Builders live by the axiom, “Measure twice, cut once.” Expanding your business outside of the United States isn’t the same as correctly cutting a two-by-four but the idea is roughly the same.
Before growing your business to any new location — and especially to one that is outside the United States — you had better make sure that you have looked at the opportunity from absolutely every angle possible.
While difficult to grow outside the United States, it’s not impossible. Thousands of U.S. companies have established operations in Europe, Asia, South America and Australia.
Some things — like due diligence, market research and business analysis — are done wherever you go. But there are many differences to doing business outside the United States.
Take the topic of incentives, for example. When you expand in the United States, the incentives offered to you by a state, county or city will likely be focused on finances.
A range from tax credits for the number of jobs created, a relief on sales tax for the purchase of equipment and work force training assistance are examples of incentives offered to companies in the United States.
| In some cases, municipalities or states may offer free land, reduced power costs, infrastructure improvements to the site, among others. No matter the incentive, the majority of the time they will impact the company’s bottom line. |
In some cases, municipalities or states may offer free land, reduced power costs, infrastructure improvements to the site, among others. No matter the incentive, the majority of the time they will impact the company’s bottom line.
When expanding into another country, you need to broaden your horizons. Business gets done differently outside the United States. Practices or plans that have proven successful in the United States may or may not work in another country.
Things you take for granted in the United States, like salaried staff working beyond the 40-hour workweek, may not be reality in another locale.
“When expanding outside the United States, incentives are both financial and operational,” said Dennis W. Smith, president of PacTac Advisors Inc., a consulting firm that helps companies expand internationally. “Companies need to consider operational issues that may have much larger impacts on their overseas success than just tax breaks.”
This can include issues like authorizations to have workers stay late at night, classifications of goods being imported, exemptions from power blackouts, special rates for electricity, licenses for transportation of workers to their homes, minimum export requirements and what constitutes an export.
Smith said the time to settle these issues is before the project commences, not during or subsequent to its completion. There is little incentive for a foreign government to provide a concession to your business once it is operating.
And you’ve already spent too much time and money to immediately pull up stakes and start the process again.
Changes in Latitude …
In addition to the financial and operational issues facing companies when going outside the United States, company executives must not overlook culture, both from a business and life perspective.
India has been a very popular destination for companies — from the United States and elsewhere — looking to expand programming and call center facilities. While many companies have succeeded in India, some have not.
“Major Fortune 100 companies have gone to India with a ‘this is the way we do things, get used to it’ attitude, then failed until they underwent wholesale changes of management and their attitudes,” Smith said.
Smith pointed to other examples in Asia and India as to how everyday events are handled differently in other cultures and countries.
“The role of the boss is very different in many Asian countries,” he said. “Is your company ready to have its management staff give away their employees (brides) at their weddings?
“Likewise, the role of the family is very different overseas,” he added. “If offered a job with a different company, an Indian professional will likely discuss the opportunity with four to five relatives and another four to five friends before making a decision.”
You may not be required to walk one of your female employees down the aisle, but have you thought about how you will motivate employees in another country?
Perhaps you have very loyal employees who have been with you since the early days of the company; you probably have rewarded them well for their expertise and commitment.
“If the country you’re moving to does not allow local employees to own stock options in a foreign corporation, how will you motivate them,” Smith said.
You might think that forces are conspired against you when expanding outside the United States. Different laws, different food, different methods of taxation. But take heart.
The city or country where you set up your international operation wants you to succeed.
Smith related the story of a U.S. company that successfully expanded in China.
“A professional services company from the United States, which has a Chinese-American among its top executives, has done very well in China,” Smith said. “The CEO was advised by a senior Chinese official, ‘We want you to make money here. If you can’t with your knowledge of China, then how can we expect other American companies to come here? They will not come here if you are not profitable.’”
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