There are many sound commercial reasons for small to medium sized enterprises to expand beyond their home market. European Commission director general for internal market, industry, entrepreneurship and SMEs, Istvan Nemeth, says that being internationally active links with higher turnover and employment growth, and there is a relationship between internationalisation and innovation.

To find out how companies successfully manage elements of internationalisation such as human resources, business culture, finance and logistics, we asked specialists for their views.

PEOPLE MATTER

Hiring local talent who can create the right brand and culture is important, as is understanding cultural diversity, says Kate Chapman, group HR director at recruitment firm PageGroup. “It is vital when exporting talent that they have a good understanding of the cultural nuances they will encounter.”

Kate says that for people moving abroad on an international assignment, it is not always about the money. “Expats may take advantage of lower tax rates but people relish the opportunity to experience life in a different culture,” she says. “Once many of our people move abroad they rarely go back to their host country, making multiple moves with us throughout their careers.”

CULTURAL NUANCES

Knowledge that prepares a business for new territory must be part of the decision to enter that market. But cultural research tends to be too general, stereotypical and out of date and may encourage a formulaic response to highly nuanced situations that can narrow the focus of leaders to that of following a process rather than ‘heads up’ flexibility and awareness.

That is the view of Malcolm Nicholson, coaching director at Aspecture and the UK representative for the Centre for International Business Coaching. He says businesses expanding internationally should be helping leaders to understand and develop their ability to juggle conflicting forces. “We are learning to work with more memberships of groups and feel part of them. Helping leaders integrate into new multicultural social and work environments is essential, at both personal performance and business levels.”

An inevitable by-product of having people in close proximity is some form of conflict, he says. “This is generally handled according to the law of the land, the culture of the

organisation and the manager’s discretion. Add regional culture to the mix and accepted norms vary significantly.”

MAKING MONEY COUNT

Finding a bank that offers services in multiple countries or regions can be a challenge for companies with revenues in the millions rather than billions, explains Bob Lyddon, general secretary of the International Banking Association. “There is a trend for banks to focus on doing business just in their ‘home’ market, which has thinned out the competition in international banking. Anti- money laundering and ‘know your customer’ requirements mean domestic banks are starting to shun foreign customers because of the difficulty of fulfilling requirements around identifying ultimate beneficial owners.”

If the applicant is a non-resident, someone at the bank has to examine papers issued in a foreign jurisdiction and attest that they prove the existence of the applicant and the bona fides of directors, signatories and owners. “The same applies where the applicant is a resident but with foreign ownership,” says Bob. “The result, if not a rejection, is an onerous process. It is much easier when the customer’s own bank has strong relationships with foreign banks, with agreed standards for responsiveness, timing and paperwork.”

Bob says the most important requirement for aspiring international business is access to people who can explain clearly the market practices in foreign jurisdictions and the most appropriate local payment and collection services.

KEEPING IT MOVING

According to Mark Parsons, chief customer officer UK & Ireland for DHL supply chain, three trends characterise the challenges and opportunities in emerging markets: regionalised supply chains, shortening product life cycles and shifting demographics.

Rapidly changing consumer behaviour, coupled with the variables of infrastructure, culture, regulatory and political regimes and economic development, make unpredictability the norm. Factor in limited talent pools, fragmented distribution systems and security concerns and the unknown variables grow.

“As one global networking products supplier put it, we are in markets now where we are not going to get the density and leverage to build economies of scale for five to ten years,” says Mark. “This is a problem for a lot of US and European companies that are used to having projects with a two-year payback.”

His colleague, head of DHL resilience team, Tobias Larsson, says corporate supply chain organisations are often siloed, operate on a regional basis and are disconnected among regions and even sites. “They lack visibility and control beyond their part of the operation. That may work day to day, but in crisis, it can be a problem.”

RISKY VENTURES

Companies with international ambitions must also take account of factors like currency volatility. Borrowing in local currency and managing working capital effectively can help reduce the impact of currency fluctuations. However, the increased currency risk when operating in emerging markets brings with it the need for clear, complete information about any risk being created.

Political instability is a consideration in many parts of the world. Poor governance, extreme levels of corruption and civil unrest are among the challenges facing international business operations in emerging markets, says Charlotte Ingham, principal political risk analyst at global risk analytics company Verisk Maplecroft.

Corruption not only undermines overall governance levels, but also serves as a key source of popular dissatisfaction. With nearly 70% of countries rated as ‘extreme’ or ‘high risk’ in Verisk Maplecroft’s corruption risk index and 41% similarly rated in the civil unrest index, widespread discontent is likely to remain a significant feature of the global political risk environment in the short term.

