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A combination of global elections, geo-political tensions and economic uncertainty has created a challenging landscape for finance leaders, who are often looked upon to navigate through tumultuous times.
James Simcox, chief product officer and managing director international at Equals Money, discusses overcoming challenges to international expansion and the importance of hedging risk.
What impact are elections across the globe having on businesses and their international growth plans?
The number one challenge for any business in this environment is uncertainty. I think the election in the UK will bring an element of much-needed stability, which will really benefit the UK economy and businesses. If Labour is elected, they have shown themselves to be pro-business and it will be really important for business leaders to have that reassurance that the current status quo will be maintained.
However, we are facing much more uncertainty on an international level, particularly with how things will play out in the US as well as France. Donald Trump has already signalled that he will seek to devalue the dollar should he come into power, which would certainly be an interesting development as currency has already proved something of a rollercoaster over the last couple of years.
As a result, we’re seeing an increasing number of finance leaders take steps to mitigate risk where they can, particularly around currency movements. When transactions involve different currencies, businesses are exposed to the risk of exchange rates moving against their favour, which can impact the value of international dealings. To deal with this, businesses need to hedge their currency risk by securing exchange rates for future transactions
One of the best tools available to help finance leaders balance their risk is booking forward contracts
With potential changes to policy, how can leaders act with authority and make confident decisions for the future?
In business, you will always need to take a bet in some shape or form as that’s the nature of growing a business and making money. I don’t believe businesses should put off making investment decisions, but instead think about ways to manage risk around those decisions and return profits in a fixed way.
One of the best tools available to help finance leaders balance their risk is booking forward contracts. From a budgeting perspective, having a set price for a number of contracts provides a level of stability for the company and reduces currency risk. Similarly, locking in tax rebates at a fixed price can be hugely important in helping businesses plan for the future.
Leaders can also take steps to manage costs such as spending in local currency. We see many businesses use their corporate credit card in local offices when they’re expanding but this is not an effective way of managing costs. It’s much better to manage operations in the local currency at a better rate using a currency card.
What are the barriers that businesses seeking to expand internationally face and how can they overcome those?
Businesses need to think carefully about the nuances and rules of the jurisdictions they are looking to expand into, including employment laws, the local tax structure and even ways of working. A mistake that businesses often make is believing that they can run an overseas business from the UK but it simply does not work like that. One of the most important things that businesses can do is employ people on the ground who have an understanding of the region.
Finance leaders should also not underestimate the importance of product market fit. As you expand, you need to be aware that a product that works in one market may need to be tailored to suit the needs and wants of customers in another region and this is where market research can prove invaluable.
Not surprisingly, currency can be a huge challenge when expanding internationally. A lot of international businesses still prefer to transact in US dollars rather than their local currency so finance leaders need to think about how they can collect payment in various different currencies.
This is where a multi-currency product, such as the one we offer at Equals Money, can be of fantastic use, providing customers with a single account to receive payments in up to 38 different currencies. Customers also benefit from support and the ability to speak to someone on the phone, which can be much harder to access through traditional banking overseas.
How important is it that finance leaders are seen as an anchor and inspire confidence in others?
It’s great that we are seeing finance evolve from a service function to a business partner and it’s key that finance leaders are involved in conversations about international expansion from the get-go. They need to take the lead on risk mitigation and that means understanding how to transact in different currencies, how to report back to the core business and how to plan across multiple markets and multiple currencies.
There’s a lot of research that needs to be done and this should happen upfront, so finance leaders are well prepared to overcome the different challenges from FX rates to transfer pricing. All too often, we see finance teams involved far too late and this can create panic and uncertainty around certain decisions.
Finance leaders should also pay attention to the political landscape in their local markets by keeping their ear to the ground and understanding what changes could potentially impact the business, such as interest rate movements or changes to local tax policy. There’s a huge value to employing advisers or specialist business consultants in local markets. Similarly, having someone from that region to work within the finance function who understands local accounting rules is key.
How can finance leaders ensure they are effectively using technology and payment platforms to drive better decision-making?
Data is key but it can be a challenge gathering the right information if you’re using multiple different providers across various different jurisdictions. Where you can, you should try and use a uniform technology payment stack across the entire business.
Of course, it’s not always possible to access that kind of service and in those instances, finance leaders need to think carefully about how they’ll integrate their accounting data into the business. Is there a standardised standard you can use to pull information from different systems and partners? Cross-border services can be really helpful, with lots of providers now offering the ability to transact from one place across lots of different markets.
It is also worth considering how cards can be used as a payment method. As long as the card provider supports payment in the currency you want, cards can be used to carry out domestic payments where banking may not support those. Interestingly, we are all quite happy to adopt new payment methods in our personal lives, but there’s much more reticence among businesses.
For businesses to thrive in international markets, I think we will need to see finance leaders embrace new ways of thinking and new methods of payment.
Find out more about how Equals Money can help simplify your finance processes and support international growth here