by John Schmidt & Adrian Liddiard, Co-CEO & Co-Founders, WeFi Technology Group
Developing markets offer massive opportunity, but complexity abounds. Read on to discover ways tech companies can navigate these challenges to unlock growth…
The global economic landscape is brimming with potential. Across 180+ countries, the world’s GDP is projected to surpass $100-trillion in 2024 (IMF). While developed economies like the US, Canada, UK, Western Europe, Japan and Australia contribute a significant portion (around 60%), developing economies and emerging markets – roughly 140 countries – hold a vast and growing market valued at nearly $40-trillion.
For multinational technology companies, venturing into these developing markets presents a lucrative opportunity. However, navigating the complexities associated with these regions is crucial for sustainable success.
Key question: How should multinational technology companies approach expansion and investment into new developing markets?
Embracing Complexity for Growth
Unlike their developed counterparts, developing economies present unique challenges. Regulations, legislation, currency fluctuations, compliance requirements and taxation structures can vary significantly from country to country.
Consider these examples:
- India restricts the repatriation of onshore profits.
- The UAE requires service invoices be billed in local currency.
- Egypt limits USD invoice payments based on available USD reserves.
- Foreign exchange conversion costs in Turkiye between the regulated Central Bank Rate and the market rate can be as high as 6%.
Failing to account for these complexities can expose multinationals to unforeseen costs, foreign currency risks, as well as operational hurdles that can hinder profitability.
WeFi Technology Group: Your Partner in Global Expansion
WeFi Technology Group, a leading global fintech company, empowers businesses to navigate these complexities. Our cloud-based platform, automation tools and AI-powered solutions provide a comprehensive suite of Channel Financing services across 41 countries.
We’ve built a reputation for embracing complexity. We specialize in delivering working capital solutions in some of the world’s most intricate markets. Our approach revolves around a global centre of excellence – the Client Solutions Group. This team boasts deep expertise in architecting country-specific solutions that address factors like interest rates, foreign exchange and credit risks while ensuring compliance with ever-evolving regulations in areas like accounting, capital control, VAT, withholding taxes and currency controls.
Key Considerations for Entering Developing Markets
Here are some crucial aspects for multinational technology companies to consider when expanding into developing markets:
- Capital Investment: Non-repatriable capital can become extremely punitive. Multinationals need to make an upfront evaluation on whether to utilize their own capital or external market solutions. In-country working capital solutions minimize the need for capital injections from the parent company.
- Customization: Recognize that a one-size-fits-all approach doesn’t work. Building customized country solutions might involve partnering with multiple financial institutions for optimal coverage.
- Onshore vs Offshore Billing Entities: Where local regulations permit, offshore USD/EUR structures can simplify operations. However, understanding the implications of each structure (e.g. foreign exchange risk) is vital. Onshore USD/EUR or local currency structures offer significant client advantages that require navigating complex compliance and tax considerations.
- Credit Capacity and Terms: Credit capacity and terms are vital for growth and require constant management to ensure alignment with the demands of the business. The underwriting of credit lines requires financial institutions with an appetite for both credit and political risk. Local funding partners with in-country balance sheets are often integral to solutions for markets where credit insurance is not available/limited. Working capital solutions should be designed to accelerate Accounts Receivable receipts, improve DSO and limit capital investment in these markets.
- Operations: Equip your teams with real-time, automated tools for financial tasks and reporting. These tools can streamline processes, enhance productivity and improve the client experience. Consider outsourcing non-core functions like collections, ensuring your team has the necessary cultural and language expertise.
- Foreign Exchange and Interest Rates: Developing economies often experience significant currency and interest rate fluctuations due to political instability, monetary policy adjustments, inflation and regional conflicts. Unlike developed markets, these fluctuations can be dramatic and often occur with little warning. For companies reporting in USD, comprehensive hedging strategies become critical for balancing risk mitigation with profitability.
- Platform Technology and Data Compliance: When utilizing external working capital solutions, ensure the chosen provider offers workflow engines that accommodate customized country structures, handle local languages and currencies, and manage parent-child credit structures effectively. Additionally, data compliance regulations and security necessitate data storage in regional or local data centres.
- AML, KYC and Sanctions Regulation: US multinationals face stringent regulations regarding anti-money laundering (AML), Know-Your-Customer (KYC), and sanctions compliance. Non-compliance can lead to hefty penalties, highlighting the importance of leveraging service providers with automated compliance tools (e.g. tools that check against US sanctions databases).
Focus on Core Strengths
Outside of the developed economies, there is a $40-trillion market that, while complex, offers enormous growth opportunities if managed effectively. Multinational technology companies should focus their investment and resources on the products and services that have driven their success while outsourcing non-core service functions and leveraging companies with expertise in managing global complexity – companies like WeFi.
Engage our Client Solutions Group to learn about our existing in-country solutions and practical case-studies, which outline how we solved for multiple challenges and how we can develop and support a customized solution for your working capital goals.
