International expansion is not just for large companies. While they may not have the financial muscle and human resources of large groups, SMEs and mid-market companies are by no means being left behind. Expansion into new territories increases companies’ potential and generates new momentum for companies in markets approaching maturity. This represents a real lever for growth and a critical issue for France, whose SMEs are the lifeblood of its economy.
In 2012, France’s mid-market companies exported 64 billion euros of products, according to Sage’s Mid-Market Impact economic study. Export activities represent an average of 18% of turnover for exporting French SMEs, placing them on a par with their counterparts in the UK (20%), Germany and the USA (17%).
However, French business managers are anxious about their companies’ ability to remain competitive in export markets. Entering a new international market is a step that requires careful planning. Expansion can take a variety of forms: from exporting to franchises, licenses, strategic alliances, creation of subsidiaries or acquisitions.
Before committing to an investment, the company must assess the viability of the project by asking some searching questions. Cécile Falchier, Chief Financial Officer EME (Enterprise Market Europe) with Sage, has 4 pieces of advice to promote sustainable international development. This advice is drawn from her professional experience, including overseeing the “International” chapter in the joint publication by the DFCG (French national association for CFOs and management controllers) “Améliorer la performance de votre enterprise: 70 recommendations concrètes pour 2015” (Improving your company’s performance: 70 concrete recommendations for 2015), published by Editions Eyrolles. The publication features practical recommendations from professionals, designed to help SMEs and mid-market companies identify available sources of support to help them prepare to compete on an international playing field.
Carry out a self-diagnosis first, to assess the viability of your project
Does the company have the resources to embark upon this path and ensure its success? A self-diagnosis allows you to identify your strengths and weaknesses, clearly determine your financial and human resources and evaluate your production and logistics capacities.
This is an essential exercise to ensure sustainable international development. Out of every ten new exporting companies each year, only three will still be exporting in year two. The international environment is challenging. The company must be managed effectively and be performing well in its domestic market before it considers exploring new horizons.
Once the company has verified its ability to embark upon international development, it can then define its strategy, studying different internationalization scenarios and identifying the most appropriate ones for its situation. Spending a few days in the target country or countries is a good opportunity for a fact-finding mission and to take the first steps towards identifying a support network.
Define a roadmap to structure the process
Which countries should you target? To guide your choice, draw up a matrix including geopolitical, economic, fiscal, demographic and regulatory criteria for the target countries. Ideally, the company should restrict its research to a maximum of three countries to avoid spreading efforts too thinly.
What is the situation in the market? A market study should be carried out to analyze the characteristics of competitors’ supply compared with demand, in order to evaluate a potential positioning for the company’s offer. Study the different scenarios open to you (export, franchises, licenses, strategic alliances, subsidiaries, acquisitions) and their feasibility, taking into account key success factors, available resources (skills, finances, etc.) and reversibility.
How can you position your offer? The company can then use this market study to consider how to position its offer (target, range, etc.) in order to ensure its competitiveness. Certain features may need to be adapted to take account of specific requirements in the country (standards, format, etc.). The company can call on the services of a local economic mission or a French chamber of commerce and industry in the target market to test its offer on the market and identify any required improvements.
This investigation, possibly including contributions from international support agencies and experts, provides working foundations for the definition of objectives and an action plan, bearing in mind the identified risks. The company is then ready to draft its international development marketing plan (e.g.: based on the list of 13 Ps)3, before tackling the details, by defining the value chain for its new activities and associated organization. The company will also need to consider the marketing, social, financial and operational consequences of these new arrangements.
This information should then be used to define the associated investment plan and take the necessary strategic decisions, supported by various international development agencies and experts.
Make sure you have the right management tools to steer your business effectively
To ensure successful international development, the company must be able to steer its performance across a growing geographic area and identify new potential for profitability. Choosing a suitable management system is therefore a fundamental factor.
The arrival of the Cloud, Business Intelligence (BI) and mobility has allowed software producers to streamline information sharing. Whether a company intends to export or establish a physical presence, technologies are opening up new opportunities to support international development strategies. It is up to companies to determine an ideal balance between security, cost and business imperatives. The chosen solution also needs to be capable of ensuring compliance with national regulations in the target countries (SEPA, VAT, etc.) and adapting to any changes.
The choice of management solution will depend on the chosen internationalization method. For example, in the case of subsidiaries, the company will need to consider issues of interdependence and autonomy. The CFO and Information System Manager have a key role to play in this decision. One ensures adherence to the development plan and compliance with accounting and fiscal rules, while the other ensures the right fit between the selected solutions and the teams’ business needs. These individuals need to work together hand in hand.
Adapting performance management to an international context
The performance management process also needs to evolve to support development, depending on the strategy implemented, the target countries and the pace of growth. The finance department has a key role to play in terms of understanding the specific features that need to be considered to manage cultural differences. It needs to consider inherent risks within the country (exchange rate, social or economic risks, etc.) in order to define management indicators to complement traditional financial indicators.
Beyond the specific challenges facing the finance department, the international development of SMEs and mid-market companies requires a concerted approach by the different stakeholders within the company, to support the shared objective of sustainable success and implement the strategic decisions and changes required to take the company into the international arena.