South African businesses expanding globally have identified the UK as a potential gold mine, with interest in setting up operations in Britain ticking up sharply over the past six months. That’s according to consultants who have been helping South Africa’s global citizens spread their wings. Scott Brown of Sable International Accounting highlights a number of reasons for opening a branch in the UK, including lower corporate tax. Entrepreneurs aim to take advantage of lower labour costs by drawing on South African labour and services to support operations in the UK – where labour, pension and tax laws are such that it can be relatively expensive and cumbersome to hire locals. Aim for 70/30 when splitting costs between South Africa and the UK, suggests fintech entrepreneur Chris Wilkins. Expect it to take longer and cost three times more than you expect to break into the UK market, he adds, in this piece supplied by Sable International. Long-term, the benefits should be worth the effort – with revenue in the stronger pound and expenses in the weaker rand helping to ensure healthy profit margins.- Jackie Cameron
From Sable International
Despite the uncertainty around Brexit and it’s implications for the UK and Europe, the number of South African companies looking to expand their businesses to the UK has more than doubled in the last six months.
According to Scott Brown, MD of Sable International Accounting, there are three reasons for the increase in enquiries: South African business owners can remain in SA and set up a UK business, they have expansion opportunities from the UK into Europe, and thirdly corporate tax is lower in the UK than SA.
“There has been an increase in enquiries from companies in the FinTech space, which makes sense, since this sector is growing globally”, said Brown.
Chris Wilkins, CEO of DTH is one of the latest SA FinTechers coming of age with an expansion into the UK. According to Wilkins, DTH was at the right stage of it’s lifecycle, were not reinventing the wheel and offered a compelling alternative to a mature established model in the UK.
Practical business factors also played a role: same time-zone, language, Anglo-Saxon business culture, Cape Town as a destination in itself, strong business and familial ties, and a Rand that is expected to deteriorate faster against the BP than the Euro or the Rupee.
Wilkins cautioned that waiting until your company is one of the top three significant players in your sector in SA, before spreading your wings, gives you an advantage.
“Expect the UK market to take twice as long and cost three times as much to break into,” said Wilkins.
Wilkins elaborated on a few things to bear in mind when expanding to the UK:
- Keep as much of the cost in SA as possible, this is the model that really kicks hard (70/30 rule with SA/UK costs)
- A product or service that is promoted in the UK, but serviced from SA is a winner
- Pick a specific region and service or product for the UK, don’t try and be everything to everyone, everywhere
- Ensure the service or product is focused and specific, clearly communicated and as commoditised as possible
- Make sure that the marketing collateral has been criticised and reviewed intensively for the UK market. The UK is less hung up on price, but a shoddy brochure could scupper the deal
- Make sure that you have sustainable funding, you don’t know how long it will take, and the margin to keep going could mean the difference between success and failure to break into the UK market
- Craft an approach using partners, channels and individuals
“When opening a subsidiary in the UK, the owners or management are not required to live in the UK. In fact, they do not even need to travel to the UK to do the paper work or set up the business. If they wish to employ South Africans in the new UK subsidiary, these staff would go through the usual visa application process”, said Brown.
But Wilkins warns that you give your company a better chance of success if you have a senior presence in the UK regularly.
“Avoid the SA mistake of parachuting in a SA citizen with a pat on the back and a few words of encouragement, it really does not work.”
Wilkins advised to keep a hands-on approach at all times. “Otherwise it will cost a fortune and the most senior people must be fully involved. Start ups are tough in SA, they are incredibly difficult in the UK.”
Brown added that Sable International has experienced more of the subsidiary applications than the Enterpreneur Investment Programme application since this route is simpler and cheaper.
“To be honest, I have been surprised by the increase in enquires, considering the Brexit uncertainty at the moment”.
The UK government has removed obstacles and offering sweeteners to companies wishing to expand to the UK and is offering grants and incentives to companies opening up, particularly in the northern parts of the country.
Brown added: “The stability of the UK economy is in part due to rigorous legislation and controls, and opening a business in the UK is a complicated business, so I would always advise that a South African business wishing to expand should consult their local tax expert, as well as seeking professional advice in the UK.
Wilkins concluded: “It takes time, patience, money and the utilisation of skills from specialists in the field as there are plenty of hurdles to jump through, including company incorporation, opening a bank account, obtaining Visa’s, different tax regimes, and relocation or travelling logistics for staff”.