Global businesses aspire to expand into BRIC: study

However, Europe remains the safe house for international expansion, reveals 10-country survey

• A BDO study reveals that two-thirds of internationally focused mid-caps have more aggressive expansion plans than last year and 95 per cent are confident about international cross-border growth
• These business leaders target the BRIC markets when thinking of expansion, but Europe presents the most achievable prospects in the foreseeable future
• Identifying the right people on the ground to grow business is crucial to making or breaking plans for international expansion
• Indian businesses interviewed however are focusing on the USA, Middle East, ASPAC and Europe (East and West)- in relative terms they are less likely to be focusing on other BRIC markets
• The Indian businesses questioned highlight ‘Economic growth rates/ increasing wealth’ as a major factor in choosing markets to prioritise
• Geo-political risks and finding the right people in the country being prioritised are seen as key barriers by the Indian leaders spoken with
• Business leaders from other countries have had mixed experiences in India - just one-in-three say that India has been one of their “more successful” markets, with one-in-six stating India to be “less successful”
• When expanding into India, economic growth rates, its ‘policy framework that promotes or allows competition” and cheaper labour costs were all highlighted as key factors, with foreign ownership restrictions seen as a relatively strong barrier

Ambitious businesses believe that European countries present more potential and fewer barriers to growth, despite almost half of them stating that BRIC is where they eventually want to be, according to a new report from BDO, the world’s fifth largest accountancy network.

The BDO Ambition Survey, an international study which interviewed over 230 business leaders and international heads of globally aspiring mid-cap companies in India and 9 other countries (Australia, Brazil, Canada, China, Germany, Netherlands, Russia, UK and USA) found that 47 per cent want to invest in BRIC markets and of those almost half (43%) say China is a particular focus. In reality, however, Europe tops the table as the region to provide the greatest opportunities for cross border growth in the next one to two years.

Speaking about the survey, Sunil Sharma, CEO, BDO India says, “Respondents from abroad have pointed out that India and China are becoming investment destinations because of the sheer collective population base of 2 billion people and an evolving consumer demand driven by higher GDP per consumer. In India mid-sized companies are amongst the most positive about their expansion plans and all those interviewed are either very or quite confident that their company’s future plans will be successful.”

Jeremy Newman, CEO of BDO says, “Our report and our local insights tell us that the BRIC countries and beyond are still ripe for growth but you need to get in now or risk losing out. That said, the BDO Cross-Border Growth Index indicates that the established European markets cannot be overlooked as they present the greatest prospects and few barriers for international expansion in the immediate future.”

The survey showed that companies are in optimistic mood, with 95 per cent of them confident about international expansion and two thirds (66%) planning to be more aggressive in their plans this year compared to last.

Respondents were surprisingly less concerned about the challenges both red tape and corruption present, but instead felt that the keys to success when expanding abroad are people related: identifying the right local management and staff (62%), and finding a trustworthy local partner (59%). 40 per cent of respondents said they look to a trusted management consultant, accountant or professional adviser for on-the-ground advice when expanding into new territories.

Researchers found that the opportunity to achieve market leader status (65%) and the ability to benefit from the size of a market’s population (77%) are key factors in successful cross-border growth.

“The survey also shows that while European Markets provide greatest opportunities, the Indian consumer cannot be overlooked. The India story is based at the bottom of the growth pyramid which provides huge untapped opportunities for scaling of demand & supply for corporates with global ambitions; for example, like Nokia in the Telecom Sector”, adds Mr. Sharma.

KEY STATISTICS/FINDINGS

• Business leaders from the BRIC countries are in the most aggressive mood for growth, while those from North America are the least aggressive
• The Germans are the most confident in their future international expansion plans, while the Chinese and Indian leaders are the most optimistic, both for their own country and their own sector
• China is consistently the most aspired country for international expansion
• The main focus of investment over the next 1-2 years is likely to be people related (26%) or related to channels of distribution (25%)
• The single biggest factor contributing to cross-border growth is the size of market/population. The three least important factors are acquisition or merger opportunities, cheaper labour costs and tax incentives
• The two biggest challenges when growing abroad are finding the right local management and staff and locating trustworthy local partners & suppliers
• Brazilian businesses are particularly focusing on the Americas; Russians on Europe; Indians on EMEA and SE Asia; while Chinese companies are focusing on the widest group of countries
• Businesses expanding into Russia, Brazil and China have met with the most success. The least successful are the UK, India, and the USA.
• The majority (69%) of international expansion is likely to be within a company’s core sector with only 15% of businesses expanding into a new product/area

ABOUT THE SURVEY

The 2010 BDO AMBITION SURVEY: GLOBAL OPPORTUNITIES assesses the advantages and disadvantages of expanding into different territories, based on the experience of those who have already been there. The executive survey questioned globally aspiring companies (small to mid-cap companies US$50m to US$2bn) with international expertise.

The research was designed by StrategyOne and was conducted by way of semi-structured telephone interviews, including a mix of open and closed questions. 237 interviews were conducted across 10 countries (Australia, Brazil, Canada, China, Germany, India, Netherlands, Russia, UK and USA) with ‘C-suite’ executives, heads of international divisions and business leaders.