For businesses that want to grow their global footprint, today's landscape is complex and rapidly changing. Companies are faced with unprecedented opportunity, with more than 90 percent of the world's population outside U.S. borders. Such opportunity also, inevitably, carries risk.
Plante Moran recently held an executive roundtable focused on the realities of doing business internationally, moderated by Kris Kridel of CBS Chicago.
Participants included Plante Moran's Lou Longo and Jessica Wargo. Longo is a partner with Plante Moran Global Services; Wargo is an international tax manager. They were joined by Dwight Morgan, vice president of corporate development of M. Holland, a leading resin distributor, and Robert Mueller, president of RIM logistics, Ltd., a global warehousing, technology, and logistics provider. Theresa Mintle, president and chief executive officer of the Chicagoland Chamber of Commerce, also joined the panel. Here’s an overview of what they had to say.
With a solidifying economy following the 2008 downturn, Longo is seeing cautious optimism about expansion among business leaders. Overall, companies find themselves in stable, profitable positions; however, given an incoming presidential administration and other political and economic factors worldwide, many are taking a wait-and-see approach.
"We've advised our clients that this is a time for flexibility, not overreaction," Longo said. "Consider your business decisions from a strategic perspective, and be as flexible as possible. Know the tipping points at which you may do one thing or another."
Wargo, too, emphasizes strategy. Leaders must know their risk points — for example, intellectual property (IP) or infrastructure — when considering overseas expansion. And, since the international tax landscape is also changing, businesses need to identify the best strategies while still being the most compliant.
Location, location, location
One thing is certain: where you choose to locate operations is important. Rather than the country-specific offshoring popular a few years ago, Longo sees a trend toward regionalization. Within key regions, global cities can help businesses position themselves to leverage opportunities both domestically and abroad.
Cities such as Chicago, New York, and London have become critical to the success of companies operating internationally, Mintle explained, due to factors like robust transportation networks and infrastructure, strong talent, a diverse economy and culture, and good quality of life.
One thing is certain: where you choose to locate operations is important.
Mueller of RIM logistics, headquartered in the Chicago suburb of Roselle, agrees. Leveraging the Chicago area's strong transportation systems and warehousing space has enabled the company to grow and look toward expansion abroad, particularly in China, which has the world's largest consumer market.
M. Holland also is optimistic about international growth, building channels to service chemical industry suppliers with a planned 25 percent increase in polyethylene production over the coming three years.
Know your strategic imperative
When asked what business leaders must know about operating in the global marketplace, both Morgan and Mueller agreed: Expanding internationally adds an exponential degree of complexity. Therefore, strategy must drive decision-making.
"When you start to look internationally, the first thing you want to do is make sure you know why you're doing it, and that there's a strategic imperative," Morgan said. "You don't just do it to grow, because it's complex. And then once you make that commitment, you make sure it's a long-term commitment because you have to expect a certain amount of volatility and risk."
Mueller agrees. "You have to be strategic, and you have to be dedicated. I would say you have to dedicate far more resources to managing your international entities than your domestic entities simply because you're not familiar with the tax laws, the currency adjustments, and all of the other challenges people don't consider when doing business in the United States."
The panel was unanimous: Talent is crucial — and a major challenge. Businesses themselves must take ownership, said Morgan. M. Holland has created M. Holland University and recruits on college campuses. The ability to offer opportunities to travel internationally also helps attract, and retain, staff.
In addition, the company has created apps and invested in an appealing digital experience — for customers and suppliers as well as staff and prospective staff. "It's in your enlightened self-interest to make those investments," Morgan said.
"Technology is moving so fast, and public education doesn’t keep up that fast," Mintle agreed. "Manufacturing is alive and well, and we need to reorient that conversation and promote that."
A new manufacturing
Alive and well, and changing. New manufacturing jobs require computer skills and knowledge of advanced technologies. Solutions to today's challenges do not lie in "old-time manufacturing jobs coming back," Longo said.
Panel participants have observed some reshoring — the return of production that had moved overseas, ostensibly for lower costs — but Longo urged caution. Some products are coming back but with fewer jobs attached given new efficiencies and automation.
Reshoring, Longo cautioned, should not be mistaken for evidence that businesses can achieve growth targets by serving the U.S. market alone.
Devil in the details: Systems, taxes, IP
International operations require integrated systems. Said Mueller, "Since the downturn, businesses are expecting you to be an extension of their business, even globally, and they're pushing the supply chain upstream. You can't meet those needs without system integration, including for demand planning, forecasting, [and] communications."
Tax implications, too, must be considered. Wargo urges businesses to broaden their view beyond the U.S. perspective. The benefits of choosing a particular path over another — say, doing a sale-leaseback of equipment rather than purchasing outright — may not actually outweigh costs when foreign local tax impact is factored in.
Another common concern is policing your business's IP. Not all countries offer the same protections as the United States, Wargo noted.
Being active in the market is one of the most practical ways to protect your products, Longo added. Business intelligence — knowing your customers and your volume of business, for example — puts companies in a better position to seek enforcement help from the U.S. government.
Attitude and due diligence are everything
All panelists agreed: Humility goes a long way. Be open to different, perhaps better, ways of doing things. Longo has seen many clients learn improved processes overseas and bring them back to the U.S. to great benefit.
Last but hardly least: due diligence. Engage an objective third party. Leverage your network. Work with trusted local partners. As Morgan said, "There's a way to do this in a measured manner; you don't have to bet the company on an international investment."