The global markets in 2016 appear at first glance to be no place for the faint of heart: wild economic volatility and political unrest have accentuated 2016 headlines so far. But business owners should remember that when it comes to international expansion, the show does go on. Opportunities for conducting business overseas can pay enormous dividends as long as leaders know the pitfalls of entering new markets.
Forethought, planning and an understanding of the local environment can help bring success within reach. Business owners should consider three crucial elements as they look for international opportunities:
Protect your product
Business owners in the U.S. enjoy significant protection of their products and services. Managing intellectual property (IP) in other markets is much more complicated — and is often simply not geared to help the business owner.
Europe enforces strong protection, but Asia operates essentially free from any IP restrictions. The upside of manufacturing costs in China presents an exciting place to create product — but only if companies are willing to accept a certain amount of duplication and “grey goods.” Many CEOs see their high-end merchandise copied in front of their eyes, with “knock-offs” produced at the same facility as the original product.
Know employment law off your home turf
Employing a U.S. citizen in another country carries a wide range of implications, and every market has its own perspective on how to treat employees.
In Turkey, for example, businesses must employ five local residents for every foreign worker. In Europe, different requirements are triggered by crossing certain employee count thresholds, and severance packages (redundancy costs) for local employees vary depending on their age and length of employment.
There is also a wide gap between U.S. and European standards for time off. Maternity leave in the U.S. usually begins with a baseline of six weeks’ leave. Countries abroad, however, are increasingly granting pre-partum and post-partum leave that extends well beyond that time period.
In both Europe and Asia, the enforceability of non-compete agreements are also different: they apply in the UK, but rarely hold up in other markets. That means that skilled labor comes with inherent risk; owners must be cautious about whom to give access to IP.
Tax regimes are not created equal
Wherever a new office calls “home,” understanding local tax law is tremendously important. Owners must know how money flows into the foreign office and how much is required for taxes. This will inform them as to the best balance of offshore and onshore funding.
In essence, revenue that is generated in a specific market should likely stay in that market to support local operations, manufacturing, and distribution. If money is generated in one market but used for operations in another, more complicated international tax consequences will come into play.
International expansion can be inspired by any number of opportunities, from the strategic (shortening the supply chain for overseas distribution) to the highly tactical (a key employee moving to another country). The jump sometimes requires quick action and assembling a team of legal and tax advisers — preferably with a local presence in the markets in question.
Owners should be certain to take a breath and get the lay of the local land before opening their new doors.
Frederic Marx is a partner and former chair of the Business Law Group at at Hemenway & Barnes LLP.
