Cross-Border Growth: Process Reviews & Risk Management

Cross-Border Growth: Process Reviews & Risk Management

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    If you are considering growing your small or medium-sized business into new exciting territories, thorough business process reviews become even more important. Combined with proper risk management, this can pave the way for a smooth transition while maintaining compliance with laws like the General Data Protection Regulation (GDPR). In this article, we will look at how you should review your business processes and related risks before expanding from South Africa into the European Union (EU) market. 

    BPR1

    Covered in this article

    The Role of Business Process Reviews in Cross-Border Expansion
    Adapting Business Processes to New Markets: The EU Context
    Identifying and Managing Risks in EU Markets
    A Missed Opportunity can Also be a Risk
    Taking Your Business to the Next Level

    The Role of Business Process Reviews in Cross-Border Expansion

    A Business Process Review (BPR) is an essential tool for companies seeking to expand internationally. These reviews involve a deep analysis of a company's existing processes, identifying potential risks, and opportunities for improvement. They can highlight gaps, inefficiencies or bottlenecks in current operations that could hinder your success in growing your business across borders. Reviews can also point out any issues pertaining to regulatory compliance, where transgressions can cost you dearly in the form of fines, penalties and reputational damage. 

    BPRs typically start with understanding the business's core processes - looking at the “As-Is” scenario. The next step is to assess how existing processes can be replicated or adapted to new markets and to meet the requirements of the growing business. Additionally, the review must consider any regulatory or cultural differences that could affect these processes. By optimising your business processes for the EU market, you can also improve the overall customer experience - something that is crucial in growing your company. 

    Adapting Business Processes to New Markets: The EU Context 

    If you are considering cross-border expansion to the EU, you need to understand this market’s unique characteristics. Despite being very profitable, the EU market is also heavily regulated, particularly with regard to data privacy. The GDPR, implemented in 2018, set strict guidelines for data management and calls for companies to provide the greatest levels of data protection. 

    For a South African company intending to expand into the EU, achieving GDPR compliance  should be a primary focus of their business process reviews. This might involve revamping data storage, handling, and processing protocols to meet GDPR standards. Furthermore, new procedures might be required to comply with rights to data access, erasure, and portability, as well as privacy-by-design requirements.

    Adapting business processes also means understanding cultural nuances, language diversity, and economic disparities across EU countries. Customising goods, marketing plans, and customer service to better suit regional tastes requires having a detailed understanding of the market.

    Identifying and Managing Risks in EU Markets

    Any cross-border expansion brings risks, including political, economic, legal, and cultural uncertainties. To be successful in your expansion, you need to identify these risks and create plans to lessen the impact on your business. Some of the key risks include: 

    1. Regulatory Compliance Issues: With complex and strict regulations such as GDPR, different tax laws compared to SA and variations in labour laws, a lack of knowledge and understanding of the legal landscape can be risky.

    • Make sure to manage compliance either centrally or from within the local entity you are setting up.
    • Seek specialist legal advice and/or make use of a Global Professional Employer Organisation that can provide you with the necessary expertise to manage challenges such as HR, payroll, logistics and talent.
    • Be sure to follow GDPR regulations in detail. 

    2. Cultural Differences: A culturally diverse region, with differences in language, consumer behaviour, and business practices, could pose some challenges to your business expansion project.

    • Gaining an understanding of the specific customs of the region or city you plan to operate from can help you during the transition.
    • Consider joining a local business chamber or networking community and build professional relationships with people in the area. 
    • If you need to, learn a new language - while international business is usually conducted in English, understanding the native tongue can also help you build relationships. 

    3. Economic Uncertainty: Some economic risks such as inflation, cost of living, fluctuations in exchange rates, Brexit implications, and the general economic climate, fueled by social and political unrest and wars, can pose serious financial risks to your business expansion. In addition, unsustainable levels of debt, low growth and climate change can cause market turbulence.

    • The best option for managing such risks is to be prepared - remain aware of the warning signs of potential international fiscal crises. According to the World Economic Forum Global Risk Report, high international government debt and small amounts of fiscal stimulus are usually red flags, especially in developing countries with limited infrastructure.
    • Select your specific country/countries of operation carefully - choose territories that have a solid infrastructure and a business-friendly political regime.
    • Make sure to also have a proper quick exit strategy that can help minimise any losses should you need to withdraw your business.

    4. Market Saturation: Some sectors in the EU are highly competitive, making it difficult for new entrants to gain market share. Additionally, market saturation (when the availability of a product/service exceeds the market demand) can restrict your ability to increase revenue without first applying some innovative ideas. 

    • One of the most successful strategies in managing this risk is diversification. Catering to new trends, consumer behaviours and tastes can help you to expand customer value, create new demand and grow your revenues.
    • Establishing your business’s unique selling points - find your niche products/services and stand out from the competition through creativity, effective pricing and unique marketing strategies. 

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    5. Logistical Challenges: Issues related to transportation, supply chain management, or establishing physical outlets can also arise. The changing price of utilities can pose additional threats. 

    • Reconsider your supply chain management strategy - will the "just-in-time" system still work for you or are you going to be exposed to potential delays in the transport and delivery of raw materials to your factory? Would you need to acquire trade credit insurance and stockpile inventories instead?
    • Consider whether you can rather invest in renewable energies to cut down on the cost of utilities. While the initial investment may require significant capital outlay, the long-term benefits are set to outweigh the costs. In the World Economic Forum Global Risks Perception Survey 2022-2023, four of the top five risks in the next ten years are related to environmental issues, including: 
      • Failure to mitigate climate change
      • Failure of climate change adaptation
      • Natural disasters and extreme weather events 
      • Biodiversity loss and ecosystem collapse.

    6. Political Instability: Changes in government policies or political instability can impact business operations and profitability. While these risks are not directly controllable, you can still take some mitigating actions: 

    • Remain aware of what is happening on the political front - check the news, and speak to analysts and business chambers in the area.
    • Have a proper detailed budget to manage any unexpected risks and expenses that may come up. 
    • Make sure your exit strategy is clearly defined. 

    BPR2

    A missed opportunity can also be a risk

    While cross-border expansion brings its own set of risks, it also brings opportunities. Avoid missing out on opportunities by doing thorough research before setting the wheels of your expansion in full motion. Some of the main opportunities that come with expansion into the EU are: 

    1. Demand from Customers: If there are people who want your product or service, there is potential for your business to supply it. But without an official presence, whether physical or online, it will be difficult to access this market. Through e-commerce and other global marketplaces, you can also open new channels for potential customers to purchase from you. The diverse market allows you to pick and choose the right country, economy and customer base for your business expansion.
    2. Access to top talent: According to Globalization Partners, more than 80% of Europeans between the ages of 25 and 54 have completed secondary education, while more than  40% between the ages of 30 and 34 have completed some form of tertiary education. This means you can access a highly educated talent pool. Since the European Economic Area allows for the free movement of capital, people, goods and services, the issue of work visas or additional permits for employees from different EU countries is also less complex. Having a remote team makes it even easier.
    3. Economic Growth: According to the European Commission, the EU GDP growth is forecast at 1% in 2023 and 1.7% in 2024, with inflation expected to drop from 5.8% in 2023 to 2.8% in 2024. If you are a manufacturer or distributor, having a physical presence in Europe can help you save on shipping and transportation costs. With excellent infrastructure and a unified currency, the EU as a single market offers more stability for consumers and businesses, which can increase economic security. If you are running a digital business, the potential for growth may be even greater. According to Eurostat, the share of EU households with internet access in 2022 was around 93%, up from 72% in 2011. The number of consumers who utilise e-commerce has increased from 476 million in 2021 to more than 500 million in 2022. This figure is predicted to grow to 564 million in 2026. 

    Taking your business to the next level

    Taking your business to the EU involves seizing fresh opportunities while actively managing the associated risks. By conducting a thorough business process review and proactively identifying risks, implementing strong internal controls to mitigate these and exercising agility when it comes to new possibilities, you can successfully broaden your business horizons. In our next article, we explore what you need to do when it comes to adapting your website for expansion into the EU. 

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