Conducting business outside the US has mostly been the domain of the largest corporations, but according to a recent survey, slow growth in the US for the foreseeable future is prompting midsize and smaller companies to spread their wings in foreign lands, potentially rubbing up against their larger brethren.
High Street Partners (HSP) recently commissioned CFO Research to survey CFOs and other senior finance executives at midsize and smaller companies about their outlook on expanding into overseas markets. Larry Harding, founder and president of HSP, said the original intent was to collect market data to understand better where the market was headed and tailor his firm’s offering, which guides companies in their efforts to set up overseas operations.
“The findings were interesting enough to warrant sharing them publicly,” Mr. Harding said, noting that 65 percent of executives, from companies with between $50 million and $1 billion in revenues, reported more aggressive growth targets for revenues from international customers in 2012 than last year.
In three years, 95 percent of respondents expect to have customers in at least two countries. And of the 161 executives surveyed from companies already operating overseas or considering international expansion, two thirds expect expanding into international markets to be their companies’ top priority.
“Everybody is getting into the globalization game. It’s really changed over the last five years,” Mr. Harding said.
The impact for large multinationals already in those markets is probably mixed, with some seeing competition heat up. For others, noted Harding, the smaller companies may end up being suppliers with innovative product offerings, creating a win-win situation for the companies as well as the banks servicing them.
Mr. Harding said lower trade barriers over the last decade or two have made it inherently easier for big and smaller companies alike to expand abroad. An even bigger driver is the advent of technology. Now much more can be controlled from headquarters, from handling payments and other local treasury functions to videoconferencing that makes overseas hires easier.
“It’s exponentially easier for smaller companies to set up and open an office in an overseas country and begin to steal meaningful business and customers in a world that was really dominated by much larger multinationals before,” Mr. Harding said. He added that some developed countries such as the U.K. and Germany remain strong draws. His firm is seeing the most expansion in developing countries where there is a growing middle class looking for the good and services the more developed economies have had for a while. Despite slowing economies, China and Brazil have been key destinations as well as Colombia, and the Middle East and Africa are starting to open up. Some countries, such as Dubai and Russia, have lost some sizzle, he said.
Multinationals may also have to compete a bit more for their bankers’ attentions, as banks aim their services at potentially faster growing smaller firms.
Dean Krotts, a partner at private Bajer Design and Marketing, which produces home products sold in retailers including Walmart and France’s Carrefour, said his firm was contacted by J.P. Morgan Chase last year. At that time, the manufacturer of household and bathroom items, which has upwards of $100 million in sales and produces most of its goods in China, was experiencing issues getting money into China to provide working capital for its factory. J.P. Morgan had a solution.
“We met with their global team as well as the local relationship manager and we switched. We wouldn’t have entertained a bank switch until our current bank started showing signs of weakness in areas we anticipated an immediate need,” Mr. Krotts said.
J.P. Morgan’s longstanding reputation is for providing top-of-the-line services to large blue-chip companies; now smaller firms are getting those benefits. “Their systems are really secure and completely intuitive. In addition, the local staff gets everything done the same day you request it; a lot different from our last bank experience,” Mr. Krotts said.