Make It Happen: Effective and Efficient International Expansion in Asia

 Make It Happen: Effective and Efficient International Expansion in Asia

Effective and Efficient International Expansion in Asia

“One of the most important decisions you need to make is deciding which market to enter and how you wish to enter it because the approach will be very different depending on your preference.” Jay Smith, Director, APAC Operating Model Effectiveness, EY

This session entitled “Make It Happen: Effective and Efficient International Expansion in Asia,” featured a full panel from Big Four accounting firm Ernst & Young (EY) who highlighted where your attention and priorities must lie when planning and managing international expansion in the APAC region in order to avoid the obvious and not-so-obvious pitfalls.

Sam Barrett, Associate Partner, APAC Operating Model Effectiveness, moderated the session and was joined by colleagues Joseph Christofanelli, Asia Pacific Tax Centre – Global Incentives, Innovation & Location Services; Jay Smith, Director, APAC Operating Model Effectiveness; and Andy Winthrop, Director, APAC Operating Model Effectiveness (Indirect Taxes). 

Location, location, location.

One of the most important decisions you need to make when planning for global expansion is deciding which market to enter and how you wish to enter it, because the approach will be very different depending on your preference. In the EU, for example, there is a lot of consistency around the tax and regulatory frameworks, as well as in the U.S. But in Asia, it’s very, very different. There are a lot of markets, and the regulatory, commercial, cultural, direct, and indirect tax landscape is vastly different. So the thinking and the thought process as to which markets you enter and how you enter,  are very different to the U.S. or the European Union.

This also impacts your marketing approach. Different marketing strategies or models will work better in different regions and, again, each model has very different direct and indirect tax implications. It’s very different regulatory licensing and commercial as well as operational considerations. For instance, choosing an appropriate market entry model would naturally necessitate you to actually understand a lot of aspects from a regulatory directive, and direct commercial and operational perspective.

“The key message is that there are a lot of things you have to think through depending on which market you choose and how you would like to enter and which market model you’d like to deploy will drive quite vastly different, especially in APAC versus the European Union or the US, which are also big markets and quite attractive.” Jay Smith, Director, APAC Operating Model Effectiveness, EY

Prepare in advance to avoid negative surprises

In addition to these considerations, there are others that a lot of businesses forget or don’t really build fully into their plans, and these can be indirect taxes, such as VAT, GST state, and new digital taxation in some jurisdictions. Having a full understanding of that indirect tax landscape during expansion planning can help avoid negative surprises for the business in the form of lower profit margins as well as additional compliance obligations in some of the countries. There is such a difference between all of the countries in Asia, so adopting a consistent approach, which you might do in the European Union or the U.S. can be quite challenging across the markets in Asia.

For instance, VAT and GST are territorial. When you compare this to the EU, operating cross-border transactions may lead to additional costs. Furthermore, in APAC, customs zones are separate and independent, meaning that we might see customs duties be applied as goods move between different markets, even if it’s in the same APAC region. We’ve also seen the broadening of VAT and GST regimes in the region, with the imposition of tax on digital services and transactions made by non-residents by digital platforms. So, this is not the same as digital services taxes that we’re seeing in  EU, but it certainly is a broadening of the regimes in the APAC region.

From an indirect tax perspective, the region may be more complex compared to single zone jurisdictions like the EU, but that does not mean that supply chain strategy can not be achieved. The key in our experience is to maintain agility and flexibility in the supply chain, acknowledging that, perhaps, not one size fits all.

“I think the key is to start planning that expansion journey very early and actually involving all the different key stakeholders in the business to make that plan successful.” Sam Barrett, Associate Partner, APAC Operating Model Effectiveness, EY

Grants and Incentives

 The way to reduce costs is through the use of incentives. During this uncertainty, governments are starting to respond even more with incentives, as they want to use those to accelerate direct and ongoing development recovery coming out of conflict, as well as  manage sovereign risk and redesign the way the economy operates. Incentives are used for that, and this includes both tax and non-tax incentives. Governments today are competing globally for capital expenditure, for R&D activities, for new jobs, and all that competition. Within APAC, you have the various countries competing with each other to attract business. But you also have  APAC competing with the Americas, competing with the European Union. So there is a global competition for incentives. But I think the key to remember is that  not using either tax and non-tax incentives can sometimes subsidize anywhere from five to 25 percent of your project cost. So it certainly is a cost reduction method that these companies are taking on.

“The key in our experience is to maintain agility and flexibility in the supply chain. Acknowledging that perhaps not one size fits all.” Andy Winthrop, Director, APAC Operating Model Effectiveness (Indirect Taxes), EY

What we learned

  • Start planning that expansion journey very early and actually involving all the different key stakeholders in the business to make that plan successful.
  • From a tax perspective, stay agile, stay flexible. Acknowledge that no one-size-fits-all plan, excluding objectives, can be optimized
  • Avail of tax incentives, because there is a significant reduction in the cost and an increase in your return on investment and expect share.

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