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Exploring new markets
Top tips for expanding private businesses overseas
Irish companies are continuing to soar when it comes to penetrating overseas markets. Exports now account for over half of total sales by Irish owned companies. Traditionally, Irish companies would have viewed the UK as their primary export market. Sales to non-UK markets, however, now account for 60% of exports by Irish companies and given the near-term uncertainties posed by Brexit and the drop in sterling against the euro this percentage is likely to increase further.
While Irish companies are now benefitting from globalisation, this easier access to overseas markets can quickly put companies outside their comfort zone when faced with unfamiliar legal, regulatory and tax regimes. This coupled with unique logistical challenges and foreign exchange hurdles proves to be daunting. Fortunately, government agencies and professional advisors can lend support to companies in navigating these complexities.
The decision on whether to sell direct, through your own distribution network or to partner with a local distributor is key. Often this can depend on the nature of the company’s product or service, the importance of maintaining supply chain integrity (which is vital in the food industry) and the company’s resource requirements and constraints. Being able to deliver a consistent message around branding may be important in some industries but it should be acknowledged that a tailored message may be required due to cultural or other reasons in the target market. Having a mix between local and head office expertise can help balance these issues.
Top tips for expansion
Our clients are citing an expansion into new markets as their top priority and based on experience in recent years the following are some of my top tips:
- Develop a detailed strategic long-term business plan addressing your foreign expansion strategy
- Consider the merits of growing by way of acquisition which could provide an immediate presence in your target market rather than growing organically
- Stay open to adding a non-executive director with specific experience in your target markets
- Get advice from local experts early and don’t assume other countries are as business-friendly as Ireland
- Undertake extensive research & market analysis in advance – desk research is no substitution for spending time in a market
- Don’t underestimate the resources and time commitment required
- Payroll tax implications & immigration issues are overlooked at your peril
- Explore whether any incentives are available in your target market for establishing operations (Irish tax incentives may also be available)
What about tax?
Tax will be an important consideration and each jurisdiction brings its own complexities. Careful consideration of an appropriate business model and tax structure at an early stage is vital. This can help avoid overseas tax pitfalls and can enable an indigenous Irish business to leverage off the competitive advantage that comes with being based in Ireland given its low corporate tax environment (e.g. corporate income tax in the US is circa 40% compared to just 12.5% in Ireland).
Being mindful of the changing global tax landscape is also important. Particularly given new rules which mean that it is easier to trigger a taxable presence in another country than was previously the case. For example, the activities of certain sales and marketing employees who are based overseas should be carefully monitored from a tax perspective to ensure they do not create unintended tax consequences.
What government supports could improve the environment for exporters?
A company’s rationale for expanding abroad may be one of opportunity, it may be because their target market is overseas or it may be that they want to reduce overreliance on the domestic market. Irrespective, expansion overseas by Irish companies is positive for our wider economy and job creation. However, this sector needs better access to finance. While certain tax incentives exist for investing in SMEs to provide them with funding (for example EIIS and SURE), the reliefs are very restricted and any extension of these in the future would be greatly welcomed.
Previously published in the Sunday Business Post