Expanding your business overseas often opens the door to dramatically increased profits. But, like anything that promises major profits, international expansions are not without risk.
Like any significant business decision, it’s important to do your due-diligence. And don’t lose sight of the fact that you’re going into a foreign country and that there are real cultural and legal differences that may effect the ultimate success of your business.
Let’s start with the most obvious difference: language.
Since most countries don’t speak English, you need to decide up front if that’s going to present a problem for you. If you’re considering setting up an offshore call center that will service parts of the United States, not having a large enough pool of English-speaking workers to meet your needs can be a show stopper.
If on the other hand it’s a sales office you’re planning to establish, the opposite is probably true: you want to hire mainly “native” speakers. If it’s manufacturing you’re contemplating, language is probably not going to be an issue one way or the other.
Not exactly rocket science but, then again, business is basically about common sense, isn’t it?
Then there’s the cost of labor.
For much of the rest of the developed world, benefit costs are often more expensive -- 30 to 50 percent of base wage -- than in the U.S. Make sure you understand what all of your costs will be. For example, be aware of what the mandatory benefits -- such as an extra month’s pay as a Christmas bonus -- are. Also, find out how much it’s going to cost you if you have to fire or lay someone off. In Mexico, for example, it could cost you as much as three month’s pay per year of service.
For many companies expanding within the United States, being in a right-to-work state is important or, if that’s not possible, at least not having to deal with a unionized work force. In some European countries, that may be easier said than done. Is that a problem for you? Find out if you have to have a labor council in-house. If so, can you live with that?
What about ownership? Some countries require that local citizens own a majority interest in companies residing within their borders. That may push your strategy more toward a joint venture with an existing local firm, or perhaps even an acquisition. And while you’re on the subject, find out what the local rules for profit repatriation are.
Not that you want to jinx your expansion plans, but you do need to plan for contingencies.
Figure out what your exit costs will be if, for whatever reason, you decide to leave. For example, how much notice do you need to give employees on severance, and how much is it going to cost you. What about the disposition of real estate? You should keep this in mind up front when you negotiate the length of your leases.
Ditto for any incentives you might negotiate. What, if any, are the clawback provisions in case things don’t work out as well as you expected?
In addition to all of the above, you also need to address all of the same issues you would if you were merely expanding to your neighboring state.
And if the numbers look right, go for it … e bon sorte.
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