A CFO S GUIDE TO EXPANSION THROUGH INTERNATIONAL GROWTH. companies adopting an international approach to business growth.

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2 INTRODUCTION There comes a point in the natural progression of all growing businesses when they look for opportunities to sell their products and services beyond their native shores. Some companies choose to grow globally through acquisition, while others establish a foreign entity of their parent company. Whatever path a business takes to gain entry into a global market, funding, staffing, pricing, market conditions and complying with local regulations are among a CFO s top considerations. These challenges can be eased with the expert guidance of an experienced financial partner who is familiar with the region. companies adopting an international approach to business growth. Small and mid-size businesses are also capitalizing on the opportunities of international expansion. According to a 2015 report from the Small Business Administration Office of Advocacy, the number of small exporters outpaced large ones by 20.9 percent from 2009 to While these are the most recent figures Savvy CFOs recognize that strategic corporate lending and debt capital management insights from a valued partner can help position their companies with the additional financial backing for major investments and market expansion. The need for proficiency in global growth is highlighted by the fact that experts expect U.S.-based companies to generate a majority of their revenue outside of the U.S. in the next several years. According to data compiled by S&P Dow Jones Indices, S&P 500 companies attributed 52.2 percent of their revenue to U.S. sales in 2014, reflecting a continuing trend toward 2 CFO PUBLISHING ING

3 available, the report noted that the potential for future growth is high. As more companies take their businesses global, this ebook is designed to help guide CFOs through the process. The following topics will be covered: At the start, this ebook addresses questions CFOs should ask financial partners when collaborating on international growth. Once a company has committed to expanding globally, it is critical to find the right financing to support global growth. This ebook will explore strategies such as longterm structured export financing to help mitigate risk and structure companies investments and trade receivables financing to bolster liquidity.»» Finally, global expansion is an opportunity to develop a model for future growth that can be measured and repeated. CFOs should strive to quantify the impact of global expansion initiatives and look for ways to improve and apply their knowledge to future projects. 3 CFO PUBLISHING ING

4 What CFOs Need to Ask as They Consider Global Expansion Whether it s the first or tenth time your company has expanded its global footprint, there are strategies to bolster the chances of success and establish a blueprint for future endeavors. The world is getting smaller and there is certainly the need to look across borders for opportunities, said Sean King, President and Managing Director of Align Global Consulting, a consulting firm focused on globalization strategies. The most essential questions that CFOs should ask revolve around the desired market and the timing of the expansion, experts noted. One of the most overlooked issues that should be discussed early and often is, Why are we going there? King said. As they consider the best approach for expanding their companies globally, CFOs should have a clear vision for what a new market would bring to the overall business. Some key questions to ask include: Is there an existing market for the company s product or service in the new territory? If there is no current demand, how long would it take to develop an audience for the company s products and services? Who are the major competitors in the market?»» When evaluating a global expansion through an acquisition or establishing a foreign operating arm does the move bring something to the table that the company doesn t currently offer and will that help to drive further expansion of the company s current business? 4 CFO PUBLISHING ING

5 Cash flow is also a critical issue for CFOs to examine when contemplating global expansion, experts noted. From a cash perspective, you have to look at the interplay of the companies and how to ensure that you are maximizing taxes across the various countries where you operate, said Bernadine Bacon-Irwin, CFO of The Avascent Group, a strategy and management consulting firm. Closely aligning your global business strategy and tax planning with the treasury function can help effectively manage cash flow. As a global enterprise, you risk incurring significant tax costs for doing so across multiple international jurisdictions without a legal and business structure that is linked up with your cash flow management, noted Carl Allegretti, chairman and CEO of Deloitte Tax LLP. Allegretti previously made this point in a column for CFO Magazine in which he discussed navigating the global tax maze. The stability of a country s currency and political climate can also impact a company s overall cash management efficiencies, according to experts. From a financial as well as legal and tax standpoint, you want to examine the stability of the foreign exchange and the government, as well as the convertibility and hedging potential for the local currency, said Michael Dwyer, Regional Head of Financial Markets Sales, ING Americas. Beyond cash management and other financial planning aspects of global business expansion, compliance with local business regulations of international markets may be a less familiar terrain for CFOs to navigate. From a cash perspective, you have to look at the interplay of the companies and how to ensure that you are maximizing taxes across the various countries where you operate. BERNADINE BACON-IRWIN, CFO, THE AVASCENT GROUP 5 CFO PUBLISHING ING

