Strategies and Practices for Withdrawal by Overseas Businesses - 9th Consortium for Small and Medium-Sized Enterprises' Overseas Expansion

On September 7, 2023, our company hosted a webinar titled "Strategies and Practices for Withdrawal by Overseas Businesses," and we are pleased to share the lecture content by our representative partner, Takashi Kusumoto.

Nihon Keizai Shimbun | July 19 Article

"15% of Small and Medium-Sized Enterprises Considering Withdrawal from Overseas Expansion, Domestic Repatriation Becomes Clear"　

(Quoted from Nihon Keizai Shimbun article published on July 19, 2023, at 19:09)

According to an article published on July 19 by Nihon Keizai Shimbun, a survey by the Japan Finance Corporation revealed that 15% of 341 Japanese SMEs that have expanded overseas are considering withdrawal (repatriation).

However, this situation should not be expressed with the positive term "domestic repatriation." Instead, we should feel a greater sense of urgency about the need to withdraw in an era where overseas expansion is progressing.

Companies that once expanded to Southeast Asia seeking cheap labor and grew as suppliers are increasingly forced to withdraw due to losing price competition as multi-supplier purchasing becomes common. Are such companies executing the necessary "survival strategies" before withdrawal?

Survival Strategies | What to Do Before Withdrawal

During my time as an advisor for JETRO and the Organization for Small & Medium Enterprises and Regional Innovation, I observed the distinct differences between successful and unsuccessful overseas expansion by Japanese SMEs.

Successful companies generally collaborate with local partners, entering the market on fair and equal terms. In other words, the survival strategy lies in cooperating with local partners.

Partner Exploration Project

 KCP considers collaboration with local partners leveraging each other's strengths as the "formula for successful overseas expansion." We have assisted many Japanese companies in their overseas ventures, and we firmly believe that our "Partner Exploration Project" is the only solution to avoid being left behind by the times.

When Withdrawal is Unavoidable 

After implementing survival strategies, if a decision to withdraw is made and liquidation is considered, the following "withdrawal costs" must be taken into account:

1. Severance pay

2. Restoration to original condition

3. Damage to corporate image

4. Contract penalties

5. Taxes, etc.

Among these, the highest cost during liquidation is severance pay, which can be enormous if the termination is company-initiated. Companies using leased factories must also restore them to their original state, involving equipment removal and facility repairs. Other costs such as damage to the corporate image and contract penalties make liquidation expenses incalculable.

What Should Be Done? In such cases, finding local partners through the "Partner Exploration Project" is key.

Method of Capital tie-ups

Why are local partners necessary? Because transferring or selling the company through a capital tie-up is the most ideal method.

1. No Liquidation Costs

When transferring the company to a local partner, there are no liquidation costs such as severance pay or restoration. Even if the selling price is as low as 1 yen, it is less damaging than liquidation.

2. Minimize Brand Value Decline

By transferring or selling the company under the pretext of a capital tie-up while keeping the company name, you can maintain the brand value without using the term "withdrawal."

3. Minimize Supply Chain Impact

The continuity of dealings with suppliers and clients can be maintained, minimizing the impact on the supply chain.

Avoid Using the Term "Withdrawal"

To successfully withdraw from overseas operations, it is essential not to use the term "withdrawal." Seek paths for capital or business tie-ups. Ideally, keep a small percentage of the business to ensure a continued income stream. Even if a "withdrawal" in the form of a capital tie-up is decided, maintaining an income stream until the end helps prepare for a potential comeback, avoiding overreaction to the ups and downs of overseas strategies. This concept is known as "zanshin" in kendo. Do not completely sever the path to overseas expansion; prepare for a resurgence.

KCP will thoroughly support clients by employing methods to meet with local business owners and management to maximize client benefits.