Global commerce is fraught with many legal perils that could put a business at risk. Lance Hill, Esquire, an adjunct professor at Delaware Valley College’s MBA program, has a unique understanding of those dangers. He is a vice president of sales and marketing for an international company, a partner at a law firm, and has more than two decades of experience in the consumer packaged goods industry.
“An incorrect decision on international expansion can not only be an unprofitable project, but it could also cause the complete demise of the firm,” he says. “Failure to understand and comply with our laws and the laws of the international community can cause major repercussions.”
Smart Business asked Hill how business owners can educate themselves about the hazards of expanding into an international market.
What do business owners need to know before doing business internationally?
One needs a keen understanding of why one is entering an international market. To expand internationally just because one reads about globalization in the Wall Street Journal or BusinessWeek or Smart Business does not usually produce a positive end result. Expansion simply for expansion’s sake is not always the most profitable and sustainable strategy. Understand your firm’s core competency and who you want to be from a mission statement perspective.
What factors determine whether a move into a new international market would be beneficial?
Make sure there is sufficient reward forecasted. There can certainly be much more risk inherent in moving into a foreign market, but there can also be much more reward if executed correctly. One has to be sure of this potential reward. An understanding of the new market’s demographics and also the local competitive landscape is critical to the decision process. There is no substitute for good market research and there is no one magic model to make such decisions.
What are common mistakes business owners make when expanding into a new market, whether it’s international or domestic?
One common mistake is rushing into the market without first getting one’s basic ducks in order. For example, entity selection is critical in terms of how you plan to organize (i.e. a joint venture, your own corporation, some sort of other approach like a strategic alliance, etc.) Liability protection should be a paramount concern. Be sure to get good legal counsel early in terms of formalizing your entity. It’s critical and not often very expensive when done early in the process. Spending a few well-planned dollars upfront in terms of education really increases the chances of your project’s long-run success.
People sometimes don’t realize that properly incorporating might only be a thousand dollars or so in Pennsylvania, so they don’t bother with that. Next thing they know they get sued and don’t have the corporate protection they should. Incorporating is a small step that was avoided because people get intimidated by the legal process. Having an education, including an MBA, would help one understand such issues when it’s important to understand them — early in the strategic planning
Owners think hiring a lawyer is going to cost millions of dollars, and the reality is that some initial planning through a qualified lawyer and accountant ends up being money well spent.
For international markets, actual visits by senior management personnel to your target market are critical. Many managers get drunk on the spirit of gaining first mover advantage, which can indeed be crucial, without recognizing the risks of being first to what proves to be a failed market — especially if they haven’t set themselves up in the first place to be successful.
How can owners avoid some of the pitfalls of international market expansion?
Strongly consider getting a local accountant and a local lawyer in the target international market. I would even suggest finding someone local who is not simply a branch office of a large American accounting or law firm. Intellectual property — which is perhaps the most specialized area of law — has remained a real challenge to protect internationally and should always be a firm’s major concern if they have such property to protect at even the slightest level.
A local business partner in a new international market can help guide a firm through what is often a maze of local laws, both formal and informal, in a foreign market. Finding a committed local business partner can define success or failure when it comes to international expansion. One has to avoid ethnocentric thinking when moving into a new international market and a local business partner committed through formal agreement can be a key to this important understanding.
How can business owners find the right local business partner in an international market?
There are many resources. Consultants can be helpful here but be careful of simply paying a middleman for something less than you seek. For export purposes, our own federal government has a program in many countries where they help American businesses find local partners. It’s run through the Department of Commerce. A firm pays a nominal fee and is given several prescreened partners to consider. Companies can also contact the target country’s embassy located here in the U.S.
Lance Hill, Esquire, is an adjunct professor in the MBA program at Delaware Valley College, a partner at Wassmer & Hill LLP and the vice president of sales and marketing at Earth Savvy Products LLC, an international company that markets reusable grocery bags. Reach him at (215) 348-8610 (www.doylestownlaw.com) or firstname.lastname@example.org.