A couple of weeks ago, I wrote a post about why startup and growth-stage technology companies need to think about international expansion long before they actually plan to execute it. As I wrote in that post, international expansion isn?t about tax engineering or slimy tax run-arounds (although some less scrupulous companies seem to think it is). It?s simply about smart preparation and well-thought-out execution.
Feel free to read the full post if you haven?t already, but the gist of my argument was this: International expansion can be enticing and highly profitable, but only if you do it right. If you don?t plan for tax exposures, business model alterations, and international corporate structure in advance, then you?re setting yourself up for an uphill battle at best ? and failure at worst.
My last post was largely fueled by insight from former Acronis CFO John Murgo, who helped guide the data backup and disaster recovery company through its expansion into Europe and Asia from 2006 to 2008. During that time, John helped Acronis grow its revenue from $20 million to $120 million, and the business now has customers in four continents and numerous countries. Most importantly, Murgo says those international customers are highly profitable.
So, now that you understand why thinking about international expansion early in your company?s development is critical, let?s talk about some things you should be doing to actually execute that expansion. Ultimately, Murgo says, the difference between achieving industry-leading profitability overseas or lagging far behind your competitors is an efficient international structure that fuels smart global growth.
Here are five key elements that Murgo believes can help high tech software companies planning for international expansion build a highly successful global platform:
1. Conduct a careful review and assessment of your existing corporate structure
Like many early-stage companies, maybe you started out by incorporating in the United States. It was simple and inexpensive. Or maybe you incorporated in a foreign jurisdiction that is no longer an optimal location, and you may have added other operating subsidiaries. Conducting a careful review and assessment of your existing corporate culture is critical before you execute full-blown international expansion, and you should obtain solid advice in order to ensure you have the right corporate platform to conduct global operations.
2. Design the optimal corporate platform for your business and include tax efficient components
International expansion is often driven by the desire to better service existing customers overseas or to acquire new ones. After all, true market penetration will likely be more successful if you can be closer to your target market. The reality, however, is that it?s not easy to build a global business if all corporate efforts are directed to the U.S. market. Consider regional activities for your key markets, and explore potential acquisitions to accelerate the growth of your business. Even simple structures, such as an international holding company, can provide needed flexibility to facilitate acquisitions and tax efficiencies.
3. Identify the key business drivers of efficient global operations
Expanding globally will drive opportunities to acquire and service new customers. As a result, your strategy should take that business driver into consideration and make it a focal point of success. That often means you?ll need to plan for the appropriate operating structure and staffing to meet your objectives. The complexities of local international laws and tax codes are significant, but it?s also critical to obtain the right skill set at the right locations at the right time. In the end, people are your key asset and they need to be supported in the places where they reside.
4. Implement tax efficient business operations
Redundancies in the system that supports your global footprint can place significant pressures on operating margins. You should centralize as much of your company?s processes as possible and create a ?services? organization to serve the needs of operating entities. Doing so in a tax friendly jurisdiction can enhance your net margins and cash flow, while also allowing your global operating entities to focus on sales and marketing, research and development, and other core functions.
5. Conduct a periodic review of your structure and business operations
Once you?ve designed and implemented a global structure ? whether on purpose or by accident ? it should be periodically reviewed and evaluated. The simple fact is that most well run international structures are dynamic and they need to keep pace with changing business conditions. If you don?t conduct reviews to ensure that everything you?re doing is up-to-date, it can have significant negative consequences on your international performance and efficiency.
The bottom line is that most smart high-growth software businesses ? regardless of their stages of development ? understand that international expansion can provide significant business benefits, including increased customer satisfaction, enhanced operating margins, improved cash flow, and increased enterprise value.
So, the question you need to be asking yourself isn?t if your business should be expanding globally. Rather, it?s whether your company is actually prepared to execute it in a way that?s profitable and operationally efficient.
photo by: eamoncurry123
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