Answers to Small Business Questions on International Opportunities
Murray, Mark F., Journal of Accountancy
Here are responses to clients' most common queties.
No longer constrained by national borders, companies of all types and sizes are entering the dynamic arena of international business. CPAs with small business clients will be confronted with questions on how to enter and remain competitive in the global marketplace. Here are some of the most common questions they will be asked - and the appropriate answers.
Q. What challenges should I expect if I decide to enter international markets?
A. The most significant challenge will be the increased cost of doing business. International business is an expensive undertaking that requires not only patience but also a substantial investment of time and resources. Other factors include time-consuming planning and investigation of financial, legal, production and marketing issues. Long-distance travel frequently is required and, in some circumstances, increased sensitivity to local business customs is necessary during planning and negotiation. Delays may be incurred because of differences in language, local laws and regulations, accounting and legal systems, business practices, currency, buying patterns and culture, among other things.
Q. How will I know if my company is ready for international business?
A. A company that succeeds in international ventures often tends to exhibit many of the following characteristics:
1. Exceptional domestic demand for a product and a demonstrated international market.
2. Decline in domestic sales of a product after more technically advanced competitors have been introduced. However, less developed countries may not need or may be unable to afford state-of-the-art products and may be completely satisfied with a product considered old by U.S. consumers.
3. A unique product that is difficult to duplicate abroad.
4. Secure capitalization, operations and management to sustain an international venture.
5. Strong relationships with creditors.
6. The ability to expand staff and facilities if necessary.
7. An understanding of global markets and the willingness to devote the necessary time and resources to a new venture.
8. Senior management's commitment to provide resources and direction.
9. Personnel experienced or trained in international business.
Q. Why do international ventures fail, and how can I increase my own chances of success?
A. Too often, failures are due to inadequate research and planning rather than problems with the technology and quality of products or services.
Before plunging into the international market, company leaders should educate themselves and key staff about the local market, consumers, politics, laws and business practices. Some of the major planning issues to be addressed include which product to sell, needed product modifications, targeted countries, likely risks and obstacles and how to face them as well as the amount of company resources necessary and how their use will affect domestic operations.
Before attempting to develop an international plan, senior management must have a working knowledge of international trade rules, agreements, associations and alliances. These include the North American Free Trade Agreement, the European Community and the Association of South East Asian Nations. Senior management also must understand the components of global trade policy as embodied in the General Agreement on Tariffs and Trade.
Company leaders should obtain expert counseling and develop an international operating and marketing plan before launching the venture. They should determine qualification requirements for all of the available public and private financing.
Q. How do companies usually go about conducting international business?
A. Most manufacturers enter international business as either direct or indirect exporters. The former have their own foreign sales operations, agents, distributors or other channels and are responsible for all phases of the operation from market research and financing to sales promotion and collections. …