currency volatility,
as well as reduced margins resulting
from wage increases, can stop or delay
growth. Plan for wage and currency
fluctuations before they occur.
5. Customs, import and export
restrictions – moving products
across borders often results in delivery
delays and increased costs. Seek
advice on local requirements,
processes and protocols for customs
and trade to guide expectations.
6. Tax compliance, transparency and a
changing environment – a global
evolution in business trends and
government issues has resulted in
more complexity in tax laws and
reporting obligations, more information
sharing between governments, and
more aggressive audits and increased
controversy. Compliance in these
areas will require planning, preparation
and the ability to respond quickly.
Significant changes in the international
tax landscape as a result of the OECD
BEPS (Base Erosion and Profit Shifting)
project will impact the tax structuring of
your investments.
7. Language barriers and cultural
considerations – advisors with expertise
in the local market can help management
increase knowledge of cultural and
language differences and their potential
impact on business.
8. Inadequate project management – poor
project management can mean gaps in
scoping, planning and organizing resources
to achieve specific business goals and
effectively manage risk. A proven project
management methodology is critical for the
success of projects across an organization.
9. Inability to secure required local talent –
local resources with cultural knowledge,
skills, competencies and experiences
will help increase market reach. Proactive
effective people planning is critical to ensure
local relevance of products and services.
10. Stakeholder management
considerations – maintain an open dialogue
with all stakeholder groups to understand
their interests, priorities and levels of
influence. Solicit input and report progress
regularly to ensure engagement, while
tailoring communications to the unique
requirements of each stakeholder group.
Accelerating growth: international expansion
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Next steps
Accelerating growth: international expansion
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All Rights Reserved.
EYG no. AU3602
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