12/19/12

Understanding the Basics of Expanding Your Business Abroad - Entrepreneurship.org

Understanding the Basics of Expanding Your Business Abroad

A n drew J. Sh erm an , Partn er, Di ckstei n Sh api ro Mori n an d Osh i n sky LLP Dav i d J. Lev i n e, Capi tal Partn ers, McDerm ott, Wi l l an d Em ery

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Each y ear, hundreds of entrepreneurial and growing com panies consider international expansion as a m arketing and growth strategy . When dev eloping a strategic plan to launch an international business program , growing com panies and their adv isors m ust alway s consider the potential barriers and adjustm ents they m ight need to m ake to their product and serv ice offerings. These include the following: Language Barriers. Although it m ay seem sim ple enough at the outset to translate the features of a giv en product or serv ice into the local language, m arketing the product or serv ice m ay present unforeseen difficulties if the concept itself does not "translate" well. The target country 's standards for hum or, accepted puns or jargon, or ev en subtle gestures m ay not be the sam e as y our dom estic country 's norm s or idiom s and m ay need to be adjusted accordingly . Marketing Barriers. These ty pes of barriers m ost frequently go to the deepest cultural lev els. For exam ple, whereas m any ov erseas m arkets hav e dev eloped a taste for "fast food" burgers and hot dogs, differences in culture m ay dictate that the speed aspect is less im portant. Many cultures dem and the leisure to be able to relax on the prem ises after eating a m eal rather than taking a m eal to go. These cultural norm s can, in turn, be affected by factors such as the cost and av ailability of retail space. Direct and subtle m essages in adv ertising cam paigns m ay need to be m odified. The appeal of using a particular celebrity in a cam paign m ay v ary , and the channels for prom otion m ay also need to be m odified to m eet the educational patterns and needs of the local consum er. Ev en m arketing m ethodologies m ay need to be m odified. In certain cultures, such as in the United States, coupons are widely accepted and used by people who are both rich and poor. In other cultures, coupons are not widely used or accepted. In som e cultures, ev en the use of com parativ e adv ertising, which is now com m onplace in the United States, could be v iewed as offensiv e or destructiv e. Legal Barriers. The com pany or its counsel m ust research tax laws, custom s laws, im port restrictions, corporate organization, and agency /liability laws. Dom estic legislation needs to be exam ined as well for issues arising under labor law, im m igration law, custom s law, tax law, agency law, and other producer/distributor liability prov isions. Access to Raw Materials and Hum an Resources. Not all countries offer the sam e lev els of access to critical raw m aterials and skilled labor that m ay be needed to offer the serv ice or enjoy the product. The growing com pany m ay want to consider what changes in the product or serv ice m ay be feasible to accom m odate this resources challenge without sacrificing the core business form at. Gov ernm ental and Regulatory Barriers. The foreign gov ernm ent m ay or m ay not be receptiv e to foreign inv estm ent or expansion. A giv en country s past history of expropriation, gov ernm ent restrictions, and lim itations on currency repatriation m ay all prov e to be decisiv e factors in determ ining whether the cost of m arket penetration is worth the benefits to be potentially deriv ed. Intellectual Property and Quality Control Concerns. Protection of tradem arks, trade nam es, and serv ice m arks are v ital for the ability of an em erging growth com pany to operate abroad. The com pany needs to hav e a strategy in place for both protecting its intellectual property rights and enforcing them if v iolations are discov ered. Dispute Resolution. The forum and gov erning law for the resolution of disputes m ust be chosen. On an international lev el, these issues becom e hotly negotiated due to the inconv enience and expense to the party who m ust com e to the others forum . Use of a Local Liaison. It is critical for the growing com pany to hav e a local liaison or representativ e in each foreign m arket. This local agent can assist the growing com pany in understanding cultural differences, interpreting translation problem s, understanding local laws/regulations, and in explaining the differences in protocol, etiquette, and custom . It m ay be adv ised to offer em ploy m ent and equity to these foreign nationals so that they hav e a v ested interest in the success of y our operations abroad. Global opportunities also bring certain challenges for which com panies m ust dev elop appropriate strategies -- ev en established com panies. For exam ple, the worlds leading franchiser, McDonalds Corporation, recently opened its first outlet in Iceland. It had to build an underground heated parking lot to attract custom ers. McDonalds also recently opened in Israel. It spent m onths fighting with the Israeli Agriculture Ministry ov er the im portation of the proper strain of potatoes for its French fries. Problem s such as these arent insurm ountable, nor are they enough of a barrier for an em erging growth com pany to reconsider ov erseas expansions. Howev er, these exam ples are enough to illustrate the need for a thorough inv estigation of the com pany s readiness to expand internationally and a thorough knowledge of the targeted m arkets.

