Family businesses form the bedrock of the Scottish economy, accounting for 70% of Scottish businesses and employing more than 50% of the Scottish private sector workforce.
Many of these family businesses are looking at exciting international opportunities for growth and Burness Paull is delighted to be the sponsor of the International Growth category at The Herald's forthcoming Scottish Family Business Awards on December 4.
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To enter the awards please follow this link http://herald-events.com/familybusiness/entry/
Despite ongoing economic challenges, latest figures from Scottish Development International (SDI) show that Scottish exports increased by 7% to just under £24 billion in 2011, demonstrating that more Scottish companies are looking to grow their business internationally and take advantage of the continued global demand for Scottish products and services. And therein lies the opportunity for many of Scotland's family businesses.
It's also interesting to note that Scotland's top five export destinations are:
1 USA. It continues to be the top export destination which accounts for an estimated £3.5 billion of exports (14.7 percent of total exports).
2 Netherlands (exports = £2.7 billion)
3 France (exports = £1.9 billion)
4 Germany (exports = £1.4 billion)
5 Belgium (exports = £980 million)
Our Family Business team at Burness Paull have a huge amount of experience across many sectors and provide a real understanding of the global opportunities on offer.
So just what are the key issues family businesses need to address before taking a step into a foreign market?
How to access the market - a local agent, distributor or joint venture partner?
There are a number of options available to family businesses to enable them to enter a foreign market.
One option would be to enter into a joint venture. The chosen joint venture partner can help to provide essential expertise and knowledge of the foreign market, as well as possibly providing connections and access to distribution channels within that market.
The family business may also wish to consider using a distributor to access the foreign market. Selecting a foreign distributor will give a family business access to foreign distribution channels. The distributor should be chosen carefully as they become the representative for the family business in the foreign market.
A family business may also opt to use a local agent who will represent their interests in the foreign market and provide expert knowledge of the foreign market. The use of a local agent can also provide assistance in relation to local business practices, the language and culture of the foreign market.
Local regulations - how much red tape and what is the tax regime?
A number of barriers can be faced by family businesses trying to enter foreign markets. Local regulation, administrative and bureaucratic requirements, and local taxation regimes, can all pose as 'red tape' to a family business, making it more difficult to enter the foreign market Some foreign markets will have more onerous barriers to overcome than others and it is therefore important that a family business fully understands these elements and requirements before deciding to enter that market.
Currency risk and fluctuations - can you hedge?
Businesses which have income, expenses, liabilities or assets denominated in a foreign currency will be directly impacted by fluctuations in currency values. The risk of fluctuating exchange rates may be addressed by hedging.
Hedging involves one risk being taken on in order to offset another. The aim is to safeguard the business' profits against exchange rate uncertainty. For example, one type of hedging is called a forward contract. This involves agreeing an exchange rate today to buy or sell currency at a date in the future. There are many types of hedging instruments which may be employed, and these can be adapted to fit business needs.
In addition a business may address the risk of fluctuating exchange rates by aligning the currency denomination of its expenses and borrowings with that of its income.
Protect your business and your IP - what measures can be taken?
It is imperative for businesses to take steps to prevent unauthorised use of their IP. The key forms of IP include patents, copyrights, trademarks and designs.
IP allows businesses to protect any competitive advantage by preventing competitors benefiting from their ideas, it can be licensed or sold (which may provide an important revenue stream) and may form a key part of a company's marketing or branding strategy.
International law surrounding IP vary and rights often only exist in the jurisdiction where they have been obtained. Consequently businesses must assess the markets they operate in and tailor their IP appropriately.
Political and economic issues - is there stability and is there a corruption risk?
Political and economic factors can play a big part in determining whether a business enters a foreign market, with the level of risk depending on a country's history, level of stability and political sensitivity. One of the biggest contributors to loss can arise out of unstable social situations and sudden changes to the political structure of the country. General instability from revolution, coup, riots, extortion, conflict and terrorism could have a severe negative impact on a business's client base, image and sales potential.
Governmental factors can also seriously restrict a business from expanding into certain countries. A shift in the political stance of a foreign government could result in expropriation and confiscation where contracts are revoked and foreign assets are seized with little or no compensation. Additionally, an often overlooked matter is the issue of nationalism, where a country's attempts to prioritise local production and retain profit within its own borders could restrict the growth of a foreign based firm. These risks emphasise the need for clear and careful planning before entering a new market as well as the possible requirement for an exit strategy should the need arise.