Internationalisation: The Fork in the Road

Thinking of expanding geographically? Which route is the best for your business?

As large multinational clients increasingly seek specific, targeted solutions for business problems, some smaller 'boutique' providers are offering cross-border and international services. So how can SMEs expand geographically to support these increasingly sought-after revenue streams?

As an investor and financial partner, we are often asked how we can help businesses internationalise; either this is due to existing clients requesting cross-border services, or an aspiration to win a slice of the multinational pie.

When expanding internationally, there are typically two avenues: building organically from the ground up in a new location OR scaling through acquisition. The first usually means the relocation of some of the executive team, finding a new office, hiring staff and drumming up new business. The second requires acquiring some, or all, of a complementary business and their talent base, to cross/up-sell existing products and services. Both of these routes end with 'boots on the ground' in the targeted geography. But there are key considerations when considering your path:

• Organic expansion requires local expertise which a firm may not have, particularly around local regulatory and compliance requirements and tax and payroll issues specific to the location. These need to be developed in-house or outsourced to a local partner.
• Expansion through strategic acquisition means acquiring a proven business with instant relationships, market presence and access, infrastructure and local expertise and knowledge. In short, 'ready to go'.

So which is the best path towards internationalisation? At Sovereign we have helped many businesses grow from domestic market leaders to successful international operators. Both routes have their merits, but to achieve accelerated growth we would say the following:

1. First and foremost, it requires a high-quality business as a starting point, with a management team that has the skills to execute such a growth strategy.
2. Alignment around culture, client messaging, service portfolio and country roadmap are critical components.
3. Achieving internationalisation organically may appear on the surface to be the less risky approach and a lower financial outlay. However, the risk of a 'false start' with no real traction a year or two down the line is potentially a greater risk.
4. Choice and optionality through carefully selected strategic acquisition greatly increases the chance of success. Having delivered over 400 Buy & Build transactions, we’ve seen the results time and time again and supported companies to successfully expand into Europe, the US and the far East.

Of course making the right acquisition rather than an acquisition is vital. But whatever path you choose, both will require the right people, and the correct infrastructure, to be in the right place.

For more information on how Sovereign backs and supports businesses to internationalise, please contact Tom Wilding or Matthew Owen.