Accelerating growth International expansion growth International expansion How do you successfully...

Accelerating growthInternational expansion

How do you successfully grow

from local to global?

EY Entrepreneurial Winning Women

First video-conference session

Thursday, 23 June 2016

EY’s perspective on accelerating growthThe road to market leadership

The EY 7 Drivers of Growth

Our research points to seven

critical Drivers for accelerated

growth and business success.

Growing through international

expansion has implications for

each of the EY 7 Drivers of

Growth, so it is critical that your

plans for each are aligned to

support your cross-border growth

aspirations.

To rise to a position of market

leadership, a company must

focus on, and have a plan for,

each of these growth Drivers.

Accelerating growth: international expansion

International expansion remains a priority … amid a more competitive economic and geopolitical landscape

Middle Market company executives are

expressing increasing optimism in the global

economy. They are being drawn to the inherent

opportunities from today’s divergent economic

performance between countries and regions.

Total foreign direct investment (FDI) is nearly

US$2.2 trillion, and is expected to increase by

11% in 2015 and 9% in 2016. The top five

destinations for FDI are: the Netherlands, China

(mainland), the US, Brazil and Hong Kong

(according to the 2015 World Development

Indicators, published by the World Bank).*

More than 70% of Middle Market companies

pursuing acquisitions in the next 12 months are

looking at cross-border transactions as part of

their M&A strategy, according to EY’s 13th

Capital Confidence Barometer (October

2015).**

* See page five for details. ** EY survey of more than 1,038 Middle Market senior executives in 53 countries.


EY’s 13th Capital Confidence BarometerFindings relating to M&A activity in the Middle Market (October 2015)

Which of the following megatrends will impact your core business and acquisition strategy most in the next

12 months?

Middle Market respondents

Globalization and digitalization having greater impact on core and acquisition strategies

► Fueled by the convergence of social, mobile, cloud and big data and growing demand for anytime-anywhere access, technology is disrupting all areas of the enterprise, across industries and geographies.

► In the near term (next six months), the growth in economic influence of China, India and the wider Asian economy is expected to have the greatest impact on core business and acquisition strategies.


Source: EY’s 13th Capital Confidence Barometer (October 2015)

19%

27%

31%

10%

8%

5%

22%

16%

23%

13%

11%

15%

Digital future: Technology is disrupting all areas of enterprise, drivingmyriad opportunities and challenges

Entrepreneurship rising: Entrepreneurship around the world isgrowing, driving the need for more supportive ecosystems

Global marketplace: Economic power continues to shift east andsouth, driving new patterns of trade and investment

Health reimagined: Technology and demographics converge to drivea once-in-a-lifetime transformation of health services and provision

Resourceful planet: Growing demand and shifting supply are drivinginnovation in the energy and resources space

Urban world: Effective infrastructure investment and sound planningwill make future cities competitive and resilient

Core business

Acquisition strategy

31%

21%

13%

0%

Increase research anddevelopment/product introductions

Exploiting technology to developnew markets/products

Investing in newgeographies/markets

Changing mix of existing productsand services

Innovative approaches to organic growth

30%

5%

More rigorous focus on coreproducts/existing markets

New sales channels

Conventional approaches to organic growth

What is the primary focus of your company’s organic growth over the next 12 months?


Increased R&D and innovative technologies seen as key routes to organic growth

► The focus on core operations is still a key driver – but after several years of emphasis, companies may find

this can no longer deliver growth and just supports earnings.

► Increases in R&D and exploiting technology to develop new markets and products rank highest in organic

growth focus. Nearly a third choose more rigorous focus on core products and existing markets as their

primary growth strategy.



Where is the main focus of your M&A strategy over the next year?


Amid increased globalization, companies are considering all locales for acquisition targets



39%

31%

30%

Outside domestic market or immediate region Immediate region (countries close to home) Domestic market (home country)

Companies taking advantage of attractive asset pricing in emerging markets

► Nearly a third of all Middle Market respondents plan to allocate at least 10% of their acquisition capital to

emerging markets – up seven points from six months ago.

► Currency swings against emerging markets and lower equity valuations have made assets more attractive.

What percentage of your acquisition capital are you going to allocate to the emerging markets in the next 12 months?

4%

6%

21%

61%

8%

2%

1%

21%

72%

4%

Above 50%

25%-50%

10%-25%

Less than 10%

None

Oct-15

Apr-15




Your international expansion journey

Are you where you want to be on your journey? Like any journey, international expansion requires a clear road map. Through our years of experience helping

Middle Market companies grow, EY has identified five steps that address the phases of successful international

expansion. Each plays a pivotal role in your cross-border expansion process, and we can help you wherever

you are – or want to be – on your journey.

International expansion: planning your course


• Determine strategic

direction: export,

acquisition, greenfield

operation, alliance and

joint venture

• Agree investment return

requirements

• Consider ability to finance

and staff

• Prioritize potential growth

strategy vehicles

• Define structure for long-

term view e.g., wholly

owned, joint venture,

partnership

• Understand market,

customer and product

needs: assess market-

appropriate products in

order to maintain

competiveness

• Understand brand

positioning and affinity

• Understand channels and

routes to market

• Consider location and

availability of talent,

incentives required

• Consider acquisition

candidates and

access to channels or

partners

• Integrate new

operations, including

IT and finance

• Put in place

processes and

systems to capture

and track growth,

return on investment

and accountability

• Create policy to

attract, develop and

retain local talent

• Integrate tax and legal

planning to enable

entity to compete

compliantly

• Conduct growth and risk-

based analysis to

measure market

attractiveness

• Assess customer and

consumer needs

• Consider cost structure,

tax and transfer pricing,

custom duties and free

trade agreements,

regulatory regime and

supply chain factors

• Assess threats and risks

e.g., infrastructure and

political stability, cultural

dynamics

• Identify expansion team and key

resources at HQ, regional and

local level

• Create day-one & 12-month

deployment and integration

plans embracing multiple work

streams

• Create a robust finance process

and control

framework, including tax and

legal structures

• Consider future tax

developments, particularly in

light of BEPS*; structure

expansion to take into account

incentives

• Consider impact on existing

operations

* Base Erosion and Profit Shifting

What are market-leading companies doing

to improve international expansion success?Steps in the

journeyInsights into market-leading practices

Your company’s practices:

how comfortable are you?