6 Working with the Right Partner for Overseas Expansion Once the decision has been made to bring a company s goods or services to a new market, the next issue to tackle is finding the right partner to help manage the process and ensure success. There are a number of regulatory, cultural and logistical hurdles that often come with putting a stake in a new part of the world. Even if a company has a track record of successful global expansion, they are always venturing into unexplored markets with unique requirements, and should be considerate to do their proper research before diving into expansion. rules. This is always best with years of local market experience. As with any partnership, there also needs to be an appreciation for the overall goals of the expansion as well as the company s culture. CFOs should come to the table with a list of objectives and look for a partner that can execute most of them, experts noted. A partner should demonstrate an active Closely aligning your global business strategy and tax planning with the treasury function can help effectively manage cash flow. Managing the challenges of expanding globally often requires CFOs to engage with long-term partners who can assist with ongoing cash management and funding concerns, experts noted. A partner should be adept at structuring export finance in countries where longterm borrowing without risk mitigation may be difficult or costly. Projects involving exports and/or investments from multiple countries also require specialized knowledge, according to experts. Finding a financial partner with experience in the new market should be a top concern of CFOs, according to Michael Baudo, Head of Financial Markets, Americas, ING. You really need legal and compliance experts on the ground who know the market inside and out and understand the 6 CFO PUBLISHING ING

7 understanding of the market and have a proven track record of optimizing the process. Many global regulatory and compliance challenges involve managing overseas workers, including hiring and benefits, according to Bacon-Irwin. From a legal, payroll processing and human capital perspective, there are certainly aspects of global expansion that may be new to the CFO. When it comes to understanding regional regulatory and business climates, communication capabilities are often undervalued, Bacon-Irwin noted. You have to literally be able to speak the language something that is often overlooked as well as be able to speak the language of your business and have experience in your field. An effective third-party partner can also help develop an objective exit strategy, experts noted. Even with a well-researched global expansion plan, there are a number of factors that may make doing business in a new market no longer viable. Changes in demographics, an unstable economy or adjustments to the growth model are a few of the reasons a company may need to pull back from expansion. 7 CFO PUBLISHING ING

8 Strategies for Funding Global Growth Funding an international expansion is significantly more involved than other types of transactions, experts noted. The key, according to King, is to start with a solid foundation. You want a document that explains the merits of the deal, King said. You need to spotlight the team that you have in place, your proven track record, the reasons that you are making this move and what it will mean to the short and long-term growth opportunities for your business. Some essential questions that CFOs should ask of their finance partner, according to King, include questions surrounding their ability to help with liquidity and their experience with trade receivables financing. While it often depends on the product, the suite of assets and the jurisdiction of the company you are acquiring, King said that he frequently recommends secure financing as an option for funding international expansion. We find that secure financing is the best way to sell the deal to a financial institution. It should be comprehensive and sophisticated. It shouldn t feel cobbled together. Another working capital concern regarding funding global expansion involves trade receivables. Trade receivables financing is scalable to finance trade growth and can help to improve cash flow. When used as a risk management and balance sheet optimization tool, trade receivables financing can be an attractive source of non-recourse funding for ongoing cash management needs. You need to spotlight the team that you have in place, your proven track record, the reasons that you are making this move and what it will mean to the short and longterm growth opportunities for your business. SEAN KING, PRESIDENT AND MANAGING DIRECTOR, ALIGN GLOBAL CONSULTING 8 CFO PUBLISHING ING

