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Five Reasons Middle-Market Companies Should Go Global in 2014
Small to medium-sized enterprises dominate global commerce in terms of innovation, expansion ability, and mobility. These organizations — typically defined in the United States as having fewer than 500 employees, or by the European Commission as having fewer than 250 employees — are nimble and agile enough to respond to changes in markets and customer needs. They have a clear entrepreneurial vision and a “no fear” mentality.
That spirit has driven the growth of many middle-market companies in the world market over the past decade. Exporters are not just blue chip companies; 97.6 percent of U.S. importers/exporters have fewer than 500 employees. According to our earlier definition, these are small to medium-sized enterprises. They may be your competition. You could join them on the world's economic stage and take your company to new heights in 2014.
Here are five reasons why you should consider starting your overseas expansion plans today.
1. Increase customer reach with expected global economic shifts
Where are your current customers? What are your growth rates by geography? Are you seeing an increase in sales or sales inquiries and opportunities internationally?
Consider boosting your export activity, or creating a sales or operating presence in the countries you have been selling into. If your growth rates are flat — or worse, declining — this may be the time to test your product or services’ viability in other markets.
In The World in 2050 (January 2011), HSBC Global Research predicts that the world will look much different by the middle of this century. Of specific note:
- Nineteen of the 30 largest economies will be what we consider emerging economies today
- Emerging economies will collectively be bigger than the developed economies
- China and India will be the largest and third largest economies in the world, respectively
The U.S. economy is predicted to move from its current first place position to number two. Now may be the time to develop plans for how to remain relevant in our world tomorrow.
2. Unlock shareholder value
If we learned any lessons from the economic crisis of 2008, it’s that uncertainty is inevitable and diversification is one of the keys to survival. Global sales and supply can help hedge against negative economic impact in specific markets and therefore increase shareholder value.
Many cross-border transactions closed in 2013 showed clear evidence of increased value paid for businesses with existing supply chains in “emerging markets” such as Asia. In spite of this, many U.S. entities continue to believe it to be difficult to enter those markets.
3. Take advantage of lower costs
While sales are always critical, maintaining and increasing profitability and net cash flow will allow for the highest shareholder value.
Consider parts of your business where markets are shrinking, or where you rely on just a few suppliers. Then determine where you have the most margin play and see if overseas sourcing should be a part of your company’s strategic plans. Sourcing overseas can be complicated, but it can also be a way to manage escalating costs and be closer to an emerging customer base. If you are seeing an increase in sales in Asia, sourcing closer to that region may increase margins and reduce shipping and duty charges.
4. Countries are becoming more friendly to foreign investment
Foreign direct investment (FDI) is loosely defined as an investment (equity, infrastructure, or expansion) in an entity of a company by an investor based in another country. Globally, FDI reached $1.35 trillion in 2012 according to The Economist (June 2013). For the first time ever, developing countries accounted for 52 percent of those global inflows, with South American and African countries on the highest growth trajectories.
On the global stage, countries are reviewing current and anticipated FDI levels and many are working to change the legal system to allow for easier penetration into these markets. The World Bank tracks how countries are doing by providing an in-depth look at the ease of doing business in 189 nations worldwide. The top ten countries in 2013 were:
|Country||Doing Business Index
5. Keep up with your competition
Exporters generally grow faster than non-exporters. Small to medium manufacturing exporters saw revenue grow 37 percent between 2005 and 2009, while non-exporting manufacturers saw revenue slip 7 percent over the same period. U.S. exports are at an all-time high and are advancing at more than four times the rate of domestic growth over the past three years.
All things considered, making a New Year's resolution to “go global” in 2014 may prove to be the jump-start your company needs to begin reaching its full potential.