Competition in the creative industry is currently at an all-time high, with the market being heavily saturated, pushing companies to look beyond the UK. If done right, the rewards can be significant, however if things go wrong, it can put at risk the continuity of the entire business. With more and more creative businesses, such as digital agencies and architect practices, reaching their maximum size in the UK, they seek to increase profitability and brand exposure elsewhere, resulting in plans for global expansion. This can also protect them from competition threats or factors such as trade barriers to entry into foreign markets.
How to make sure international expansion is successful
But what happens when you decide to enter into the international market and things don’t go to plan or as expected? Companies often are attracted by international opportunities, but have they correctly established if the move is feasible and more so, is it sustainable?
How can we do this?
There are usually two options that most companies use to break the international market; operate from the UK or set up a local subsidiary. Operating from the UK is far easier and requires fewer resources. However, there can be a limitation to how much the company will grow with this method. Which leaves the second option, to set up a local subsidiary.
Planning for the international jump
With a new international subsidiary, this will require support from its parent company, whether that be for resources, staffing, knowledge or ultimately funding. We often find that parent companies have not sufficiently forecast or planned the need for additional funding for the subsidiary and have failed to maintain a buffer for any unexpected costs. These can cover a wide-range but include higher payroll costs and taxes, premises costs and foreign currency losses. Therefore, when such costs materialise, the parent company may suffer as a consequence with no contingency plan being in place. The need for forward planning and accurate forecasting on cashflow is essential. It is important to establish how much it will cost to get the subsidiary up and running but also what it will cost in the first few years to sustain the subsidiary. Planning for the future is key.
Can you afford it?
Start-ups generally tend not to be profitable in their first year, as they incur start-up costs to establish a foothold within a market. This proves true for companies expanding overseas. So, the first question you must ask is – Can you afford it?
Building another base overseas requires funding assistance from the parent company to help ‘start-up’. For agencies that might be additional budget to establish a new client base. Without sufficient reserves to act as a buffer, it is unlikely the foreign subsidiary will survive its first year independently.
Regular funding is required to maintain its presence overseas, as such cashflow forecasting for the parent company becomes essential here with the need to factor in these costs. For example, if the revenue of the foreign subsidiary is not sufficient to even cover costs, there will be no choice but for the parent company to inject regular funding to cover expenses such as wages, rent and suppliers if they are to remain afloat.
Have you done your research?
An understanding and working knowledge of the local market is vital in the creation of a new and profitable subsidiary. As such, this requires extensive market research to determine if overseas expansion is right for you.
To obtain international reach, you are largely reliant on the local workforce. Is the skillset adequate for your company’s needs? Are they good enough? If not, you will need to send a team out to lead the recruitment and establish the agency’s ethos.
Major players in the industry are focussing investment in overseas markets which are considered to have greater growth potential thus significantly increasing competition. Larger companies demand brand consistency and often choose firms that have international reach, which is likely to be the larger companies. Therefore, it is important to understand the market you are entering into, the competition and whether your company can compete successfully.
Is overseas expansion for you?
In our experience, companies that adequately plan and forecast for the future and get their business plans right are more likely to succeed in their objectives for creative growth via international expansion.
We have extensive experience of assisting creative business with international expansion. As well as advising on risk management solutions and foreign currency exposure, we can also help and provide support on business cashflow forecasting and contingency planning for the future. We can help you with strategic decision making to ensure your transition to international markets is as smooth as possible.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.