Breaking new ground


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Companies that export a third more likely to increase profits than those staying at home.
Regus' survey of 24,000 global business leaders highlights the many obstacles preventing more firms expanding abroad .

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Breaking new ground

  1. 1. Breakingnew groundExporting businesses remainthe most profitableJanuary 2013
  2. 2. ContentsManagement Summary............................................................................ 2Introduction............................................................................................... 4Better Results............................................................................................ 6The Destinations....................................................................................... 8The Challenges.........................................................................................11Size Variations..........................................................................................14Sector Differences...................................................................................16Conclusion................................................................................................19
  3. 3. Management SummaryFor the second year in Slow domestic markets and a more connected, globalised world are whetting the export-appetitea row, this study shows of businesses globally. Businesses regard asthat exporting firms are particularly profitable countries with growing consumer markets such as China, India andenjoying greater revenue South America, but also more economically andand profit growth than politically stable areas such as North America and Europe.their domestically While the world may seem to be getting smallerfocused counterparts. and expansion more achievable by any sizeCertain geographical of business, there remain, however, some important concerns for businesses thinking aboutareas in particular are expanding abroad. In particular, companies report that building an image in the destinationbeing identified by more country can be a daunting prospect and thatand more businesses as property costs (for instance in the form of inflexible property leases), as well as local tax andprofitable for expansion, paperwork management are also very challengingbut setting up an for businesses hoping to grow through foreign expansion.operation abroad and In a volatile market it is also understandablethe cost of establishing that businesses are concerned about riskits initial business image management. In some cases, destination areas are afflicted by extreme climactic events such asare perceived as an typhoons, earthquakes and flooding, but do notobstacle. as yet have the infrastructure to deal with these disasters efficiently. In other instances, political instability, unreliable legislation and redress, and protectionist policies may present themselves as expansion risks. It is therefore imperative that businesses aiming to expand abroad are provided with fully flexible solutions that allow rapid decision making and scalability in face of market volatility and unforeseen circumstances.2
  4. 4. Key Findings and Statistics• usinesses that sell to export markets are, for B • Volatile markets, natural disaster likelihood, the second year in a row, faring better than political risk, weak legislation and redress, those focusing only on domestic markets. and local protectionism, may all contribute to They are more likely to report increasing the survey’s finding that ‘risk management’ is revenues and/or profits. identified as the second biggest hurdle (44%).• Given the positive impact of exporting activity • Chinese (66%) and Japanese (65%) companies on business growth, the survey analysed are the most likely to regard risk management which geographical areas are seen as the most as a challenge to foreign expansion plans. profitable for export and identified emerging • maller businesses are more concerned S markets and Europe. about property and paper work management• n particular, aside from domestic expansion, I (63%) than their larger counter parts (55%), businesses have set their sights on China highlighting that initial outlay to secure premises (48%), Europe (41%) and North America (36%), and admin are a bigger burden on smaller but India (31%) and South America (31%) are outfits. hot on their heels. • y contrast, small businesses are less B• ermany confirms its role as key exporter to G concerned about risk management (42%) than China (56%) just behind Japan (60%). larger firms (48%) suggesting that there is less awareness of the issue at a small business• Mexican companies stand out for taking a level or that it is regarded as unaffordable and much more geographically limited approach therefore not applicable. and favouring the Americas to longer distance expansion. They are also the least interested in • Export activity is clearly associated with greater