web analytics

Category: Risk Mgmt

Nov 24 2010

ASAE CRS Lunch Virtual Session – “International Expansion”

We just wrapped up an good session with 30 folks just prior to US Thanksgiving Holidays.  As promised, I am posting the slide deck to make it easier for others to locate.  Thanks for joining us.

If you have questions, please contact me at peter.turner@mci-group.com or go here to read the more indepth article on content discussed today go to this article entitled “Secrets to Market Share and Product Sales Growth”.

Happy Thanksgiving.

Nov 11 2010

Secrets to Market Share and Product Sales Growth

Like many US-based professional societies, you find more international customers are consuming your products, attending your U.S. meetings and contributing content to your conference, education and/or publication products.  As you grow increasingly reliant on this international clientele, you may find more volunteers and members demand that you be more “present and engaged” in their regions.

Meanwhile, your scan of the business news indicates a host of new global trends:

  • Huge expansion in global trade and business growth led by economies in Asia, Middle East and Brazil;
  • 24/7 global management pressure necessitating inter-operable standards, and procedures, fueling the demand for certification and training in emerging markets; and
  • Expectations for a consistent, “global” customer service experience from consumers whether they are located in Chicago, Rio, or Mumbai.

How do you act on these potential opportunities in the right way?

How does one determine where or how to enter a new market?  What is your market potential?   What do you need to do to achieve sustainable growth in product or membership sales?

No matter how established your brand or how rich and successful your product portfolio in your home market, for a US-based professional society to succeed in growing a sustainable business in a new region of the world requires three important operational values:

  • Local knowledge and relationships to understand market opportunities, barriers to entry, and competitive threats
  • Ability to design, deliver and promote locally relevant products and services to your target audience
  • Capacity to serve increasingly large and more complex transactions as demand grows

Unfortunately, many US-based associations are “under thinking and resourcing” their efforts to grow globally. In short, they expect quick returns with value propositions, strategies and infrastructure used to build their home markets.

Market Insight – Get It & Keep It

Pursuing business growth in a region outside your home market requires gathering, maintaining, and improving “local market intelligence” that can prevent you from taking inappropriate risk or increasing your chance of failure.   Defining your market potential from a “market analysis” requires:

  • Recognition of global/regional economic, business and industry trends –  as well as the implications stemming from these trends to help define broader opportunities & challenges to enter a market
  • Understanding customer segments – knowing the needs and expectations of your prospects can help shape your appreciation for what is locally relevant for adapting one’s value proposition
  • Adapting to competitive landscape – competitors can come from many places (the local government, for-profit providers, other associations,etc) therefore identifying and evaluating their capabilities is key to define competitive advantage
  • Alignment to cultural norms – even if your products are considered “generally accepted practices” or are standards around the world one must ensure that the design, distribution or promotion of your services are consistent with local tastes

All Product Value Is Local

Just as “all politics is local”…so too is product or membership value.

If you’ve conducted a proper “market analysis” to determine your market potential, you may know where you want to go, but you will not know how to get there.  To develop the roadmap, you need to learn how your products, services or membership can be adapted to the local needs of the market you seek to grow.  This requires local customer intelligence developed from a “product analysis” to measure the proposed product portfolio against:

  • Relevance – how close are your current products to local needs, expectations of service, and the desired outcomes of targeted customer segments?
  • Convenience – is the locally desired content readily available & sensitive to the local price your customer segments are able to pay?
  • Awareness – how strong is your brand in this market and how trustworthy is your brand to local prospects?
  • Granularity – is your product or membership experience “design” appropriately packaged to the capacity of the local customer to consume?

Local Execution Meets Expertise

Destination and road map in hand, the last item is a “business plan” that includes the business and operational model you plan to use to produce, distribute, promote and sell your products in that region.   Here is where many associations make their biggest mistake by under resourcing their ability to deliver effectively.