9 Measuring and Replicating Success With the right strategy in place for identifying and funding global growth opportunities, the next step is to gauge the effectiveness of these efforts. For some companies, the measure of success might be market share, but for others, profitability is the key goal, said Baudo. The question then becomes when will you achieve profitability and that is different for each company but for some, if their international efforts are profitable in the third year, that s a success. Avascent Group s Bacon-Irwin agreed that overseas growth is a multi-year effort. I don t think companies should look at it in terms of one year or one project, she said. The goal should be growing relationships overall, and building new relationships in the region to position the company for steady, measured success. Coming full circle, CFOs need return to their original goals to see if they have been fulfilled, Align Global Consulting s King said. In the end, you want to successfully be able to answer questions such as, Do the reasons why we came to this market still make sense? and, How has this expanded global footprint benefitted the larger organization? Preparing effective tax planning and cash flow strategies that are aligned with the overall business strategy are integral to replicating success, noted Deloitte s Allegretti. Dedicating time and effort to managing the risk inherent in each new location, you can increase the value of each transaction and achieve growth as a global enterprise. For some companies, the measure of success might be market share, but for others, profitability is the key goal. The question then becomes when will you achieve profitability and that is different for each company. MICHAEL BAUDO, HEAD OF FINANCIAL MARKETS, AMERICAS, ING 9 CFO PUBLISHING ING

10 CONCLUSION When Growing Globally, CFOs Need a Sustainable Expansion Plan Global expansion is no easy feat. There are things that can be controlled such as the products, services and partners that will help navigate new markets. But there are a great deal of challenges that require expertise, particularly navigating local tax laws, regulations, market preferences, currency, and political stability. For U.S. companies that strategically invest in foreign markets, the rewards can be plentiful as a more globally focused economy takes hold. In addition to exporting, American businesses can access new customers in foreign markets by investing abroad, creating foreign affiliates and becoming multinationals in the process. Sales by these foreign affiliates topped $7 trillion in 2013, according to the latest figures available from the U.S. Chamber of Commerce. While there is a potential to profit from overseas expansion, the stakes for companies seeking growth abroad are high. To help reduce the risk and boost the chances of a successful foray into international business, the following are a few key takeaways from this ebook: Before jumping in, CFOs should develop a clear, comprehensive justification for an international expansion or acquisition, whether it s bringing in new customers or offering services that weren t previously available. As risk management leaders, CFOs have to weigh the prospective benefits of global business expansion with the need to control cash flow and comply with local business regulations, tax laws and other accounting practices when planning international expansion. CFOs should carefully examine financial partners and consultants to ensure that they re the best cultural and professional fit with their organizations. Funding international growth takes specialized expertise that varies by region as well as by partner/ consultant. With a measured approach to international acquisitions and expansions, CFOs can build a repeatable model to help their firms seek out opportunities in today s increasingly global business climate. Whilst every effort has been taken to verify the accuracy of this information, neither CFO nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report. 10 CFO PUBLISHING ING

11 ABOUT THE SPONSOR BY MICHAEL BAUDO, HEAD OF FINANCIAL MARKETS, AMERICAS, ING As U.S. companies look to international markets to drive growth, CFOs are increasingly in need of for strategic partners that understand the challenges of expanding into international markets. As the CFO ebook A CFO s Guide to Expansion Through International Growth highlights, there are a multitude of considerations for CFOs when evaluating global expansion, from how to tap international equity and debt markets to understanding local regulations and tax policies to ensuring you have the right cash management strategy in place. ING Americas offers a broad range of innovative financial products and services to domestic and international corporate and institutional clients through our offices in Atlanta, Dallas, Houston, Los Angeles, New York and throughout Latin America. For companies expanding their businesses internationally or building upon an existing strategy, ING s Financial Markets group offers clients access to more than 60 securities markets and provides client solutions through Debt Capital Markets, Foreign Exchange, Global Securities Finance, Rates, Credits, Commodities, Money Markets, and Multi-Asset Derivatives products and services. In additional to our Financial Markets expertise, ING is known for its global Structured Finance and Corporate Clients work. Structured Finance Our specialized lending arm providing clients with creative solutions through a broad range of structured finance products. SF has lending products in the fields of, among others: Utilities, Natural Resources, Acquisition Finance Group, Structured Acquisition Finance, Telecoms & Media, and Structured Export Finance. Corporate Clients A sector specialized approach to offer large US multinational clients access to our European & International network of products and services, including Payments & Cash Management, Foreign Exchange, Interest Rate and Commodities Hedging, Working Capital Solutions, Debt Capital Markets, and Corporate & Event based Lending. Learn how ING can help connect your business to the rest of the world here: 11 CFO PUBLISHING ING