expanding in China (28%). revenue and profit growth for business across the globe• Respondents identify paper work and property costs (60%) as the biggest challenge to setting • However, setting up abroad presents up a presence abroad. Risk management businesses large and small with a number of (44%), local tax and regulation (43%) and daunting challenges building an image abroad (42%) are the next • n order to overcome these challenges, I biggest hurdles. businesses need to seek out a range of• ndian (80%) and German (78%) companies are I business support service providers with particularly concerned about paper work and networks in key foreign expansion geographies property costs. who can provide them with flexible workspace, image building and administrative services that• uilding an image abroad is felt to be a B are affordable and scaleable as the foreign particular hurdle by Mexican (54%), UK and operation grows Brazilian companies (both 50%), and least by Japanese firms. 3
  5. 5. IntroductionThe important role Exports have played an important role in maintaining growth levels, increasing consumerplayed by exports in any income and fuelling productivity and innovationeconomy is undisputed; through access to information from a wider range of suppliers, consultants, RD labs and higherrapid growth economies education institutions.relied on exports to Globally, as consumers in BRIC markets becomefuel their exponential wealthier and gain more purchasing power, with wages in China for example reportedlydevelopment and growing around 10% per year2, it is not surprisingbecome the factories of that CFOs are opting to invest in these markets.3 CFOs investing or planning to invest in BRICthe world and developed countries have in fact risen from 29% in 2011 to 45% in 2012 with Russia remaining aeconomies have found popular market.4that they can battle Interestingly, Indian exports to the USA arecontracted domestic reported to be declining, no doubt partially as andemand by looking effect of the crisis but also thanks to a diversifying strategy that sees India trading more with otherabroad.1 emerging fast-growth economies such as China and Singapore rather than traditional partners like the UK and Germany that are struggling in the wake of the Eurozone crisis.5 Brazil, on the other hand, has experienced growing demand for commodities such as iron ore and metal6 which combined with its growing middle class have positioned the country as the UK’s most important trading partner in Latin America.71 Vox EU, Mona Haddad Ben Shepherd, Export-led growth: Still a viable strategy after the crisis? 12 April 2011; Iulia Siedschlag, Xiaoheng Zhang 10 loomberg, Natural-Gas Exports Could Lift U.S. Trade and Economy, 26th B and Brian Cahill, The Effects of the Internationalisation of Firms on November 2012 Innovation and Productivity, 2010 11 ustralian Government Department of Foreign Affairs and Trade, Australian A2 New York Times, China’s vanishing trade imbalance, 1st May 2012 exports surge to new record, 11th July 20123 BDO International, Ambition Survey 2012 12 ahoo News UK Ireland, PM calls for more exports to boost growth, Y4 BDO International, Ambition Survey 2012 19th November 20125 The Hindu Business Line, High growth nations are India’s top export 13 WC, Can UK exporters break into BRICs, John Hawksworth and Yong P destinations, 21st July 2012 Jing Teow, 5th November 20126 Rio Times, China over US in Brazilian exports,12th January 2012 14 oreign Affairs and International Trade Canada, Industry Canada, Trade by F7 in Brazil, UK Foreign office UK Product, 20118 IMF, Ashvin Ahuja, Nigel Chalk, Malhar Nabar, Papa N’Diaye, and Nathan 15 oreign Affairs and International Trade Canada, Canada’s state of trade: F Porter, An end to China’s imbalances?,2012 trade and investment in 20129 San Francisco Chronicle, US exports pledge check-up, 23rd July 2012 16 he Guardian, Germany slashes growth forecasts, 7th December 2012 T4
  6. 6. A series of factors have combined to slightly alter Although in the last few years the share of exportsChina’s high trade surplus scenario with exports to BRICs has grown, the level is still quite low.and imports finally starting to strike a balance. The UK’s main exports in 2011 were servicesAfter pegging its currency to the dollar in 2005 (38%) and in particular, design, advertising, legal,in order to make its exports more affordable, financial, business and accounting servicesChinese trade surplus is finally starting to vanish are likely to be appealing exports for emergingand current account surplus halved between economies moving forward.132007 and 2009 before leveling off in 2010 andremains unlikely to return to pre-crisis levels as While in 2011 Canada’s largest export marketsglobal demand for tradable goods remains low.8 were the US, the UK, China, Japan and Mexico,14 the relationship with the US remains dominant.Well aware of the importance of exports to The US is expected to remain Canada’s largesteconomic growth, US President Obama