Working Through Your International Business Plan
With this plan in hand you’ll have a firm
foundation for business abroad.
MANY OF THE STARTUPS or young businesses we meet with at our law firm tell me they consider international business as something reserved for jet-set executives and Fortune 500 companies. However, they may be doing international business without really knowing it.
Some of the most common, yet not highly visible, examples are entrepreneurs who order products directly from international suppliers, even if it is just one component of the item they eventually sell. If it is supplied from across an international border, then you are doing international business. Or perhaps you have a retail business that offers online or catalog sales. Your consumers could be anywhere in the world, buying via the world wide web, an environment that crosses traditional international borders with a click.
Of course, there’s also the more visible global business world: the physical transportation of products, establishment of branches, set-ups with distribution partners or sales reps, ex-patriot assignments, financial transactions or even the execution of documents. No wonder there are scads of regulations in play.
Despite the fact that the international aspect of this business sounds—and is—really cool, it significantly increases the complexity and risks you face. If you see opportunity out there, you will encounter all the usual business issues, with the added layer of at least one completely different country (with perhaps significantly different jurisdiction) to also consider.
So it should come as no surprise that we emphatically recommend that you educate yourself, get reliable advice, and develop a business plan before you make any commitment to international business. By that we mean a plan for your first venture, and then separate plans for new territories as you expand.
Major considerations to address in your international business plan
Not all, but many of the factors you’ll need to think through are legal matters. Some are financial, and then there’s a whole rainbow of other things. Since in many ways these things are inseparable, we want to get you thinking in a broad, long-term mindset. Here are some of the major items to consider about potential international business.
Legal Systems If you must use your target country’s legal system, can you even do so? Will it work? Is it cost effective and reasonably transparent? Are you able to reasonably predict the outcome? Do you have qualified legal representation there? Things will be simpler in a country with a legal system similar to yours and with established professionals (lawyers or barristers) who speak your language. In contrast, doing business in a distant country, one that speaks another language and is based on tribal systems where you are expected to pay an unknown tribute amount to the local establishment for an unknown result, will demand more patience, flexibility, caution, and long-term commitment.
Political Systems What are the target country’s systems of government at all levels—national, regional and local? How would they affect your business? How stable are those political systems? What roles do corruption, bribery and organized crime play? If systems are likely to change, what is the probable effect on your business? Stable systems tend to support more business, with less risk and generally lower average returns on investment (due to higher competition), as compared to many developing or recently peaceful countries that have significantly lower stability, higher risk, but also higher potential returns. There may be good news for entrepreneurs considering the latter countries: any of the international investment treaties discussed below will have significant incentives for businesses to encourage them to invest there.
Labor Standards Many companies, small and large, have outsourced various parts of their businesses overseas: manufacturing operations to China, technical support to India or documentary support to South America. The reason? Reduced labor costs and benefits like 24/7 workdays. Consider questions like these. What are the local employment requirements? What are the wage rates and what’s forecasted for them? Are these cost effective for your operations? What is the quality of the workforce population? Is there any potential for becoming involved in undesirable practices like child labor, or situations where you may attract bad business publicity for operating out of these specific countries?
Local Culture and Other Considerations Will the local culture support or threaten your business model? For example, in some cultures, copying is the highest form of praise. What impact will that have on your activity? Are there language barriers or educational barriers that would affect business? What is the local work schedule? Are there any religious, tribal or other factors that need to be considered? The examples in this category are rich and abundant, from differences in workdays, daily working hours, translated product names that have offensive meanings in local slang; plus vast cultural differences in management, hierarchy and communication methods.
Environmental Issues What are the local concerns and regulations related to the environment? If your home country’s rules are tougher, then which should you follow? What is the potential for damage from a natural disaster (earthquake, monsoon) or an environmental emergency? Are there ethical dilemmas related to locally legal but admittedly harmful practices? Waste generation and disposal, sustainable development, emissions, long-term damage and potential liability related to harm done are very real issues here. Examples of these tough issues are in every day’s news.
Infrastructure This is an area where it pays to see things first-hand if your target country is underdeveloped or starting its ascent. Are roads, utilities, communication systems and port or rail facilities reliable? Do other companies with experience in your target country have tales to tell about patchwork solutions, and are you willing to work that way? What future improvements are planned, and who’s funding them?
Import/Export Trade Regulations Some very complex considerations get involved here, and you need to evaluate them extremely carefully. Key factors include your product, country, shipping method, prices, etc. These could be affected by tariffs, quotas, trade agreements, standards regulation, regional preferences, popular opinion, etc. Your product may not sell well vs. locally made products, or import fees or taxes may make it too expensive to compete well, or it may not meet technical standards of quality or measurement. On the other hand, you could benefit from programs that give incentives to invest in the training and deveopment of the target country’s workforce, or from other sorts of consideration.
Transactions Costs and Exchange Rates Transaction costs include the freight and the extra layers needed to supervise transport of supplies and products; the risk involved in potential loss, damage or delay of shipments; variation in currency exchange rates that could affect profitability; costs to meet local regulatory and accounting requirements; local tax considerations and more.
Major Tax Considerations International tax strategy and planning is a huge, complicated deal, with many Fortune 500 companies reaping significant profits as a result. Many countries, including Ireland, Bermuda, the Cayman Islands and Luxembourg, among others, structure their tax codes to attract international business and investment. As your revenues increase along with your international presence, this can become a long-term strategic consideration.
At this point you probably are having second thoughts, at least about pulling together a sound business plan. Don’t feel pressed to rush through this, and do get advice from your network and your legal and tax advisors to help fill in the blanks. Doing this will reduce the number of blanks left, highlighting the remaining ones, so you can see what you’ll need to find out and weigh before you take binding decisions.