more-arw search

Considerations for international business expansion

When expanding into a foreign market, there are several things to take into co

Expanding internationally can launch a business to the next level, or it can derail operations entirely. It's not always obvious what the correct strategy for foreign expansion is, but there are some things executives should consider before starting operations in another country. Here are some considerations company executives should make when determining how to hire foreign talent and how to register in a foreign market, as well as some timely concerns businesses both at home and abroad should take into account.

Appropriate salaries and benefits packages - Generally available salary surveys for privately owned companies are often skewed by information from larger multinational corporations. Before a company even begins interviewing candidates, it's important to establish a salary and benefits base for employees. To do this, executives should talk to recruitment and HR consultants who are familiar with their particular industry and the salaries of the the region.

Benefits should also be established at the outset. In many countries, there is no mandatory requirement to provide benefits, but there is a market rate for those benefits. In other countries, however, unions have negotiated a minimum benefits amount that exceeds those required by the government. This is especially true in southern European countries.

Companies need to be aware of these rules before beginning the hiring process.

Determine the appropriate way to register - In most countries, there are three levels of business infrastructure. Companies can set up a representation office, register locally as a branch operating in a foreign country, or they could register as a subsidiary.

The main advantage of setting up an RO is that it is a non-taxable entity. Businesses can legally withhold taxes and Social Security and pay them over themselves. Although there are typically no corporate tax requirements for these entities, there are usually some restrictions on their activities. For example, an RO often can't hire more than two or three people. They also cannot hire, for example, a regional VP, because it is often assumed from the outset that the offices are staffed with high-level employees.

Establishing an RO carries benefits and risks. One major risk is that the RO will expand and become a branch office. If this happens, the office becomes a taxable entity and is subject to back taxes. Because of this, it is also important to consider future plans in registering your company in a foreign country. Executives who set up a rep office and think the business will grow into a full subsidiary or branch should be careful to include this information when registering.

Risks of dealing with or in foreign countries - The current economic climate leaves businesses open to a new set of risks, whether they export solely from the United States or have offices abroad. The risk of nonpayment due to currency controls being imposed or customers going into liquidation is particularly high, especially in southern Europe. While Greece's unstable position certainly makes for risky trading, surrounding countries that stay with the euro may also find themselves in dire economic straits. Companies dealing in the region should take care to include prepayment clauses in their contracts to avoid nonpayment after delivery. Carefully evaluating a customer's credit risk is another a good way to avoid that situation.

Companies must also consider political risk, and the need to secure credit insurance even more carefully than before. Businesses with an irrevocable letter of credit may assume they don't require credit insurance, but political actions could prevent a shipment from being delivered until after the letter expires, voiding contracts and leaving unrecoverable debts.Going Global: Expanding Internationally the Right Way

You can  learn much more about the right way for companies to expand across borders by listening to the webinar recording of the recent Proformative webinar Going Global: Expanding Internationally the Right Way featuring renowned international business expert Dr. Shan Nair, Co-Founder, Nair & Co. and Amy Spurling, CFO, Athletes' Performance Inc.

 

Comments

Topic Expert
Philippe Gelis
Title: CEO
Company: Kantox
LinkedIn Profile
(CEO, Kantox) |

Currency control is an issue when trading in some foreign countries but FX risk is a much bigger issue in any foreign country.

Topics:
Products and Companies: