Five Things to Consider Before Taking Your Business Offshore

As South Africans at the bottom of the continent, we sometimes forget just how big the world really is.

For context: There are 29 stock exchanges on the African continent with a market capitalisation of between $1.6 and $1.8 trillion dollars. That sounds like a lot of money right? It does right up until you consider that global tech giants like Nvidia and Amazon have market capitalisations of $2.7 and $1.8 trillion respectively.

When you start to see numbers like that, it is clear that there are many reasons why you shouldn’t limit your business operations to South Africa.

As an entrepreneur, you get access to big global markets where customers are potentially less price sensitive relative to the SA market which has struggled with sub-optimal growth rates for the last decade. As a parent, many young South Africans have set their sights on living abroad to study or seek job opportunities – this adds another dynamic to thoughts about expanding offshore.

At The CFO Centre, we have worked with a number of our clients to expand into markets including Mauritius, the US, UK, Europe and Australia and we have picked up some interesting insights around how entrepreneurs can give themselves the best chance of success when expanding into a new market.

Think about your intellectual property:

This is a tough one to assess until you know for certain that you have a product the global market wants or that has a particular technology or IP which would suit a global client base.

You cannot just get on a plane with technology you’ve developed in South Africa and setup shop in the US, Europe or Australia and start selling. Building, transferring and protecting your IP in a chosen jurisdiction is a complex matter that will require specialist input to help you navigate the legal, tax, forex and SARB implications.

Do your homework:

While it might be great to have an international address on your letterhead, going into a new market is not something you can do impulsively. Do you understand the culture? Do you understand the legislation? Do you understand the cost of doing business there?

This is where on-the-ground support can be so valuable and it is one of the reasons that we believe that the global network offered by The CFO Centre is such an asset for companies wanting to verify key insights before making the final decision.

Expand one geography at a time:

When the world is your oyster, why limit yourself to one international office at a time?

South Africans who actively invest via their share portfolios will know that when you move from the JSE – which is dominated by 40 shares – and you start looking at global markets, it is very easy to see opportunities everywhere. Each of these markets and investment opportunities are unique and require a good understanding of their operating environments.

Funding matters:

A common trap entrepreneurs fall into is syphoning operating cashflows from their current SA operations to fund their offshore expansion. This weakens the balance sheet for local operations and becomes a bigger problem if it takes longer than expected to start earning hard currency revenue.

Consider for a moment that if you opened a business in the US 5 years ago with the Rand trading around R14.40 to the US dollar. If you took R10m out of your local operations, this would have given you about $695 000. If you had to take a further R10m out at the current exchange rate, you would get around $530 000 or 23% less on the back of a weaker currency.

One can’t forecast the Rand exchange rate with any real certainty, therefore you don’t want to prejudice your core business trying to fund offshore expansion.

Skills costs are very different to SA:

Each market will be unique, but don’t underestimate the cost of skills outside of South Africa. I picked a couple of random job titles and used some of the salary benchmarking websites:

Job Title	SA annual salary	US annual salary in US dollars	Converted to Rands at R18.80
Forklift driver	R171 000	$34 125	R641 550
Marketing Manager	R525 000	$114 495	R2 152 506
Bookkeeper	R210 006	$53 381	R1 003 562

Source: Glassdoor

South Africa is part of the global economy and expanding into international markets can be a great way to help you grow your business and change your revenue profile. To successfully navigate into new markets, it is important that you work with trusted advisors who understand the landscape and can help you make informed decisions to ensure the benefits outweigh the risks.

Rowan de Klerk is the founder and CEO of The CFO Centre South Africa which is part of a Global Financial Leadership Practice. Since its establishment in 2010, the company has grown to become the market leader for outsourced CFOs and Financial Manager Services in South Africa and globally, represented in 18 countries.

Rowan is a seasoned CEO and CFO with a strong commercial and strategic background. With over 35 years of experience working with both large corporations and mid-sized entrepreneurial businesses, he is a results-driven intuitive business leader with a passion for building and scaling businesses.