If you're considering expanding internationally for the first time, or if you already have a presence abroad and are considering operating in a new country, it's critical to understand that virtually every expansion is unique. Many factors will dictate your compliance obligations, risks, and budget. These include home- and host-country laws, the nature of your activities, and your goals and risk tolerances.
Despite differences in local laws and other factors, there are certain basic concepts related to international expansion that apply in most situations. Any business considering international expansion should be familiar with these concepts, and we address them here.
That said, it's important to grasp that laws governing corporate and indirect tax, immigration, employer obligations, and more are constantly evolving. What may have been widely accepted ten or even five years ago as a rule of thumb may no longer apply. Permanent establishment laws, for example, are changing rapidly to account for the digital economy and to stem the tide of base erosion and profit shifting.
This introductory guide is not intended to be comprehensive, but it will give you an idea of what's involved in setting up operations. Most importantly, it will help you ask the right questions so you can set realistic budgets, timelines, and expectations before you make the leap.
Building an International Expansion Team
The time looks right for overseas expansion — you may already have your eye on a few countries. You just need to craft a plan, get it approved, and then get the ball rolling. Seems everyone is doing it today — sourcing, servicing, or selling overseas. If your peers can pull it off without a hitch, you can too, right? As the CFO or COO of a growing company, you may be planning to handle this yourself; if too busy, you may be thinking of delegating it to someone you can trust to run with it.
The process is more complex, risky, detail-oriented, and time consuming than you may imagine. We've been helping companies do this for more than two decades, and we can tell you, it takes more than one individual — regardless of brains, drive, and experience — to do this right.
A team will help in other important ways — you'll get different perspectives early in the process, which will better shape your plans, and you'll be much more likely to get buy-in from key stakeholders.
It's More Work Than You Think
Consider these issues that might come up, regardless of countries you may expand to, and what type of operation you open:
- HR issues that may be unlike anything you've faced in your domestic market, like national health, work visas, employment contracts, data privacy, and risks of unfair dismissal claims
- Accounting considerations, such as reconciling general ledger entries, local (statutory) accounting requirements, and other compliance matters (for example, ensuring your records are available for inspection at any time by local authorities)
- Regulatory compliance of every sort, from currency controls, to import/export restrictions, and even environmental matters
- Tax considerations, risks, and liabilities, along with complex filing requirements
- Working with different languages, time zones, customs, and cultures
Doing the necessary homework on these issues — and more — will take much more than a few extra hours a week — they could take weeks, if not months of full-time work. Assuming, of course, that you know what to look for, as well as what questions need to be asked and answered. If you've never done this before, a helpful rule of thumb is that it will take twice as long as your current estimate.
Start With a Small, Dedicated Team
So, you need more than an individual; you need a team. Not necessarily a committee representing every single department in your company, but three, maybe four self-starters from the parts of the business who will be most impacted by the project, who can investigate, evaluate, make decisions, and then take action. Unless you work in a resource-challenged start-up, it would be best to appoint one leader of the team who is not tasked with actually completing any specific tasks — ideally let others on the team do the work — leaving the individual best placed as the team leader more free to focus on the day job of running domestic operations. The leader can then jump in to resolve issues and make key decisions. You'll want strong representatives from three areas — Finance, HR, and Legal — as the lion's share of issues in any international expansion will be found there
You'll also want team members representing any of the departments expecting to hire personnel in the overseas office. Depending on the nature of the overseas operation (selling, servicing, or sourcing), this could include Sales and Marketing, Customer Service, etc. While some departments may not expect to have any overseas employees, the operation of a new office may require their participation (for example, Logistics). You may not need everyone to be full members of the team, but identifying them early on as resources the team can turn to when needed, will be very helpful.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.