10 Questions to Ask Before Overseas Expansion (Part 1)
Despite tough and uncertain economic times, the 16th Annual Global CEO survey by PwC shows us that CEOs are still committed to international growth, with 25 percent planning to expand within overseas markets this year. It seems that the opportunities and threats of emerging economies combined with the strengths and weaknesses of their own business and domestic economy are ensuring CEOS are committed to international expansion. Unsurprisingly, the BRIC economies of Brazil, Russia, India and China are the main focus areas, but countries like Indonesia, Mexico, Thailand and even Africa are also becoming expansion hot spots.
This international expansion activity is going to be affecting the HR and sourcing agenda in many firms in 2013. Therefore, this is a great opportunity for HR and resourcing professionals to gear themselves to make a meaningful and value-added contribution to both strategy formulation and implementation. HR should be making its presence known early in the planning process as there is only limited value in saying, “I told you so,” if it crashes and burns, or “You missed the boat in India, you should have been in Thailand”. So, I thought I would develop a list of 10 questions HR should ask before overseas expansion to help get into the international sourcing game.
1.What are the possible incremental gains from going international?
This is a great opening question for HR to ask its CEO looking to expand abroad because it shows that you are thinking commercially and constructively. In challenging the CEO and forcing him/her to answer, it can help to consolidate the leader’s thinking and help him/her to spot issues or opportunities he/she may have missed first time round. For you, knowing the rationale and motivation behind the expansion can help you—the HR, resourcing strategist and implementer—to more effectively partner in the process.
2.What cost savings do we hope to achieve from international expansion? What are the typical savings from off shoring to that location? This is a key question to ask if your company’s main purpose for expansion is cost savings. Many off-shoring operations become unstuck as forecast cost savings are often unrealistic and inflated. It’s easy to think that because salary rates in the offshore location are 10 percent of what they are back home, that savings might be in the region of 90 percent. This is not likely to be the case. One study from CIO.com shows that cost savings from off-shoring peaked at just 38 percent 10 years ago and have declined to just 27 percent today. It’s important to have a good, reliable indicator of potential cost savings from off-shoring as a basis for informed action.
3.Why have we chosen this country, (say China) over that country, (say India, or any other plausible destination)?
The last thing you want to do is present yourself to the CEO as a roadblock, as this is the fastest way to alienate HR from the assignment process. This question shows that you are on board with the idea of international expansion and begins to show that you are more than just a passenger but, rather, a willing participant.
Having done your personal SWOT and PESTLE, analysis you can now develop a strategic resourcing plan that partners and supports the business plan for international expansion.
4.Which country is the best option from a talent availability point of view?
Now your CEO may have his/her heart set on a destination. The CEO may have chosen it purely due to its appeal as a potential consumer or B2B market; he or she may have chosen it as an exciting new pool of talent to help support another market; or it may be a bit of both.
Either way, there will be better or worse options from a talent point of view. You may have a great product and there may be a huge market, but if you can’t find talent who can sell effectively in that market, it may struggle. There are a range of surveys from companies like Manpower and Mercer that provide good data on hiring ease and difficulty by country. But, this is just a starting point, drill down and find industry and profession-related reports so you can understand specific skills shortages by country and even by city. Identify your top five destinations from a talent availability point of view and encourage your CEO to factor this into the equation.
5. Should we go captive or outsource?
Sounds terrible doesn’t it? I assure you no one is being captured. As you may be aware, there are two main models for offshoring. One is captive, where you set up your own office and infrastructure, hire your own offshore staff and do it all yourself. The other is that you, outsource using one of the many foreigner friendly, Business Process Outsourcing Providers (BPOs) that provide you with offshore staff, and who the BPO manage on your behalf in their own offices. You simply pay them a fixed amount per head and you get a skilled offshore employee immediately. In the early days, a low-risk BPO option might be beneficial, but, once you have established a presence, it may be advantageous to set up an office.
Please tune in for the second part of this article where we will review five more questions you should ask before expanding internationally, which are:
1. Should we go freelance or employee?
2.Which countries have the shortest company set up time?
3. Do we need to expand internationally in the traditional sense?
4. Does your organization have enough intercultural adaptability?
5. Are your management processes virtualized and able to support international expansion?