Atlanta mid-market companies seek expansion overseas

April 30, 2008

While many mid-market companies in Atlanta have not yet sought to expand globally, those that have done so are reporting success and are poised to further expand globally in the next five years, according to a survey by KPMG LLP, the U.S. audit, tax and advisory firm.

KPMG's Global Enterprise Institute, dedicated to global mid-market companies, surveyed executives from Atlanta mid-market companies in November and December to gauge success overseas, to assess plans are for future expansion and to better understand key challenges and risks. And, in doing so, found that 52 percent of mid-market executives plan to expand their global presence in the next five years, compared with 34 percent who expressed that they will maintain their current size. Only eight percent anticipate contracting their global business operations.

The KPMG survey also found that 74 percent of the surveyed executives feel that their company has been successful at achieving its global expansion objectives over the past two years, compared to 22 percent who indicated limited success. Thirty percent indicated that global expansion is integral to their company's growth strategy.

"Atlanta mid-market leaders are telling us there is plenty of potential in other countries and in extending services to new markets," said Aubrey Harrell, a KPMG audit partner and leader of the Global Enterprise Institute's Atlanta chapter. "We expect more companies will recognize the opportunities overseas for profitability and revenue. It is no longer a question of testing the waters. Firms are focused on strategy, execution and mitigating risks."

For those surveyed, the average percent of revenues gained from overseas operations was 17 percent, a number that has been increasing and is expected to continue to increase. In fact, 41 percent indicated that non-U.S. revenue as a percentage of company's total revenue has been up the past two years. And, 47 percent said that the percentage of non-U.S. revenue will increase in the next five years.

Contrary to rhetoric, global expansion has not resulted in downsizing within Atlanta's employee base, the mid-market execs surveyed by KPMG said. In fact, 34 percent said that their employee base in the U.S. has expanded as a result of global expansion and 47 percent indicated that global expansion has had no impact on their U.S. employee base. Looking forward, 65 percent of Atlanta executives expect to increase their revenue from non-U.S. customers and 60 percent expect to increase revenue from overseas operations.

In reviewing the challenges to growing their global operations, Atlanta mid-market leaders pointed to due diligence, financial risk and currency risk as the top three. These were followed closely by a number of other factors including operational risk, cultural and language barriers, selection of a foreign partner, intellectual property rights and repatriation of profits. Human resources and geopolitical issues were rated as the highest of the "very significant risks" by Atlanta executives.

"Mid size firms lack the infrastructure and manpower of larger firms and thus struggle to address some of the challenges inherent to international business," said KPMG's Harrell. "Hiring and training are critical to success as well as preparing the company to absorb the new operations. Successful businesses are the ones that overcome cultural barriers and obtain knowledge of the market, their partners and their clients."

KPMG's Global Enterprise Institute, focused on global mid-market companies, was established to enable business leaders to share knowledge, gain insights, and access thought leadership about key middle market issues and emerging trends.

KPMG engaged research firm Penn Schoen & Berland Associates to conduct the survey, and Penn Schoen interviewed execs from companies that sell overseas, outsource company functions or processes, have partnerships or joint ventures, have plants of offices outside the U.S., use non U.S. vendors or distributors, or sells affiliated franchises to non U.S. companies.