From a social and economic perspective, the past few months have been a time for reflection and inquiry. The COVID-19 pandemic has shifted some of our thinking, by pulling on a loose thread that was tightly woven into many business strategies focused on a singular market or a small group of suppliers. When the thread was pulled, that strategy proved to be risky, and it has started to unravel for many companies.
To try to counteract these risks, many flexible and resilient private companies are stepping forward and seizing the opportunity to embrace a broader perspective. Those who haven’t traditionally played in larger global markets are likely to change the landscape as they look for ways to expand and diversify their customer bases, supply chains and alliances.
Below are some of the greatest opportunities that I believe are emerging for those agile private companies who are contemplating expansion opportunities in the US.
Urgent priorities top the list
As privately held companies evaluate their organizational and operational models, they are scrutinizing risks in their current operating models with an eagle eye, seeking better alternatives with global supply chains, and looking for options to manage these risks, including redesigning their current manufacturing operations to bring them closer to the markets they serve.
This means many may need to expand into the US directly or indirectly to gain access to the US consumer base. Likewise, many resilient US-based private companies are looking further afield to high-growth and affluent consumer markets, such as those in Asia, to expand their footprint and grow their businesses.
Alternate distribution channels are being explored as well. In the old reality, many private business leaders could think of a host of reasons why building alliances and new channels would be too difficult or too expensive. When forced to confront a different situation, however, it’s exhilarating to see how quickly many of these leaders are adapting and adopting new distribution options. With new technology platforms, smaller businesses are not being left behind. They are easily able to access channels to markets outside their home countries by forging alliances in other countries, and without the prohibitive capital injection they previously needed to enter a major market.
The transformational power of service
The service industry is experiencing a renaissance as well and transforming how the world lives and operates.
You may have heard that “globalization is dead”. That could be true to a certain extent, particularly for manufacturers who may choose to adopt a more regionalized approach to reduce risk and provide agility. For service industries, it’s my belief that globalization is being accelerated in the wake of the digitization transformation that has been forced by the pandemic.
As we’ve lived and observed in the past six months, through the rapid adoption of technology tools, we are all getting more used to connecting virtually while being physically separated. In the service sector, these tools brought what was once viewed as the ‘future of work’ to the ‘new reality of work’. Work anywhere and the virtual workforce are here to stay. In the post pandemic new reality, I expect an increasing shift to integrated service delivery models where many aspects of services can be delivered utilizing talents from around the world. The pandemic has also permanently changed many consumer behaviors, and as a result many may view digital service delivery as the preferred way to access certain types of services such as tele-health
In addition to its growth potential, a globally integrated service delivery model has other advantages. It is less directly affected by tariffs and other government restrictions and it allows access to capabilities around the world. Even as some manufacturers begin to restore their operations, they too will increasingly put more reliance on services to effectively manage their smart manufacturing and technology-enabled manufacturing operations.
Why consider expansion in the US?
The US is attractive as a market, even with the current uncertainty, due to the sheer size of the economy, consumer spending power and the access to talent that may not be available in certain sectors outside the US. Legal transparency and good governance practices are also attractive to investors who are looking for opportunities.
Distressed assets that fit strategically with their business are attracting some interest, despite the uncertainty of what a recovery might look like. Business leaders are not rushing to complete transactions, however, though they are looking carefully at opportunities and reviewing scenarios to identify potential investments, acquisitions, alliances and mergers. They realize that now is the time to do the background work so that decisions to proceed with strategic opportunities can be made quickly when the time is right.
The challenges of US expansion
The most significant challenges for any company that looks to expand in a new market is having a clear, long-term strategy and a framework for executing it. This is true everywhere, but most particularly in the highly complex and competitive US where having an end-goal for guiding day-to-day decision making is critical for successful market expansion.
It requires deep industry knowledge and a long-term view, combined with a global mindset and country-specific knowledge. Most companies interested in entering the US understand their sector extremely well, and they have a good track record of succeeding in other markets. The logical assumption is that “I’ll just duplicate what I’ve done and I should be just as successful in the US”. In practice, that mindset doesn’t work very well in the US, or in any other countries for that matter.
A tailored approach to the way in which a company manages its market expansion, revenue growth and investment opportunities, while complying with the country’s compliance and cultural norms, are all equally important.
KPMG’s US International Corridors, and KPMG colleagues across the global network, understand the unique country-specific challenges and opportunities for privately-owned companies who are interested in cross-border expansion, and we can help to navigate the strategic considerations and decisions that need to be made.
If you are considering international expansion into the US or from the US into foreign markets, I encourage you to visit the KPMG International Corridors website for more insights and information. For fresh perspectives on issues that are relevant to companies in sectors and industries, we welcome you to contact a corridor leader or member firm in the KPMG International Corridors global network.