Exporters are also advised to protect themselves against late and non- payment. Because overseas customers will take longer to receive their goods than customers in a domestic market longer payment terms are inevitable. Exporters concerned about cashflow should consider asking suppliers for longer terms. For those worried about an overseas customer refusing to pay, credit insurance may be an option. Clearly defined contractual obligations are essential – exporters have to consider factors such as the currency of the contract and obligations in respect of transportation of goods. Contracts should use internationally recognised terms as laid down by the International Chamber of Commerce.

The rewards of internationalisation can be high but as with all new business, carry risk and opportunity. The only way to mitigate risk is to build process and awareness into every stage.

Global Magazine – Issue 1

______________

Press contact

Dominique Maeremans, business development/marketing manager    
Tel: +44 20 7767 2621
E-mail: d.maeremans@uhy.com 

Some economic pundits have been questioning whether it’s for real. After all, they’ve witnessed European Union (EU) stagnation, become tired of the EU showdown with Greece, and noted how governments, trying to heal their sovereign debt crises, put on an ambitiously brave face as they seek re-election.

So, when policymakers at the International Monetary Fund (IMF) and the EU herald economic revival and upgrade their forecasts for EU growth into 2016, commentators cast doubt.

But, the truth is, the EU is recovering – thanks to a large slice of good luck: a sharp drop in oil prices and a weakening Euro have combined to boost Eurozone growth and stave off entrenched stagnation.

In fact, one or two largely unsung EU economies are doing rather well, and are well placed to help stimulate the whole of the EU back into prosperity.

Take Poland (pictured above), for example. Over the past 25 years, the Polish economy, in real GDP terms, has doubled in size. On GDP per capita, Poland has moved from 32% to 60% of the Western European average. Poland was the only EU country to avoid recession during the global financial crisis and is today the eighth-largest EU economy. Its impressive history of growth for more than two decades has left the country, long a marginal European economy, poised to become a regional growth engine.

EU countries – where they stand

The IMF forecasts that the 19 European countries using the Euro currency will collectively expand by 1.5% in 2015 and 1.6% in 2016, up from a January 2015 forecast of 1.2% growth this year and 1.4% next. Last year the Eurozone grew by just 0.9%.

The European Commission has also upgraded its growth forecasts. The commission predicts the Eurozone economy will grow by 1.3% in 2015 and 1.9% in 2016.

Anticipating bailout agreement and conformity, the European Commission has even only marginally downgraded its projections for Greece. It predicts Greece will grow by 2.5% in 2015 and return to 3.6% growth in 2016.

European Commission officials acknowledge that the EU economy remains troubled, pointing to weak investment and stubbornly high unemployment across Europe. But they highlight that unemployment is projected to drop to 11.2% in the Eurozone this year (albeit barely lower than during its peak of the global financial crisis when it hit 12%).

Pierre Moscovici, the EU’s economic chief, says the sharp fall in oil prices and a weaker Euro are providing a welcomed benefit. He adds: 

 “Europe’s economic outlook is a little brighter today than when we presented our last forecast. But there is still much hard work ahead to deliver the jobs that remain elusive for millions of Europeans.”

The European Commission’s growth forecasts (see chart below) for the end of 2015 (compared with its previous forecast for late 2014) highlight Germany’s sustained growth; France (the Eurozone’s second largest economy after Germany) recovering; Spain recovering strongly; Italy remaining stagnant; the Eurozone overall resisting decline – and the EU bolstered by the UK, a non-Euro country, driving comparatively strong growth.

Poland – birth of a growth engine

Twenty-five years ago, events in Poland started changes that swept through Central and Eastern Europe, sparking massive economic and political transformations.

As the Polish economy emerged from decades of state control, industries were privatised and market-based competition was introduced, followed by painful reforms.

Within a few years, Polish GDP and living standards began to rise significantly, as the country started on a growth path that continues today.

Accession to the EU in 2004 confirmed the success of Poland’s effort and indicated a development path that was leading toward positioning Poland among Europe’s most advanced economies.

Over the past 25 years, the Polish economy has doubled in terms of real GDP, and enhanced GDP per capita by upward of 30% compared with the Western European average. Having avoided recession and pegged its place as the eighth-largest EU economy, Poland is poised to become a regional growth engine.

The McKinsey Institute forecasts that Poland can accelerate development to become the fastest-growing EU economy for the next decade. Under its growth model, Polish GDP would top 4% annually over the next decade and per capita GDP achieve 85% of the projected EU-15 average by 2025.

Such development would leave the country on a par not only with Cyprus and Portugal, but also similar to Spain and even Italy (the Eurozone’s third biggest economy). Poland would become a globally competitive advanced economy and a significant exporter of goods and services.

 “While this more ambitious scenario does not require Poland to abandon its existing growth model…, it does require a powerful collective effort by both the private and public sectors,” says McKinsey.

