It’s the end goal for many businesses, but there are a number of costs and risks involved during international business expansion – and most of them can be mitigated by ensuring your budgeting is as accurate as possible.
Planning is a crucial part of every business decision, but when it comes to an expansion of the company in question, it’s particularly important to plan every last detail. This includes accounting for all the costs involved from the very start, to ensure an accurate cost-benefit analysis, to ensure accurate projections, allow the business to hold the right people accountable for results, and justify the decisions made along the way.
One common misconception is that operating in another country will incur similar costs to operating at home, but this isn’t the case. It isn’t just as simple as looking at the target country’s costs, rates and data to make cost projections. Each and every country has its own unique rules and regulations, cultural customs and expectations of employers and businesses. Getting to grips with all of these will significantly increase the chance a business’s cost-benefit analysis is more accurate.
You must also take into consideration every small step; even just opening a bank account in another country can take several months.
It’s highly possible that a move overseas will mean increased production, so this is likely to be one of the first and most obvious areas a business will look at when predicting budgets. Increased cost could come from buying more materials and new equipment, to investing in computer software. When budgeting for this, ensure you take into consideration projected demand and growth, outlining the budget for several possible scenarios.
Overheads in a new country are likely to be higher than at home. You will need to take into consideration the costs of renting and refurbishing new office spaces, and the costs of equipment. And if you plan on moving your supply chain internationally, you will also need to factor in the costs of new factories and distribution centres. Also bear in mind the costs of international payroll services and whether you want to budget for outsourcing global payroll services.
Whatever your international expansion looks like, it will likely involve hiring new employees. And these costs will massively differ from country to country. If you’re expanding to the UK or Continental Europe, for example, employers typically pay a higher percentage of salary towards social security than in the US. In addition, pension contributions are mandatory in many countries world-wide.
Additional budgeting will be required if you plan to send employees from home to work abroad. Factors such as relocation costs, visas and dual-country taxes mean that an expat can be considerably more expensive than an employee from the target country.
Expanding your business internationally will inevitably mean dealing with a different currency. This will affect everything from employee salaries to buying equipment.
And the nature of different rates means that this could sometimes work in your favour, and other times will work out more expensive. Therefore, it’s worth incorporating fluctuations in your budget for bigger falls.
From production costs to international payroll, these are just some of the areas to consider when expanding abroad. If you’re looking for advice on how to plan your budget for international market expansion, it’s advisable to seek the support and knowledge of international expansion experts, such as Galvin International, who can assist in making sure you make the right decisions to create a global business.