Chapter 13:PLAN SECTION 8: SPECIAL TOPICS

CHAPTER 13

Plan Section 8: Special Topics

I INVENT NOTHING. I REDISCOVER. – RODIN

DEPENDING ON THE CIRCUMSTANCES , the basic business plan topics may need to be supplemented by details covered by one or more special topics. In this chapter, we take a brief look at some of the more common issues that might arise in a specific context, including financing strategies, facilities and equipment, operations, information management, risk management strategies and regulatory matters.

Financing

Even the best product requires working capital to finance development of appropriate opportunities. In the case of a domestic company, financing requirements will cover facilities, raw materials, marketing and sales, salaries and reserves to keep the company going as inventories are sold and collections are made from customers. Cash is also required to fund new product development initiatives that will not generate a return for several months or years in the future. The transition to global activities will require cash to develop the infrastructure for exporting products, as well as funds for the establishment of new facilities and sales offices in foreign countries.

The international business plan will generally include extensive financial information, including historical results of operations and projections for future receipts and disbursements of cash. These projections must be tied directly to the identified sources of funds described elsewhere in the business plan. In describing the sources of funding, the plan must include projections or estimates regarding the timing of receipts, the sources of funds and the terms of repayment in the case of debt financing.

A variety of funding sources may be available to your company for expansion into new foreign markets. Of course, the company may fund internal operations out of cash that is generated from current domestic activities. Each bit of income collected from the business should be allocated either toward distribution to the owners of the business or to some form of reinvestment in the business in worthwhile projects. As noted elsewhere in this book, there will come a time in the evolution of the business when the highest expected return on investment may be in a new foreign market as opposed to a local market that is already mature.

Investors may be brought in specifically to fund a business plan that is focused on international operations and expansion. The funds may be paid directly to the company with the understanding that an agreed portion will be allocated to foreign activities that have been identified in the business plan. Such projects as the construction of a new production facility in Asia or the

establishment of a joint venture in South America can have cash set aside for development.

Small- and medium-sized businesses may qualify for special government financing programs in their home countries, including incentives for developing export businesses that generate foreign exchange funds that can be recycled in the local economy. These programs range from outright grants to loan programs at attractive rates to guarantees of loans that come directly from commercial lenders.

In any event, the key issue in this area is making sure that the company has a clear and coherent plan for raising the funds necessary to complete execution of the entire business plan on a timely basis. Also, given the uncertainties associated with developments in a global economy, as well as in a specific foreign country, the plan should always include appropriate reserves that can be tapped when economic conditions deteriorate.

Facilities and Equipment

The business plan should include a description of the company’s physical assets, including real property and equipment. The scope of the company’s physical plant and facilities will, of course, depend on the type of business and the geographic range of the company’s operations. At a minimum, the company will generally have a main office that serves as a home for all of its business records, senior management and appropriate support staff. In addition, the company may have its own production facilities and sales offices. In each case, the facility may be owned outright by the company or leased from a third party.

The business plan should describe the main facilities of the company, including a list of locations, size (e.g., square footage), the amount of monthly payments in the case of leased facilities and a summary of management’s view regarding the adequacy of the listed properties for the conduct of the company’s business. Facilities analysis can be particularly important in the case of a pending global expansion. Each of the managers, as well as prospective investors, need to determine if the company has a reasonable plan in place to position itself to successfully enter a new foreign market.

A threshold question that must be answered in developing an international business plan is how to identify the best locations for facilities in each new foreign market. This analysis must take into account proximity to potential customers and the infrastructure needed to move the required goods, raw materials and equipment around the country.

Equipment, including office furnishings, computers, fabrication machines and other physical assets necessary for the conduct of the business, should also be described in the business plan. The level of detail required in this area is not as great as the information relating to facilities. The company’s ability to acquire the right to use key assets should also be verified in the plan. As with facilities, there are a variety of strategies that can be used with respect to equipment, including purchase and leasing options. Availability of equipment in foreign countries is an important logistical question. This is particularly true if there is a need for specialized equipment to adequately exploit the technology embedded in the company’s production processes.

Operations

In addition to detailed information regarding the company’s management structure and human resources, the business plan should consider the key operational areas of the business. In this case, the term “operations” refers to the nuts and bolts of keeping the company going on a day-to-day basis, including functions such as payroll, procurement, accounting, bookkeeping and tax compliance.