export market until 2040 in spite of growingproposed to double exports between 2010 trade with China, India and Brazil. Canada’sand 2015. So far, the half way mark has been other significant merchandise trade surplusesreached, in spite of Chinese slowdown and the are few: $8.5 billion with the United Kingdom,Eurozone stalling, creating 1.2 million between $2.6 billion with Hong Kong and $2.2 billion with2009 and 2011, and promisingly, medium to the Netherlands. Conversely, Canada’s largestsmall businesses reportedly accounted for a third merchandise trade deficits are with China ($31.3of exports in 2010.9 In addition to this, liquefied billion), Mexico ($19.1 billion), Germany ($8.8 billion)natural gas exports, high in demand in Europe and Algeria ($5.2 billion).15and Asia, may well have a powerful effect on theUS economy should further permits for export be Germany’s export story has long been upheldawarded in the coming months.10 as a radiant example for the rest of Europe, but the Bundesbank has recently lowered itsAustralia is also benefiting from exporting its growth forecast for 2013 to 0.4% from 1.6%.resources with minerals boosting exports in 2011 The Eurozone actually accounts for a largeover $300 billion, a first for any twelve month proportion of German export and continued fallingperiod. Iron and copper ore were major drivers. orders in the area have affected German outputAustralia’s main two-way partners were China, with industrial production plummeting 2.6% inJapan and the US.11 October 2012.16 In this rapidly evolving climate many businesses are justified in looking aroundReferring to ‘fantasitc growth’ elsewhere in the for better pastures and markets that are moreworld, PM David Cameron in the UK called for disposed towards their product offering. In orderbusiness leaders to spread export opportunities to find out which geographies are believed to holdto small and medium businesses and reports the most promise for those expanding there, andplans to cut red tape.12 Historically the UK’s main what challenges are holding back those that dareexport markets have been developed economies not take the leap, Regus commissioned researchand the EU. in over 90 countries interviewing more than 20,000 senior business managers and owners in business. 5
  7. 7. Better ResultsFor the second year This result highlights the positive effect of foreign expansion on business and suggestsrunning, evidence from that domestically - focused companies shouldthe survey indicates consider broadening their markets.that firms trading With access to a broader range of suppliers and a wider customer base, exporting companies areinternationally more likely to be profitable than those trading onlyare more likely to report domestically. Variations in currency value can also affect exporter’s performance with the Germangrowing profits or automotive, the European chemicals, aerospacerevenues, or both, than and luxury goods sectors benefitting from a weak Euro.17 In addition to this, a clear pointer of howthose focusing only the strong performance of exporting companies is critical to any economy is given by exporting’son their domestic contribution to GDP representing 85% inmarket. Belgium, 50% in Germany, 58% in India and 32% in the UK in 2011.18 With this clear distinction in results, the survey proceeded to enquire about geographical areas that are regarded as most profitable for expansion, and what challenges are preventing domestically focused only businesses from expanding abroad given the significant benefits that this activity can deliver.17 he Financial Times, Exporters reap the benefits of weak euro, 12th August 2012 T18 World Bank, Export of goods and services(% GDP), 20116
  8. 8. My revenues have grown in the past 12 months 0% 10% 20% 30% 40% 50% 60%Mainly internationally trading Mainly domestically tradingMy profits have grown in the past 12 months 0% 10% 20% 30% 40% 50% 60%Mainly internationally trading Mainly domestically trading 7
  9. 9. The DestinationsAside from their Among the countries analysed, the appeal of the three main export destinations variesdomestic market, considerably. China is regarded as a particularlyalmost half of profitable location by nearby Japanese (60%), German (56%) and Belgian (52%) companies.businesses globally While it is well-established that German firmsagree that China, with have successfully entered the Chinese market, it is interesting to note that in the Euro area otherits growing middle countries such as Belgium are wishing to follow suit and gain some share of the market. Mexicanclass and increasing companies are significantly less interestedpro capita income, in expanding in China while USA and Indian companies also favour other the ideal region for Mexican (66%) companies identify near-by Northexpansion. America as a more profitable trade partner than China, as do Canadian companies (70%) whichInterestingly, struggling Europe follows as ideal have long benefitted from exporting to the USA.destination, no doubt