A tailored market-by-market approach will increase the likelihood of success, even in riskier markets
Brussels—To all companies planning on increasing their exposure to export markets in an effort to grow the business, know this:
You are not alone.
Indeed, 66 per cent of chief finance officers (CFOs) in mid-sized global companies are planning to increase investment in “safe haven” markets including Brazil, Russia, India, China, the U.S., The U.K. and Germany, according to accounting and professional services firm BDO.
Rather than taking a gamble on riskier destinations, companies planning foreign expansion admit they are relying on international business to drive growth, and a world rife with macroeconomic horror stories means adopting a risk-averse approach.
The BDO Ambition Survey polled 1,050 CFOs from businesses worth between US$50m and $2bn in Canada, Australia, Brazil, China, France, Germany, India, Japan, Netherlands, Russia, Saudi Arabia, South Africa, the UK and the US.
China Still Attractive
Everyone knows the BRIC countries have been seeing an investment boom, with nearly half (45 per cent) of the CFOs interviewed currently investing in or actively planning to enter these markets, compared to three out of ten in 2011.
This indicates the BRICs are now perceived as established investment markets. China remains the number one investment destination, topping the BDO Global Opportunity Index for the third year running.
Better than two-thirds (69 per cent) of respondents cite China’s market size as a key advantage, while 37 per cent say they are attracted by its cheap labor.
Additional top-10 sought-after markets for international expansion include stalwarts such as the U.S. in second, Germany in fifth and the U.K. in seventh place.
Intention to invest in these three markets has seen a collective rise, with 36 per cent planning investment here in 2012, compared with 26 per cent in 2011.
Southern Europe: High Risk
Some traditionally safe investment markets are now seen by some CFOs to be as risky as the politically unstable countries of the Middle East.
For instance, the report claims Spain is perceived as a riskier investment destination than Egypt; Greece is seen as more risky than Libya and Syria.
“CFOs remain under pressure to look abroad to grow their businesses, but this year currency fluctuations and geopolitical risks have replaced red tape and bureaucracy as the top threats to successful foreign expansion,” said Martin van Roekel, CEO of BDO.
“Our survey shows that the risk-reward dynamic is changing as ambitious CFOs face greater risk for the same reward. CFOs from mid-sized companies are having to stick to what they know in their approach to overseas investment, rather than take bigger risks that could lead to greater returns.”
BDO’s survey also found that the appetite for risk varies considerably from country to country, with Russian, Chinese and Japanese CFOs most likely to gamble on growth. Six out of ten Russian firms (60 per cent) and nearly half of Chinese and Japanese respondents (46 per cent and 44 per cent respectively) are prepared to take major risks. This compares to just 18 per cent of CFOs in Brazil and 22 per cent in France.
Roekel says mid-sized firms are the growth engine of global trade and their investment plans reveal a boost for the ‘big seven’ (the BRICs plus the U.S., U.K. and Germany).
“However, these markets aren’t the only choice for firms looking to expand abroad. Investment overseas continues to present significant challenges, but a tailored market-by-market approach will increase the likelihood of success, even in riskier markets,” van Roekel added.
Other key findings include:
- CFOs are finding it more difficult to conduct business abroad than three years ago. Reasons cited are the poor economic situation (31 per cent), increased regulation (25 per cent) and greater competition (22 per cent).
- CFOs report an average increase of 9 per cent in their company’s international revenues over the past financial year, with Indian and Russian companies seeing the highest average overseas revenues (18 per cent and 17 per cent respectively).
- CFOs are more subdued than last year: only 24 per cent are very optimistic about their expansion plans, compared to 49 per cent in 2011.
- More than two thirds of CFOs see customer service as a vital element for international success, with Brazilian, British and South African companies ranking this most highly
- Almost half of CFOs cited securing good advice from reliable people on the ground as their chief insight for successful international expansion.