What's a Good International Budget?

Posted by: Global Chamber on Saturday, April 18, 2015

Your company almost certainly has a budget that's too low for international growth.

Multinationals are way ahead of you - most have revenue outside the US that exceeds revenue created in the US. Intel for instance has over 70% of their revenue outside the US. Do you think they spend 1, 5 or 10% on international growth? Hardly! Way more!

Part of the decision of course is how much of your revenue is international, and like any other growth area, spending needs to grow ahead of revenue growth. The natural tendency is to spend more on things we know - the local or regional market closest to us. But that's the wrong instinct. Spend more on those areas where you expect to grow.

If you've worked for a US-based multinational over the past 20 years you've seen how headquarters have come around to be more supportive of international markets. Many of us have been arguing against the tide for more spending, until the tide turned.

Now small and medium sized businesses face the same challenge. So how can we convince the executive teams of SMEs that they need to invest more time and money in foreign markets, just like the multinationals have already done? And how much spending is enough?

The answer is of course 'it depends'. Sorry! But certainly look at how much of your sales are international and you should be spending MORE than that percentage on global marketing and operations. Because that's where the vast majority of your growth will happen in the future, almost certainly.

Recently an economic development group in a major US metro area explained that over the last 5 years their budget to attract international companies to their metro had increased from 5% to 21% of their overall costs, and international attracts had increased to over 10% of the total. This is the right direction!

Besides the top line growth potential outside the US, global companies are on average more profitable. Several reports including one by HSBC have documented this effect.

“The [HSBC] report clearly shows that a diversified geographic customer base or operations have an impact on business performance,” said Steve Trepiccione, a senior vice president at HSBC. “Highly international Midwestern companies were able to insulate themselves from domestic market fluctuations throughout the past six years and remain consistently profitable.”

Even the US government tends to underspend on economic development activities relative to the defense budget.

The US spends 20% on defense overall, but it spends only 1% on international aid. The U.S. International Affairs Budget supports numerous programs including global economic, diplomatic, and humanitarian initiatives. These programs build markets for U.S. exports, provide for U.S. embassy personnel and security, and promote good governance practices that strengthen democracies.

These programs also facilitate the formation of international coalitions, fund essential nonproliferation and anti-terrorism efforts, respond to global challenges such as hunger and illiteracy, and help people build a stronger future. These are exactly the kind of programs that support better cross-border relations and trade.

We'll be reporting on specific businesses and how they invest in their international growth, but in the meantime you might consider how much you're spending, measure it, and consider spending more for future growth.

Invest to grow.

And join us!

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