favoured by long-term Apart from Canada, English speaking countriesexisting export ties within the Eurozone and are not more attracted to exporting to Norththe presence of stronger economies such as America than others, with the UK and AustraliaGermany and the UK. The huge North American showing lower than average interest in exportingmarket is also popular, no doubt strengthened to North America and South Africa resulting theby the fact that a single language is required to county that regards exporting to North Americatrade across a very large territory. India and as least profitable region overall.South America, representing another important Europe remains a very popular option for EUpart of BRIC economies, are also popular, but area countries such as Belgium, the Netherlands,less so than more established countries where France and Germany as well as the UK. Fully 60%conditions are more stable and foreign trade more of German and around 40% of UK exports foreasily regulated. example are delivered to the EU area1920 and theCentral America and other Asian markets are Netherlands’ main export partners in 2011 werelower on the list, probably reflecting the difficulties Germany, Belgium, France and the UK.21 Thisof exporters trying to tap into these markets data reveals that ties within the Eurozone remainthat are often very diverse in terms of language strong in spite of the downturn.and culture even though they are in the samegeographical area and that are often highlyeconomically and politically unstable. SouthEast Asia, with its range of economies atdifferent levels of development, representsa middle ground.19 eutsche Bank, A Treasurer’s Guide to Corporate Treasury in Germany 2012, German Economy- reforms paying D off, Stefan Schneider, Chief International Economist, Deutsche Bank research20 BC Newsbeat, What do Europe’s debt problems mean for UK jobs?, 14th October 2011 B21 olland trade, Export and Import H8
  10. 10. Regions globally regarded as most profitable to expand in 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% China Europe North America India South America South East Asia AfricaAustralia/Oceania Middle East Other Asia Central America 9
  11. 11. Three most profitable regions for expansion 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Global Average UK USA France Germany India China Belgium Netherlands Brazil South Africa Japan Australia Canada China Europe Mexico North America10
  12. 12. The ChallengesAlthough foreign The survey canvassed respondents’ views on which challenges are regarded as the mostexpansion may seem an off-putting when businesses start consideringappealing proposition foreign expansion and found that property and paperwork (60%) were the biggest challengewith prospects of followed by risk management (44%), local tax andimproving revenue and regulation (43%) and building an image abroad (42%).boosting profits, the Property and paperwork costs and managementchallenges of setting are regarded as a particular challenge byup a presence abroad Indian (80%), German (78%) and Mexican (68%) companies. The least concerned were Chinesecan be daunting and and Japanese firms. Risk management, on the other hand, peaks as a challenge among Chinesemany businesses find and Japanese businesses highlighting theirthat once the initial awareness of the issue. In particular, concerns over the effects of natural disasters, politicalenthusiasm has waned instability, weak legislature and enforcement,the realities of setting as well as the risk of protectionism will be the main concerns of businesses highlightingup abroad are too much that risk management is an important issuetoo handle. when expanding abroad. Dutch and Mexican companies were the least concerned about risk management when setting up a presence abroad. Worries about managing local taxation and regulations were fairly even among all countries although Dutch and Indian companies seem to be a little more prepared to tackle the issue. Building an image abroad, covering a range of issues that go from setting up headquarters in a prestigious location to developing brand awareness, is also an issue that affects a similar proportion of companies across all countries highlighting the universal need to build on branding when entering a new market. Mexican (54%), UK (50%) and Brazilian (50%) firms are slightly more concerned than average with their brand image when setting up a presence abroad.11
  13. 13. Major hurdles to setting up a physical precence abroad globally 0% 10% 20% 30% 40% 50% 60% Property admin Risk managementManaging local taxation and regulations Building an image abroad Operational staff recruitment Senior Manager recruitment Speed of set-upCosts of senior management transferral Finding suppliers 12
  14. 14. Four biggest hurdles to setting up a physical precence abroad globally 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Global Average UK USA France Germany India China Belgium Netherlands Brazil South Africa Japan Australia Property admin Risk Management Canada Local taxation regulations Mexico Building an image abroad13
