As businesses grow and expand, it is always an exciting opportunity for business owners to diversify their markets and move into an entirely new area unreached before. One of the most ambitious growth opportunities for every business is expanding to reach out to international markets. Such global expansion can be an excellent opportunity for a company to benefit in multiple ways.
There are certain benefits that an owner of a company can look up to when expanding a business abroad:
Entry to New Markets
First of all is the entry to new market of the foreign country. It is to mention that sometimes a business can exhaust its growth opportunities at the home country. In that case, turning to global expansion is a smart choice to grow your business and gain access to different customers, thus increasing sales. Coming out of the shell of their region, the country can allow entrepreneurs to enter the markets of Europe, Asia, and the Americas that have not been used by their goods and services, which will allow them to develop their business in new ways that would be impossible within national borders. Businesses existing within a given country grow and expand to penetrate every area perceivable within the boundaries. The international business expansion allows such a company to acquire new markets outside the presence of the country.
Larger Customer Pool
Another benefit of expanding a business abroad is a larger pool of customers interested in your product. One of the biggest advantages of international expansion is increase in the number of potential clients, therefore the business growth. Entering international markets allows faster growth for businesses by reaching new customer base. On the other hand, by international expansion, companies do not only sell current product or service to a new customer base but also to invest and introduce new products on a foreign market.
Competitive Advantage against other Rivals
International expansion also gives businesses a decisive competitive edge against their opponents. It is to mention that sometimes the market in home country is saturated and expanding abroad allows a business to get an access in a market where competitors do not operate. To businesses in stiff competition, unreached markets are usually a first-come-first-serve opportunity where the first company to establish a presence within a certain country market will benefit from additional advantages, such as ease of dominance in the market. Moving into a niche that is even less developed in another country, before your competitors get there, can give you the opportunity to become a brand that that country trusts. Subsequently, you can use this to penetrate the markets of neighboring countries. By the time your competitors gain popularity, you will already have become a recognized supplier of goods or services, which will give you a competitive edge.
Increase in Profit Potential
At the same time keeping business in the national market is mostly limiting its potential for profit. For a business the international expansion comes with an opportunity to diversify the area of investment and acquire new assets, while also putting in new operational strategies. Due to certain circumstances domestic market can slow down and a business can incur losses. For this reason, business expansion gives the advantage of a global market which will help cushion the company during slower economic times.
Possibility of economic changes and slowing of the national market leads to another benefit which is cost savings. By setting up in a new country, a business will be able to lower their operational costs and save money. When expanding a business abroad the option of moving some of manufacturing operations to other markets due to cheaper labour costs and more affordable talent can be considered as an advantageous move.
Access to Local Talents
It is to mention that the expansion comes with the opportunity of having access to local talent and to work with locally available resources, including talent and natural resources. Hiring international talent can bring different advantages, as advanced language skills and diverse educational backgrounds. While it may take longer on average to set up a business overseas, it can be well worth the effort to reduce costs and improve results over time. Reducing production and personnel costs through outsourcing or overseas expansion can bring the income needed to enter even more markets, produce new products, or scale company.
Government Incentives and Tax Advantages
One of the most significant benefits of business expansion can be considered government incentives and lower taxes. In a large amount of countries, there is often a range of government incentives to encourage start-ups. This can be expressed in the form of investment opportunities to make business incorporation more attractive.
There are also a variety of tax incentives that appeal to business owners. It can also be helpful to take a look at the levels of corporation tax in different countries. Tax savings are some of the most appealing aspects of starting a company abroad. Such tax incentives began to spread in most countries of the world, as governments followed the example of offshore jurisdictions, which managed to earn significant amounts of money for the economy by providing such incentives. This usually means not only tax incentives, but also financial policies with low lending rates, low social contributions and other measures to support private entrepreneurship.
The most important issue to consider about the tax advantage in business expansion is the tax legislation of the country where an entrepreneur is planning to develop the company. Therefore, before the company starts operating under the new rules and laws, the tax policy of the selected jurisdiction should be studied. Knowing the exact corporate tax rate and tax credit provided by the government can help to decide on the choice of jurisdiction.
Double Tax Treaties are another tool that allows to choose a country for registering an international company. The main purpose of such agreements is to comply and harmonize the tax law between the contracting countries, exclude differences, ensure equal rights for taxpayers and prevent tax evasion. Tax treaties are an important element of the international taxation rules of many countries. More than 3,000 bilateral treaties on income taxation are currently in force, and the number continues to grow. The vast majority of these treaties are largely based on the United Nations Model Convention for the Avoidance of Double Taxation between Developed and Developing Countries and the Organization for Economic Cooperation and Development Model Convention on the Taxation of Income and Capital.
It should be understood that such agreements apply to a limited number of persons (residents of the contracting parties) and apply to clearly defined types of taxes. Companies operating in the offshore sector or benefiting of preferential tax regimes are usually not subject to double taxation treaties. Thus, only companies registered in offshores (for example, in Cyprus, Great Britain or the Netherlands) can take advantage of the treaty on the elimination of double taxation, and only in relation to the so-called "direct" taxes: on profits, on capital gains and on property. The agreements do not regulate the taxation rules for "indirect" taxes, such as VAT.
To take advantage of the treaty for the elimination of double taxation, a foreign company must obtain a certificate from the tax authority at the place of its registration confirming that it is indeed considered a tax resident of that country.
The more agreements signed between countries exist, the more they attract business owners. These agreements reduce the tax burden on the company and its owners. In addition, double taxation treaties operate on a reciprocal basis, providing tax breaks or discounts. Thus, the investor can decide to open a company in the country where he will be offered the best tax conditions for conducting his business.
Providing Service to International Clients of the Company
One of the reasons why businesses expand globally is to be able to provide a reliable service to their international clients. Companies having an international presence generally have a better brand name, more prominent brand recognition, and a greatly amplified reputation. A good global reputation will attract new customers.
Other Points to be Considered when Expanding Abroad
When expanding business abroad, a company needs to carry out comprehensive measures to open and support a business abroad, interact with foreign government agencies, collect the necessary documents, and choose an economical tax regime, as well as select the appropriate jurisdiction depending on the specifics of the business (for example, low tax burden, suitable infrastructure).
At the same time the company needs to open an account in a foreign bank so that when paying for the services of foreign counterparties, they do not regularly resort to international transfers.
Summing up, it is worth recalling that each country has its own specifics, therefore it is important to study not only the economic and political side of the issue, but also the mentality of citizens, the culture of the country. Despite the fact that many countries are striving to improve the conditions for doing business in their territory in order to attract new active entrepreneurs, it is worth remembering that the success of a business depends on the literacy of the leadership and the thoughtfulness of entrepreneurs' actions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.