 “Since the country is already a developed economy, this accelerated growth will only be achieved through a major multi-sector transformation programme in conjunction with further improvements to infrastructure, simplification of regulations, and investment in education and innovation.

 “We believe the country has the means and resources to begin this new economic phase, transforming by 2025 from a regionally focused middle-income economy to an advanced European economy competing successfully on the global market.”

UHY has member firms throughout Europe. In Poland the network is represented by Biuro Audytorskie Sadren Sp. z o.o. and by ECA Group.

Biuro Audytorskie Sadren Sp. z o.o.
Contact: Wieslaw Lesniewski
Email: w.lesniewski@sadren.com.pl

ECA Group
Contact: Roman Seredyński
Email: roman.seredynski@ecagroup.pl

______________

Press contact

Dominique Maeremans, business development/marketing manager    
Tel: +44 20 7767 2621
E-mail: d.maeremans@uhy.com                 

Eastern Europe and emerging economies offer most generous tax regimes for higher earners

Western European economies* hit their highest earners with 25% more in tax than the global average,  amounting to just over US$152,406 extra in tax on an income of US$1.5million, according to a new study by UHY, the international accountancy network.

The research reveals that the global average take home pay on earnings of US$1.5million is US$897,970 with tax at 40%. Taxpayers in Western European economies with the same earnings however, are allowed to take home only an average of US$745,563, paying 50% of their income in tax.

UHY points out that the highest earning taxpayers in Western Europe also face a far bigger tax bill than peers in other developed nations. In Western Europe, taxpayers with a gross income of US$1.5million would keep an average of 50% of earnings, compared to an average of 57% in Canada, the USA, Japan, New Zealand and Australia.  

At a slightly more modest income of US$250,000 the gap is even wider, with taxpayers in Western Europe allowed to take home only 56% of earnings, compared to 65% in other major developed economies.

A middle-income taxpayer earning US$50,000 in a Western European economy would receive close to the global average net income at that salary – US$35,935 in Western Europe compared to US$37,695 globally.  However, the 28% they would pay in tax compares unfavourably with the 23% they would pay in the USA.

UHY adds that Eastern European and emerging economies continue to offer the most generous tax regimes to higher earners.  In Dubai and Russia flat rate, or no, taxation means that all taxpayers take home 100% and 87% of their pay respectively, while taxpayers earning US$1.5million in Slovakia, the Czech Republic, Jamaica all keep more than 70% of pay.

UHY observes that some Eastern European economies may be gradually eroding this advantage as they increase the tax burden on top earners.  For instance those earning US$1.5m in the Czech Republic have seen the amount of tax they pay increase by US$183,409 since 2012, thanks to a ‘solidarity surcharge’, against a global average tax rise for this group of US$6,531.

Western countries move to reduce taxes for top earners

UHY notes that while top earning Western European taxpayers are still losing by comparison with peers globally, several countries (Italy and the UK) have dramatically reduced or withdrawn top rate tax bands imposed following the financial crisis.

For example, in 2014, a taxpayer earning US$1.5m in the UK was US$63,601 better off than two years ago, following the abolition of the 50p tax rate last year.

The USA also substantially reduced the amount of tax it took from top earners, lowering the tax take from an income of US$1.5 million to 42.57% of earnings from 43.28% – saving high earners US$10,656. 

In contrast, a taxpayer earning US$1.5m in France would be US$44,646 worse off after tax than in 2012, after President Hollande introduced a new tax bracket of 45% for people earning more than €150,000. However, President Hollande’s plans to impose a 75% supertax on incomes of over EUR1 million were met with resistance and were instead replaced with a temporary additional tax to be paid by employers on salaries above EUR 1 million.

Ladislav Hornan, Chairman of UHY, comments: “The message that high taxes on top earners are uncompetitive has made some impact in Western Europe, and governments have taken steps to reduce the rates on top earners.” 

“However, the gap between how heavily you are taxed in Western Europe compared to other developed economies remains striking, especially at the US$250,000 level.  That’s a typical income for a successful engineer, marketeer or head of IT.”

“As the global economy improves and new job opportunities open up, Western European governments need to be aware of the risk of a brain drain of skilled professionals.”  

UHY studied tax data in 25 countries across its international network. The study captured the ‘take home pay’ for low, middle and high income workers, taking into account personal taxes and social security contributions. High earners were defined as workers earning US$1,500,000 per annum. The calculations are based on a single, unmarried taxpayer with no children.

*Western European economies in the study are; France, UK, Italy, Austria, Spain, Ireland, the Netherlands, Denmark and Belgium.

*Minus figures indicate a decrease in tax home pay.

**Denotes countries where the change in tax home pay in USD is a result of exchange rate fluctuations and not due to a change in tax.