Meeting Export Regulatory Requirements

Any U.S. com pany thinking of doing business ov erseas ev en a sm all am ount of business m ust consider the im plications and requirem ents of a body of U.S. regulations broadly defined as export controls. It is incum bent on U.S. indiv iduals and com panies that sell, ship, or transfer including electronically any goods, technology , or serv ices to determ ine what, if any , controls or restrictions apply to selling and shipping their item s outside the United States. U.S. law im poses an obligation of due diligence for U.S. exporters of goods, serv ices and technology to know y our custom er. At a m inim um , to ensure com pliance with U.S. export controls, U.S. exporters m ust consider their specific products inv olv ed, the identity of the custom er, the known end user or users, the destination country , and the actual and potential end uses for the goods. Step one in ensuring export controls com pliance is to determ ine the export classification of the products or technology inv olv ed. Most goods are classified under the U.S. Export Adm inistration Regulations (EAR) as civ ilian, "dual use" goods, in contrast to m ilitary goods classified under the "Munitions List" and subject to the International Traffic in Arm s Regulations (ITAR). All goods classified under the ITAR require special licenses before they m ay be exported. Som e dual use goods classified under the EAR also require a license before exporting, but m ost are classified as EAR 9 9 and require no license before exporting to m ost destinations. It is the duty of the exporter to determ ine whether a license is required, or risk a significant penalty for exporting contrary to U.S. controls. Any questions should be resolv ed in adv ance of shipping, and the agencies will prov ide official rulings and guidance for this purpose. In addition to classification com pliance, exporters m ust also com ply with prohibitions against shipping to or doing business with certain designated entities and indiv iduals and in certain countries. The U.S. gov ernm ent m aintains and frequently updates the regulations and lists im posing these restrictions. Under current

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12/19/12

Understanding the Basics of Expanding Your Business Abroad - Entrepreneurship.org

U.S. law, trade by U.S. businesses is prohibited absent a specific U.S. gov ernm ent license with Iran, Sudan, Liby a, and Cuba. Any dealings with these countries and nationals thereof should be particularly restricted. Sales and shipm ents to these and ev ery other country should still be screened against the v arious denied parties or entities lists m aintained (and rev ised regularly ) by U.S. gov ernm ent agencies (see below). Various trade com pliance serv ices are av ailable for hire to help exporters m eet these regulatory requirem ents. Com panies planning to undertake exporting or other ov erseas operations can and should, howev er, im plem ent at least a basic trade com pliance program of their own to av oid or m inim ize the risk of significant liability under the U.S. regulations. Com pliance guidelines and specific requirem ents m ay be gleaned from the Web sites of the relev ant federal agencies. Moreov er, the specific lists of denied parties can be accessed at the Web sites below. Denied Persons List (Com m erce/BIS) Unv erified Parties List (Com m erce/BIS) Entity List (Com m erce/BIS) Specially Designated Nationals List (Treasury /OFAC) U.N. Sanctioned Persons - Security Council Resolutions 1 3 9 0 and 1 4 55 Defense Trade Controls List of Debarred Parties (State/ODTC)

International Marketing Strategy

Going into a new m arket blindly can be costly and lead to disputes. Market studies and research should be conducted to m easure m arket dem and and com petition for y our com pany s products and serv ices. Take the pulse of the targeted country to gather data on the following checklist of relev ant considerations: Econom ic trends Political stability Currency exchange rates Religious considerations Dietary custom ers and restrictions Lifesty le issues Foreign inv estm ent and approv al procedures Restrictions on term ination and non-renewal (where applicable) Regulatory requirem ents Access to resources and raw m aterials Av ailability of transportation and com m unication channels Labor and em ploy m ent laws technology transfer regulations Language and cultural differences Access to affordable capital and suitable sites for the dev elopm ent of units Gov ernm ental assistance program s Custom s laws and im port restrictions Tax laws and applicable treaties Repatriation and im m igration laws Tradem ark registration requirem ents Av ailability and protection policies Costs and m ethods for dispute resolution Agency laws Av ailability of appropriate m edia for m arketing efforts. In addition, y ou m ay need inform ation about specific industry regulations that m ay affect the product or serv ice y ou offer to consum ers, such as health care, financial serv ices, env ironm ental laws, food and drug labeling laws. Get going on y our research, and y oull be poised to take adv antage of global opportunities.

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