* Guest post by Paul Marin, Research Analyst at Capstone
Did you know twenty of the fastest growing economies are in Africa or Asia? William Blair reports in the first quarter of 2013, the Americas invested $7.0 billion in Asia-Pacific in cross-border transactions, a 4.6% increase from 2012. This means many of the opportunities for growth may be abroad.
International expansion can be a rewarding and exciting way to grow your business and find new markets. You may be competing in a highly saturated domestic market with diminishing growth prospects. Seeking new foreign markets is a natural response to your company’s domestic stagnation.
Markets in developing countries look particularly appealing. Not only are they growing rapidly, but they also lack well-established players that can compete vigorously.
Even problem-ridden mature regions like Europe offer great opportunities. In fact, the European Union’s middle market companies attracted the most foreign investors in the world in the first half of 2012.
It is not hard to see why M&A in the European Union has attracted investors. The recession and uncertainty triggered by the European debt-crisis have deprived companies of customers and financing forcing them to turn to alternative sources of funding to survive. In other words, structurally great middle market companies are selling at a discount.
Opportunities for strategic partnerships also abound. Despite the European Central Bank’s efforts to lower interest rates across Southern Europe, a liquidity crunch is squeezing usually successful firms. As the Financial Times reports, this has made Spanish companies partner with former rivals that have more plentiful access to financing and low interest rates. Such arrangements are not only mutually beneficial but can also be highly lucrative.
One way to take advantage of these international opportunities is through acquisition. The right acquisition can mitigate some of the risks inherent in venturing internationally
The key advantage of an acquisition is that it is a “ready-made” solution that can help you navigate unknown foreign business territories.
Companies that expand internationally are faced with a host of problems including cultural differences and language barriers that can derail promising deals. Political risks such as corruption, arbitrary enforcement of regulations, or outbursts of nationalism cannot be adequately dealt with in absence of deep local knowledge.
A well-executed acquisition brings an experienced team that understands the local market. The acquired company already has an infrastructure for business in that country: regulatory approvals, facilities, relationships with customers and suppliers, and an understanding of the local markets.
Although international expansion can be an exciting opportunity for growing your business, venturing abroad is no silver bullet for curing domestic market funks. Your plan for bringing your business overseas must be strategic and carefully planned. No matter how good an international market may seem, without a strong strategy, your plan may fail. But, with the right strategy, a carefully planned acquisition or strategic partnership can help your company gain a global foothold.
[…] recession and sovereign debt crisis have depressed revenues industry-wide and are drying up financing for the smaller players. This has deprived these companies from making large-scale investments needed to keep up with the […]