  15. 15. Size variationsInterestingly, there is Large businesses, on the other hand, are far more likely to believe that China (56%) is thea marked correlation ideal territory for expansion with significantlybetween areas that fewer opting for Europe or North America. This suggests that larger businesses are bettercompanies regard as equipped to manage expansion into China andmost profitable for ensure that the area is profitable to them than smaller firms.foreign expansion and Similarly, smaller businesses are less preparedcompany size. Smaller to tackle some of the challenges foreignbusinesses are more expansion can throw their way than larger firms; in particular 63% of small businesses reportclosely aligned with that property and paperwork management are a concern when considering foreign expansion45% thinking that China compared to only 55% of large firms. Onor Europe are the most the other hand, smaller companies are less concerned about risk management (42%) thanprofitable areas for large companies (48%) a difference that istheir export plans, and less likely to be due to better preparation on small firms’ part and more likely to be due to39% favouring North lesser awareness of the issue. In fact, manyAmerica. small businesses may not have suitable risk management solutions in place in their home country as perceived costs of solutions can be a deterrent.14
  16. 16. Top three regions by company size 0% 10% 20% 30% 40% 50% 60% Small Medium Large China EuropeGlobal Average North America Main hurdles to foreign expansion by company size 0% 10% 20% 30% 40% 50% 60% Small Medium Property admin Large Risk management Local taxation regulationsGlobal Average Building an image abroad 15
  17. 17. Sector DifferencesUnderstandably, The results show that China is particularly appealing to manufacturing and retail businesses.different sectors This is partly due to booming consumer spendingbelieve that different power in China which is growing at an average rate off 18% per year,22 and partly due to lowergeographical areas are production costs that are appealing to retailmore likely to prove and manufacturing firms looking to set up a production branch abroad. Businesses may alsoprofitable than others. be wishing to move production closer to lower cost suppliers that can be found in China. Europe remains a very appealing destination for mediaFor example, manufacturing and automotive will (46%) and consultancy (44%) businesses, whilebe particularly interested in expanding in areas service oriented media and ICT firms are alsowhere consumer demand for manufactured interested in expanding in North America.products is still strong or where industrial demandfor components is growing. On the other hand, Property and paperwork management issues arewhere a services industry is booming, legal, felt to be a particular challenge by businesses inconsulting and financial firms will be more likely the retail, consultancy ad media sectors whereto set up profitably. prestigious location, whether for shopping outlets or local headquarters, are particularly important to help build brand image. Manufacturing firms are in fact the least concerned (54%), although more than half still highlight the issue. Building an image abroad is a major concern for consultancy businesses (48%) and media businesses (44%), highlighting the difficulties that these firms have in emerging in a new market. Unsurprisingly, managing local taxation an regulations is of particular concern to banking and financial businesses that must perform due diligence in accordance with each country’s demands and financial authorities, and retail firms whose production process, materials and licences must all be placed under new scrutiny.22 NBC, 10 growing trends for the Chinese consumer, 28th July 2011 C16
  18. 18. Most profitable regions for expansion by sector 0% 10% 20% 30% 40% 50% 60%Manufacturing Banking Consultancy Retail ICT Health Media China EuropeGlobal Average North America 17
  19. 19. Main hurdles to setting up a presence abroad by sector 0% 10% 20% 30% 40% 50% 60% Manufacturing Banking Consultancy Retail ICT Health Media Property admin Risk management Local taxation regulations Global Average Building an image abroad18