As the diagram above illustrates, the paths most choose to grow a market are not equally valuable.  There are tradeoffs that one makes when trying to sell products from HQ that are not adapted to the local customer (dotted line) or who attempt to sell the same unadapted products within the region with local partners (middle line).   Why does this happen?

  • Capacity – while the Internet may make it possible to sell products or membership from the comfort of your office HQ you aren’t likely to achieve sustainable growth without having the capacity to promote, sell or deliver product or membership experiences from within the region.
  • Scalability – the better your means of adapting product, membership or services to one’s targeted audience the better your chances of crafting a locally relevant value proposition for a product that meets the needs of the market.
  • Expertise – there is no substitute for a local partner with the previous experience and proper expertise that can build a business:  marketing, sales, distribution, customer care, and the local business license to collect revenues and manage accounts on your behalf.
  • Entrepreneurship – you are starting a business in a new market no matter how old and successful your association and that requires a partner who is part of the local culture and brings the essential ingredient of having built businesses in these regions.

What Makes a Good Local Partner

Here are some tips to help you evaluate local business partners as you develop your plans for 2011.

  1. Management – do they offer flexible, scalable, capacity-building “local” business services?
  2. Branding – whose brand would be featured as part of conducting business on your behalf?
  3. Competency – do they possess proven experience to help your association grow its business?
  4. Market Knowledge – Do they possess the people and practices to achieve results?
  5. Focus – Have they a track record for achieving a sustainable business & operating model?
  6. Commitment – Are they flexibile to work with your third party providers to ensure the customer experience?
  7. Viability – Are they financially strong and diverse in business and effective leadership?
  8. Business License – Can they offer access to you as a WOFE to conduct business locally?
  9. Back Office – Can they offer financial management and fully functioning office and/or IT infrastructure?
  10. Entry/Exit Costs – Can they keep your risk low and make it turnkey to enter or leave a market?
  11. Integration – Do they have the ability to coordinate with your HQ – practices, reporting metrics, and communication?
  12. Market Relations – Can they grow relations with government, and academic institutions, and private sector?

Conclusion

Since 2001, emerging market countries have replaced the US, EU and Japan as the economic leaders for growth globally, but few people appreciate they are also overtaking Western markets as hotbeds of business innovation. New product and service innovations are being introduced based on “frugal innovation” that go far beyond low cost production methods to deliver high quality at prices people in emerging markets can afford: the $3,000 car, the $500 handheld EKG, and $30 mobile phones using nationwide service for just 2 cents a minute.

Emerging markets are now home to 21,500 multinational firms and the number of emerging market firms on the Financial Times 500 list has grown to 62 from as few as 15 in just two years.

How well we prepare today to enter new markets outside our home will likely depend how effective we continue to be as leaders in our industries or professions.  Time to get to work.

Feb 18 2010

Enhance Your International Meeting Bottom Line with Effective Local Tax Reclamation

This article by Anne-Sophie Snyers, Director of Finance, MCI Brussels  first appeared in an issue of Headquarters magazine.

We all encounter Value Added Tax (VAT) in our day to day life and whenever we purchase something for personal use but it is surprising how many associations and organisations don’t choose to take advantage of the possible returns when organising an event in the EU.

VAT is a sales tax automatically charged on virtually all goods and services sold within the European countries and an increasing number of non-EU countries worldwide. VAT can add up to 25% to your bill but the average is around 20% in Europe. When organising a large event, VAT can therefore add a significant amount to your expenditure.

The good news is that it is possible to reclaim a large chunk of that figure, if you work with an experienced PCO with expertise in tax reclaim and who can take you through a difficult process across language barriers and countries.  The European Commission revealed in 2004 that “80% of SMEs surveyed have in the past failed to apply for foreign VAT refunds due to the complexity of the process”* while a European legislation was adopted in the 1990s to allow companies to reclaim VAT on eligible overseas business expenditure.

Common reasons for the failure to reclaim VAT includes being unaware of the possibilities, language and location barriers and the long and complicated process that can bog down finance personnel.

