All Posts Tagged: expansion

What mid-market businesses should consider as they expand internationally

Lisa Roach
Posted by Lisa Roach
Mid-size Business Banking

If you are thinking about opening operations overseas, you’ll likely need a new team of experts to help you understand the tools and resources you might leverage to help protect potential profits and ensure a smooth transition. Today, most business owners rely on local banks for services such as lending, deposits, and cash management. But don’t underestimate the role your banking partner could—and should — play.

4 workers sitting around table using their laptops next to large window through which nearby skyscrapers are visible.A bank can provide customized solutions to meet the unique cash flow, cash management, and financing challenges that come with an overseas expansion, and the expertise to answer critical questions that arise.

Strategy shapes the way forward

With your financial partner, start by asking the tough questions up front: Why are you considering an overseas expansion?

  • To build revenue through increased sales?
  • To cut costs by moving closer to sources of material and cheaper labor?
  • To diversify your customer base?

Whatever the reason, the answers to these questions will lay the foundation on which to make specific judgment calls on behalf of your company going forward.

Methods of undertaking a global business

There are many ways to enter a foreign market: merger/acquisition, franchising, subsidiary, branch, partnership, direct and indirect exporting, importing, licensing, joint ventures, and offshore production. Not only will you need to carefully assess the pros and cons of each method, but, whether you plan to expand an existing product or embark on a new venture, you will need to account for the additional costs.

The decision to embark on international trade means more than planning for additional overseas shipping costs and increasing your travel budget. You also may need to modify your product for the new market and develop new marketing materials, too. An experienced financial partner can help you navigate these waters.

Location, location, location

Access to strong global market intelligence is how companies understand critical aspects of the local cultural, political, and business environment. For example, is the workforce, including the education and technical pipeline, right for your needs? Is the distance economically feasible for shipping? What about the distribution and communication network? Does the region have sufficient natural resources that may be needed?

Also consider the political climate. Is the government amenable to trade with the U.S.? What about existing trade restrictions, tariffs, non-tariff barriers, or bilateral trade agreements? What about the legal, tax, and regulatory environments? Are there unique benefits, such as credits and incentives? When it comes to the local economy, is it sufficiently developed to support your product? And what about the country’s currency? Buying or selling in different currencies exposes a business to exchange-rate risks that can impact the top and bottom line over the life of a contract. Here, your financial partner should be able to offer solutions to help mitigate the risk of currency fluctuations.

Financing the expansion

To expand globally, you may need pre- and post-export financing to provide funding for procurement inventory, receivables or production of orders financing plus secure payment solutions. One of your primary concerns will be getting paid in full and on time. Open accounts — the typical way business is conducted in the United States, where payment is due within 15, 30, or 60 days after the goods are manufactured and delivered — are risky in international business deals because your recourse to collect unpaid debts is limited.

In lieu of advanced payment, a letter of credit is perhaps the most secure payment method. Issued by a bank on behalf of its client (the purchaser), this internationally recognized instrument represents a bank’s guarantee to pay the seller, provided the conditions specified on the letter of credit are fulfilled. Another secure payment method, a documentary collection, requires the buyer to pay for goods either on sight or on a specified date in the future, before the titles to the goods are passed.

No company sets out to fail in the global corporate landscape. Ultimately, one of the most valuable resources in an overseas expansion is the same for companies’ U.S.-based operations. Working with a bank may not only provide the financial solutions to help with international growth, but also the expertise to guide you at every turn.

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Report: California regional economic outlook

Scott Anderson
Chief Economist
Graph showing jobs growth in CA by sector during 2014

We expect California’s labor market to continue its momentum, growing at an accelerated 2.4% in 2015 and 2.2% in 2016.

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