Responsibility for operational activities will vary depending on the size and structure of the company. In some cases, a company may have a chief executive officer (CEO) who has primary responsibility for the overall strategic direction of the company as determined by the board of directors. The firm may also have a person who serves as chief operating officer (COO) who generally implements the strategy and keeps the business running smoothly. In a small business, strategy and operations are handled by one person. In larger businesses, the CEO and

COO are joined by other senior executives, including the chief financial officer (CFO).

The challenge of operations expands exponentially when the business goes global. Information management challenges are discussed separately below. In addition, the COO must handle a variety of tasks, including the following: ■ Establishing record keeping and accounting procedures in foreign offices, including recruitment of personnel, training in local customs, accounting and tax laws. Outside tax and accounting experts will also need to be located in order to assist with preparation and filing of required reports and documents. ■ Facilities management, including the purchase or lease of real properties required for the anticipated foreign operations. ■ Contract management, including the development of standard form contracts for use in the company’s business and management of internal contract managers and outside counsel.

■ Collection, analysis and distribution of information, including output and quality reports on the company’s manufacturing processes.

Information Management

One of the most important features of a successful business, yet often overlooked in connection with global operations is an effective global information and communications system. Factors that should always be taken into account include regional differences in time zones and work schedules and development of computer standards for the entire organization. Due to this, large firms appoint a CIO (chief information officer).

TIME ZONES AND WORK SCHEDULES The computer systems for a global organization must automatically take into account differences in time zones when compiling and distributing scheduling and production information across multiple countries. In addition, work schedules

may differ in various parts of the world. For example, some branches may begin and end work earlier in the day due to climatic conditions or local customs. Another consideration is different local practices regarding celebration of holidays and official vacation periods. Either of these factors may cause delays in creation of information and/or production and other inputs that might be transferred to other regions.

DEVELOPMENT OF COMPUTER STANDARDS In an ideal world, a global business organization will be able to develop and implement common standards for computer equipment used throughout the company. This would also include common software programs and configuration as well as access to local vendors with equivalent skills and experience throughout the organization. Unfortunately, this is usually a difficult goal to achieve due to limitations on the type of equipment and support services that might be available in specific locations. Accordingly, a global organization will often need to adapt to these shortcomings and make appropriate allowances as it develops organizational information management and communications requirements.

Risk Management Strategies

Every business confronts various risks regardless of the scope of its activities. The business plan should identify both the opportunities and risks relating to the company’s business. Ordinary day-to-day business risks of product liability claims, theft, destruction of property need not be given special emphasis, but larger challenges such as expropriation of foreign assets and suspension of raw material supplies due to political unrest in foreign countries should be dealt with in some detail. There are a variety of strategies that might be used with respect to risk management, including insurance policies and internal procedures to ensure that receivables are kept up-to-date and that vendors perform their obligations under contracts.

Regulatory Matters

Depending on the circumstances, the business plan may need to include a detailed discussion of specific regulatory hurdles that must be overcome in order for the company’s products to be distributed and promoted in various markets. For example, if the company is involved in the development of new pharmaceutical products, the business plan must describe regulatory procedures with respect to testing of the products to confirm their efficacy and safety. In particular, reference should be made to the amount of time required to obtain the necessary approvals and the additional costs that may be incurred in order to complete the review process.

Supplemental Information

There is no standard list of exhibits or appendices that you should include with your international business plan, nor is there any standard format. Various items typically are included with most plans to enhance the reader’s understanding of your company and its business. If possible, include an index or table of contents for the exhibits. You could then tab each exhibit for easy reference.

Of the exhibits commonly added, most important are the financial statements as described in the next chapter. In addition, you might include one or more of the following supplemental materials: ■ Detailed CVs of key managers and employees ■ Professional references ■ Photographs or drawings of the product/prototype ■ Patent summaries ■ Market studies, articles from trade journals and third party evaluations ■ List of major customers, suppliers and distributors ■ Advertising literature, company brochures and promotional materials ■ Summary of major contracts ■ Charter documents (i.e., articles or certificate of incorporation, bylaws) and major agreements among the ownership group ■ Charts, graphs or tables expanding on information presented in the business plan