Low Medium High

The international expansion strategy is aligned to the business’s long-term growth objectives.

Project management and financing are in place for the international expansion strategy.

The growth strategy incorporates differences in culture, preferences and pricing, and accounts for

competitors in those markets.

Target expansion markets have been analyzed and assessed for variety of attractiveness

measures, including customer preferences, infrastructure, socioeconomic factors, politics, security,

available talent, regulatory issues, changing tax environment and risk profile.

Challenges that could adversely affect supply chain and distribution channels have been

addressed, including regulatory requirements for imports and associated tariffs.

Operating models will be able to support business on a larger scale through different entities and

customers who may want new products or services.

Brand loyalty in target market has been analyzed and strategies to engage consumers identified.

Company products or services are compatible with consumers’ buying habits and local regulations.

The right talent is in place to manage complex transactions; integration of businesses, and

language and cultural differences have been addressed.

Finance, tax and legal structures are in place, and key controls have been established, including

addressing foreign corruption risks and requirements.

Regulatory and compliance issues for the new market have been addressed.

Metrics that determine success have been identified and processes put in place to capture this.

A strategy and plan are in place for how “business as usual” will be achieved, including talent

management, communications and reporting.

Processes are in place to build effective and efficient supply chain management and achieve

consistent product quality.

The benefits in increased competitive strength from expansion are known and are being leveraged

to accelerate growth in the business as a whole.

Determine

strategy

Evaluate

market

attractiveness

Determine

ability to

compete

Assess ability

to execute

Achieve

expansion

effectiveness


Ten challenges toward successful expansion

$

International

expansion

challenges

2 Different customer

needs

Erratic suppliers or

sourcing and poor

infrastructure

3

Uncertain local politics and

complex regulatory

environment

1

Currency

fluctuations,

rising costs and

wages

4

Tax compliance,

transparency

and changing

environment

6

Customs, import and

export restrictions5

Language

barriers and

cultural

considerations

7

Inadequate

project

management

8

Inability to

secure required

local talent

9

Stakeholder

management

considerations

10


How many challenges have you planned for?

Capabilities Financial considerations Market conditions

1. Uncertain local politics and complex

regulatory environment – even

perceptions of local political instability,

corruption or lack of transparency

can adversely affect business

development. Monitoring evolving local

political activity and related regulations

can be complex, time-consuming and

resource-intensive, and requires focused

attention to risk management procedures.

2. Different customer needs – knowing

who the customer is today is not enough.

Being able to anticipate who they will

be and what they will need can help

drive success.

3. Erratic suppliers or sourcing and

poor infrastructure – inadequate

infrastructure still presents tremendous

risk for the supply chain and customer

value. Analysis of the current state

of the target area’s infrastructure grids

can help reduce risk.

4. Currency fluctuations, rising costs

and wages – exchange risk due to

local inflation and currency volatility,

as well as reduced margins resulting

from wage increases, can stop or delay

growth. Plan for wage and currency

fluctuations before they occur.

5. Customs, import and export

restrictions – moving products

across borders often results in delivery

delays and increased costs. Seek

advice on local requirements,

processes and protocols for customs

and trade to guide expectations.

6. Tax compliance, transparency and a

changing environment – a global

evolution in business trends and

government issues has resulted in

more complexity in tax laws and

reporting obligations, more information

sharing between governments, and

more aggressive audits and increased

controversy. Compliance in these

areas will require planning, preparation

and the ability to respond quickly.

Significant changes in the international

tax landscape as a result of the OECD

BEPS (Base Erosion and Profit Shifting)

project will impact the tax structuring of

your investments.

7. Language barriers and cultural

considerations – advisors with expertise

in the local market can help management

increase knowledge of cultural and

language differences and their potential

impact on business.

8. Inadequate project management – poor

project management can mean gaps in

scoping, planning and organizing resources

to achieve specific business goals and

effectively manage risk. A proven project

management methodology is critical for the

success of projects across an organization.

9. Inability to secure required local talent –

local resources with cultural knowledge,

skills, competencies and experiences

will help increase market reach. Proactive

effective people planning is critical to ensure

local relevance of products and services.

10. Stakeholder management

considerations – maintain an open dialogue

with all stakeholder groups to understand

their interests, priorities and levels of

influence. Solicit input and report progress

regularly to ensure engagement, while

tailoring communications to the unique

requirements of each stakeholder group.


Next steps


EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and

advisory services. The insights and quality services we

deliver help build trust and confidence in the capital

markets and in economies the world over. We develop

outstanding leaders who team to deliver on our promises

to all of our stakeholders. In so doing, we play a critical

role in building a better working world for our people, for

our clients and for our communities.

EY refers to the global organization, and may refer to one

or more of the member firms of Ernst & Young Global

Limited, each of which is a separate legal entity. Ernst &

Young Global Limited, a UK company limited by

guarantee, does not provide services to clients. For more

information about our organization, please visit ey.com.

© 2015 EYGM Limited.

All Rights Reserved.

EYG no. AU3602

ED None

This material has been prepared for general informational purposes only

and is not intended to be relied upon as accounting, tax, or other

professional advice. Please refer to your advisors for specific advice.

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