CFOs worldwide become more cautious about where to invest internationally

CFOs are becoming more cautious about where to invest, according to a BDO International survey of midsize companies in 14 countries.

CFOs reported a 9% increase in their companies’ international revenues from the previous year, but they also expressed more scepticism about the future success of their companies’ international expansion plans; 72% were optimistic compared to 95% in 2011.

CFOs’ top concerns shifted from intensifying competition abroad and bureaucratic hurdles to currency fluctuations and geopolitical risks. Also, recruiting the right talent moved into the top three risks in 2012.

The survey, which was conducted over the summer and included responses from about 1,050 CFOs, suggests that the risk-reward dynamic is changing, Martin van Roekel, chief executive of BDO International, wrote in the survey’s foreword. The CFOs, who represent companies with growth ambitions and annual revenue below $2 billion, “tell us they face greater risk for the same reward and are tending to stick to what they know when investing.”

The rising risk awareness is prompting companies to bet on seven safe havens: The US, the UK, Germany, and the so-called BRIC markets, Brazil, Russia, India and China. Each offers large markets and access to new customers, two key drivers of international expansion. China, which topped the BDO Global Market Opportunity Index for the second year in a row, was favoured by companies because it also promised higher economic growth rates and low-cost labour.

Survey respondents ranked Greece and Spain, the southern European countries with the biggest sovereign debt problems, among the riskiest countries in the world in which to invest. Also listed among the top ten were Syria, Iraq and Nigeria, a country where 48% of respondents considered corruption was an issue.

Increased caution also put other countries out of contention. More than two-thirds of CFOs polled said they had no plans for their companies to invest in Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa, also known as the CIVETS markets. Made up of emerging economies, the CIVETS are considered tomorrow’s BRICs.

But risk appetites varied. Russian CFOs were the most aggressive. Sixty per cent said they were willing to take major risks when investing abroad, compared with just over 25% of all CFOs. Nearly half of Chinese CFOs were also prepared to take major risks to do business abroad. CFOs in Brazil and the Netherlands were the most risk averse, the survey found.

To deal with the challenges facing a mid-size company doing business abroad and manage the risk involved, the CFOs recommended to:

• Find good local staff or partners (46%), because it’s not enough to dispatch people from the mother country. Local know-how is essential for a smooth and successful international expansion.

• Do your homework to understand the market (44%). It is important to be fully knowledgeable of the ways of doing business in a particular market, from the customer base to competitors to business etiquette.

• Understand the rules and regulations in a market (15%).

• Be aware of the costs of getting into a market (13%).

• Take your time (13%)

• Learn about the local culture (11%).

Asked who their most trusted sources were for advice about international expansions, 26% of CFOs said accountants and tax advisers. Sources from inside the company came in second and networks of existing clients and customers were third.

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—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.