How Accounting Practices Can Support the Globalization of Small Business
Many small- and medium-sized practices (SMPs) operate in one local area, others in a number of regions, while others operate in multiple countries. Practices don’t have to be large to extend their geographic footprint—technology, like the Cloud and VoIP, is a great enabler, and SMPs are taking advantage of this. Numerous small- and medium-sized entities (SMEs) are doing likewise and looking for support in doing so. This provides a perfect opportunity for SMPs to grow with existing clients and also to bring new clients into their practice.
Globalization is not a new phenomenon, but what is new is its extent, pace, and how it increasingly impacts SMEs, which has significant implications for the accounting practices that support them. A recent survey of US accounting firms by the American Institute of CPAs Private Companies Practice Section, revealed that international services is a thriving area for accounting practices of all sizes—79% of respondents anticipate international growth in the next five years. This growth is fuelled in part by demand from US businesses, many SMEs, expanding overseas. It’s likely that this trend applies to accounting practices in many other jurisdictions.
Globalization of SMEs
SMEs are a vital and integral part of the global economy. According to the Organisation for Economic Co-operation and Development, they account for the majority of private sector employment and GDP as well as a disproportionately large share of new jobs; they are a major source of entrepreneurship and innovation. And, SMEs are increasingly becoming part of the global business community. Dramatic changes in communications, transportation, and information technology have accelerated the pace of globalization. SMEs now regularly manufacture products and provide services in many countries and sell to customers and clients around the world—just as large multinational companies have been doing for many years.
A 2013 report from the Edinburgh Group, Growing the Global Economy through SMEs reveals a significant amount of international activity among the SME sector. Almost 75% of the SMPs it surveyed have clients that have some sort of international aspect to their business, even if it is simply buying goods or services from abroad. Similarly 64% of US small companies sold merchandise or services to customers outside the US in 2013, up from 52% in 2010, according to the National Small Business Association 2013 Small Business Exporting Survey.
Role of Accounting Practices
Globalization presents both great opportunities and significant challenges for SMEs. Perhaps the greatest challenge is the lack of human capital, including managerial expertise, and financial resources to take advantage of these opportunities. IFAC research indicates that SMEs will often look to accounting practices, their trusted advisors, for support.
According to the EG report, the internationalization of SMEs demands that SMPs carefully examine and assess the services they provide to these clients. The report contends that SMPs have the potential to become a key agent for the internationalization of small business if they are able to provide SMEs with the advice they need. The report also emphasizes that accounting practices themselves, especially SMPs, must ready themselves to capitalize on the opportunities created by the internationalization of small business.
Many SMPs have already gone international—by outsourcing country-specific work like tax and employment law to overseas jurisdictions, by assisting international individuals or businesses in investing in their home jurisdiction, or by helping their existing clients expand into other jurisdictions. Technology offers the opportunity to provide services to clients irrespective of their physical location, and to provide that service 24-7.
Recommendations for Accounting Practices
Accounting practices can enhance their capabilities in the provision of international services in a number of ways including:
- Identify which clients are, or plan to be, in the international marketplace, and determine the related challenges and opportunities they will need help with.
- Focus on the international opportunities that fit best with your existing client base and practice capabilities and capacity. Then either enhance your competencies in those service areas or seek a strategic alliance that can fill the gaps in your service offering.
- Consider how best to develop, or gain access to, the requisite international resources—for example, by participating in an international network of accountancy practices or building more direct close relationships with practices in other countries.
- Reconsider your marketing approach and potential audience as this is crucial to attracting the attention of international prospects or identifying clients that need advisory services. Are you seeking to provide services to domestic or overseas clients, or both?
- Develop knowledge and information resources to guide SMEs through the regulatory challenges associated with international activity, and to help them access appropriate sources of funding. There are some useful websites to help, such as Doing Business.
- Join international trade associations as a way of building contacts in a particular country and consider hiring locals who have a network there. Speak the language and know the customs. You need to adapt to the market: don’t expect them to adapt to you.
- Provide more proactive support to SMEs in their planning for internationalization, including support in identifying the most attractive, fast-growing international markets. If you already have established international clients or contacts, is there a way you can connect them with your SME clients? See also the European Commission’s SME Internationalization Portal to help European Union-based SMEs extend their business to markets outside the EU and provide access to a range of existing public support services in the target country.
- Build relationships with banks and other key financiers of international investment and trade, to facilitate introductions between these funding sources and SME clients.
- Identify which SMEs are dealing in foreign currency and seek opportunities to provide value-adding advice in areas such as managing foreign exchange risks and forecasting currency needs.
Learn More & Join Us at the World Congress
To help practices build their capacity and competence to offer international services, IFAC provides a wealth of Practice Management resources on the Global Knowledge Gateway (especially subcategories business development, marketing, and networking & networks) and a Practice Management Guide (in particular, modules 2 and 3).
IFAC and CNDCEC invite you to join us at the World Congress of Accountants 2014 in Rome, for “Accountants for Growth, Internationalization through SMPs” (Parallel Session 1.11). Learn more at www.wcoa2014rome.com.
Join the Conversation below. Please tell us what resources you find most useful in developing international services and what has been your greatest challenge?
 Based on the recommendations suggested by the Edinburgh Group, Growing the Global Economy through SMEs (page 5) and a recent article in the Journal of Accountancy, "Accounting Cross Borders – Benchmark survey assesses thriving international services area"