  20. 20. ConclusionWith results showing In particular, BRIC markets are attracting attention, with China taking the lead as firms seekthat exporting to capitalise on its fast growing middle class andbusinesses are more consumer spending power. The report reveals, however, that businesses are also still favouringlikely to be reporting Europe and North America, believing that theserevenue or profit growth, geographical areas will prove the most profitable in spite of the downturn.or both, it is time that Although the prospect of widening the net offirms globally recognise potential customers and suppliers may seemthat export, particularly instantly appealing the reality is that all sizes of businesses are daunted by the prospect ofin this difficult economic setting up a presence abroad and see many challenges linked to management, administrationclimate, may provide and significant initial capital outlay.them with a new outlet In particular, businesses highlight that propertyfor their products and and administration costs, local taxation andservices, and help regulations, risk management and building a brand image abroad are the major hurdles thatthem remain profitable companies wishing to expand are faced with. Significantly, smaller firms are far more likely toin volatile market be daunted by property and paperwork, whichconditions. they fear will translate into lengthy leases and high overheads, than larger firms which are financially better prepared. In reality, by partnering with an expert international provider, businesses can access flexible solutions that cover everything from location to local admin staff and allow them to rapidly upscale or downscale the businesses depending on market conditions. This level of flexibility is very appealing to businesses that feel daunted by the challenge of setting up operations in a different country and do not want to make long-term commitments or are unable to make important initial investments into setting up a presence abroad.19
  21. 21. Country Highlights 15 11 6 4 2 3 8 13 10 9 12 7 141 UK 9 India 2 7% of UK businesses believe that expanding into the 41% of Indian businesses believe that South East Asia is Middle East would be most profitable. the most profitable place to expand. 50% regard building an image abroad as a major challenge. 8 0% regard property and paperwork as a major hurdle.2 USA 10 Mexico 41% of USA businesses regard operational staff recruitment Mexican businesses focus on the Americas with 72% as a major hurdle. believing that expansion into South America would be the most profitable, 65% saying the same of Central America and 66% looking towards North America3 France 54% regard building an image as a major challenge. 49% of French businesses believe that risk management is a major hurdle. 11 Canada4 Germany 70% of Canadian businesses believe that expanding into North America would be the most profitable. 5 6% of German businesses believe that expanding into China would be the most profitable. 12 Brazil 78% regard property and paperwork as a major hurdle. 50% of Brazilian businesses regard building an image abroad as a major challenge.5 The Netherlands 48% regard the speed of set up as a major challenge. 13 Japan 46% of Japanese businesses believe that India is the most6 Belgium profitable place to expand. 52% of Belgian businesses regard China as the most profitable area of expansion. 14 Australia 50% of Australian businesses believe that South East Asia7 South Africa is the most profitable place to expand. Only 11% of businesses regard expanding into North 4 5% regard operational staff recruitment as a major hurdle. America as profitable.8 China 66% of Chinese businesses regard risk management as a major challenge. 20
  22. 22. MethodologyOver 24,000 business respondentsfrom over 95 countries were interviewedduring September 2012These were sourced from Regus’ global contacts database of over 1million business-people worldwide which is highly representative of seniormanagers and owners in business across the globe. Respondents wereasked about their recent revenue and profit trends, along side export profile,and perceived issues associated with exporting.The survey was managed and administered by the independent organisation,MindMetre, 24,000 business respondents were asked about their recent revenue and profit trends, along side export profile, and perceived issues associated with exporting. = 50021
  23. 23. About Regus Regus is the world’s largest provider of flexible Over 1 million customers a day benefit from workplaces, with products and services ranging Regus facilities that are spread across a global from fully equipped offices to professional footprint of 1,300 locations in 550 cities and meeting rooms, business lounges and the 99 countries, which allow individuals and world’s largest network of video communication companies to work wherever, however and studios. Regus enables people to work their whenever they want to. Regus was founded in way, whether it’s from home, on the road or Brussels, Belgium in 1989, is headquartered in from an office. Customers such as Google, Luxembourg and listed on the London GlaxoSmithKline and Nokia join hundreds Stock Exchange. of thousands of growing small and medium businesses that benefit from outsourcing their For more information please visit office and workplace needs to Regus, allowing them to focus on their core activities. 22
  24. 24. Whilst every effort has been taken to verify the accuracy of thisinformation, Regus cannot accept any responsibility or liability forreliance by any person on this report or any of the information,opinions or conclusions set out in this report.Copyright © 2013. Regus Plc. All rights reserved.