The Legal Situation

The European Council Directive** on the common system of value added tax states that it is compulsory to charge VAT in the country where a supply of services relating to cultural, artistic, sporting, scientific, educational, entertainment or similar activities is held.  Associations based outside the European Union context can have difficulties grasping the VAT concept on our shores, as sales tax for example in the United States cannot be reclaimed and is commonly much lower.  Many US based organisations choose to work “under the radar” and ignore the legal obligation to charge VAT on registration fees, exhibition and sponsorship packages and other sources of income.

As an association, you are taking on a lot of risk if you choose to ignore European legislation, and as we’ve seen with likes of the Microsoft case, the EU is not afraid to levy serious fines on businesses which as a non profit association could be enough to cripple your organisation.  Becoming legal in organising an event in Europe for a non European based organisation means to have legal representation in Europe as well as freezing a large amount of money in the country of the event as a guarantee to the local administration that they will pay what is due at the end of the event. A good PCO will avoid this by organising the event for your organisation under their name.

How VAT Works

Scenario:

Event Income = € 2,000
Event Expenses = € 1,000
Assume VAT percentage = 20%

Event LEGAL (registration) ILLEGAL (not registered)
Income received € 2,400 (2,000 x 20% VAT) € 2,000 no VAT applied
VAT paid € – 400 € 0
Expenses € 1,200 (1,000 x 20% VAT) € 1,200 (1,000 x 20%)
Bottom Line € 800 € 800
VAT declaration due to administration Event LEGAL (registration) ILLEGAL (not registered)
VAT from Registrations €   400 € 0
VAT paid to Authorities € – 400 € 0
VAT paid on Suppliers €   200 €  200
Bottom Line € -200 € -200

The Event pays €200 of VAT on the supplier invoice AND can reclaim it in case the first scenario:

Bottom Line €    800 € 800
VAT reclaimed €    200 €    0
TOTAL Bottom Line € 1,000 € 800

The process seems simple enough when shown as such but there can be a number of hurdles in getting that end result that associations will first need to cross.

The VAT Application and Reclaim Process

In order to charge VAT and to recover VAT on purchases, the PCO – under the name of the association – will have to register with the local administration to obtain a temporary VAT number that will identify the event (if the country is one used regularly it may be worth obtaining a permanent number).  An experienced PCO will be able to contact the local fiscal authorities and produce a detailed “memo” or snapshot of the event that summarises the event for the government, this will contain primarily the budget and estimated revenues and expenses.

The PCO will then have to follow a strict criteria set by the local authorities to ensure all invoices issued are correct and all local invoices paid are correct. It is important to note that VAT is only reclaimable on suppliers that the event planner hires in the country of the event. For example, working with a French Audio Visual company in Spain will mean that the VAT will not be  reclaimable on Audio Visual expense as the VAT will be paid to a different country, not the country where you have a VAT number and event registered.

The criteria as with the rate of VAT can vary from one country to another. For example in Czech Republic and Poland all invoices issued must be in dual language (Czech and Polish).  It is imperative that all invoices issued contain the event’s local VAT number and all the invoices paid locally have the correct legal entity under which the PCO is registered. This can often be a time consuming process as it is necessary to ensure that the PCO doesn’t pay an invoice for a local service without 100% correct information.

The PCO will then be legally obliged to report each month to the local authorities on how much VAT is raised on the income and pay the corresponding amount.  Following the financial closure of the event, the PCO will have to produce another “memo” of the event that details the final results and using an experienced PCO you can expect any VAT reclaim to arrive within 6 months to a year of that date.

It is always possible for an association to act independently of the PCO and go through the VAT application and reclaim process themselves, but with the time spent and difficulties an association can encounter working with many different regimes and countries, it is a better option to work with an experienced partner which will advise on every step of the way.

*European Commission, Tax survey 2004

**Article 52 of the European Council Directive 2006/112/EC of November 2006