Expanding a business internationally can be an exciting prospect, enabling companies to tap into new markets, expand their customer base and unlock new opportunities. But, as any leader can attest, it is not without its challenges.
According to research by global payments technology company Equals Money, the threat of existing competition in international markets; a lack of brand awareness and struggles to identify the most valuable markets have all been cited by financial leaders as the greatest barriers to international expansion. In addition, the costs associated with using foreign currency and complex cross-border payments also pose significant hurdles.
Despite this, 88% of financial leaders remain confident in their international growth plans, particularly in the wake of the UK election, which has arguably offered UK businesses some much-needed stability.
“The last few years have caused a lot of upheaval for businesses and a lack of confidence in the UK,” says Thanim Islam, head of FX analysis at Equals Money. “While we are yet to see Labour policies implemented, the rhetoric and party manifesto have provided much-needed reassurance. Now that UK businesses have more stability domestically, it will enable them to build the foundations needed to expand internationally.”
However, while the UK may be entering a period of stability, the international landscape remains much more uncertain. A shock election result in France has raised questions over the future of Europe’s third largest economy, while the US is expected to remain volatile until the uncertainties of the November election are resolved.
In addition, geopolitical tensions in the Middle East have led to growing uncertainty over the security of the region’s trade routes. Nearly two thirds (61%) of businesses surveyed by Equals Money said economic stability is the key factor in choosing which market to expand into, while 40% cited the regulatory environment.
As businesses grapple with the structural and legal complexities of unfamiliar territories, financial leaders must ensure they are well-prepared for international expansion in the current climate. Having the right people to hand, embracing an open mindset and gaining a deep understanding of their target market are all essential for success.
“There is certainly more for businesses to consider than ever before, but it will not stop them from expanding,” says Islam. “These challenges are simply another jigsaw piece to fit into the puzzle, but careful planning will be key.”
Understanding your target market
Often one of the biggest hurdles businesses face during expansion is understanding the cultural nuances and needs of their target market. Nearly a third (31%) of businesses surveyed by Equals Money said their biggest challenge was competing with existing competition in international markets, while over a quarter (27%) cited a lack of brand awareness.
While a product may work well in domestic markets, its success in overseas markets is not guaranteed. Cultural and language differences can prove challenging and businesses will need to be able to effectively communicate and engage with potential customers and partners. They must be willing to invest time, effort and resources, so putting boots on the ground is critical.
“You need a local perspective, someone who understands the market, regulations and how well products are received. From there you can look to build a local sales force, but this takes time and dedication,” says Islam.
Overcoming currency hurdles
Another crucial - but often underestimated - factor is payments. If a business is based in the UK but expanding into overseas markets, making and receiving international payments can be challenging.
More often than not, says Islam, businesses rely on banks and in-country providers, but this can require finance teams to use a number of different systems to manually build their international payments infrastructure.
“It is not the most efficient process, but it is often the method businesses opt for simply because they don’t know of the alternative or because they are used to operating in a certain way and feel unsure about taking a different approach,” he says.
“However, using multiple partners, particularly large banks who will be dealing with several different products, can cause friction for those who need to make payments quickly across a number of currencies.”
A number of costly hurdles can arise when making payments abroad. Firstly, businesses may encounter unexpected fees, as well as the risk of foreign exchange rates. Secondly, they may be at the mercy of changes to local banking rules and regulations.
The Economic and Financial Crimes Commission’s decision earlier this year to ban foreign entities based in Nigeria from transacting in foreign currencies and mandating the use of Naira in their financial business is case in point.
Tellingly, Equal Money’s research found payment issues are a recurring theme for those expanding internationally, with one in three (29%) citing costs associated with foreign currency as their biggest challenge, while 27% named slow cross-border payments.
“A lot of businesses simply do not understand how they can lower costs by using a payment system that sits outside banks,” says Islam. “Ideally, businesses should be working with an agile partner, who has a deep understanding of changes to FX as well as access to local knowledge and can guide them in real time,” he explains.
More than half (53%) of business leaders agree that working with a trusted partner is the most important factor to feel more confident about their international growth plans. This was followed by guidance on international compliance (47%). Additionally, almost two fifths (39%) said a cost-effective FX provider would offer them the level of support they need to feel more confident.
Equals Money, whose payment platform and multicurrency accounts allow customers to receive payments in up to 38 currencies in one place, is well positioned to support businesses, offering knowledge and in-country expertise, as well as the ability to speak to an adviser.
“Expanding internationally is an exciting time for businesses and with so much to think about, leaders do not want to be weighed down by payments. Working with someone who can help you take care of that means one less thing to worry about, particularly if you can just pick up the phone whenever you have a query or concern,” says Islam.
Equals Money offers multi-currency payments and the ability to manage funds all in one platform, enabling leaders to concentrate on other aspects of their expansion journey. With a new government welcoming in an era of domestic stability for UK businesses, the time has arrived for business leaders to look ahead and reconsider their international expansion Strategy.
Find out more about how Equals Money can help simplify your finance processes and enable more effective digital transformation change projects here.
