Our expert Gonzalo Garcia goes myth-busting as he examines the challenges companies come up against when expanding across borders.
Within the last five years there has been an increasing trend of companies of all sizes, especially small and medium businesses, seeking to extend their footprint beyond their country of origin.
For most of these businesses this is uncharted territory; they are terrorised by horror stories from other businesses, they doubt themselves and their capacity to take this significant step and most of the time they cut their dreams short to avoid disaster (or so they think).
The truth is that in the current global economy, expanding internationally is not an option for any growing business but a must. The other truth is that if you take on this feat with the help of experienced advisors and partners this process will look less like an unachievable feat and more like an exciting success story.
I want to take a few more minutes of your time to challenge five common myths that companies expanding globally are trapped by. Hopefully, after reading this you will have a more open mind set and the confidence to ask the right questions.
Myth 1: The best way to enter a new market is setting up a branch of your existing business.
US businesses mainly ask to "register them to do business in X, Y, Z country" or set up a branch of their existing entity in such countries. The reality is that in many countries it is not possible to register a foreign business and in the majority of countries and situations the best way to enter a foreign market is not by opening a branch but establishing a fully operational local entity. In most countries, branches follow a different requirement and compliance schedule and may even be more expensive to maintain than a regular entity.
Each country has different types of entities; the most common type is the Limited Liability entity in its various forms, depending on the country. It is important to identify the best type of entity for your business' purpose and general operational objectives. It is very important to talk to your legal advisor and gather information as to which type of entity works best for your business.
Myth 2: Without big pockets it doesn't make sense to think about going abroad.
In the international arena, people are king, not money. It is who you know and who you surround yourself with that matters. There are plenty of organisations, not only in your country of origin but also in the country you are expanding to, that provide free advice and can help you create business plans and gather the information you need for your international expansion.
Once you are there, you don't need to be an expert accountant or payroll manager, nor have you to understand all the local regulations of the country to make sure you are compliant; you can outsource those activities so you can focus on your core business. If you grow substantially you may at some point consider bringing these activities in-house but yet again, the biggest as well as the smallest companies operating internationally use this model to operate successfully.
It is always recommended (particularly for small and medium size business) to seek advice from promotion agencies, the SBA.GOV website and may other sources. Just go online and do a search - you will find hundreds.
Most of the governments have self-funded promotion agencies that will be eager to provide you with as much information and help as possible about doing business in their country. If you are a local business, those same agencies can help you organize your plans to grow to other countries.
Myth 3: Compliance is too expensive and not important.
The former US Deputy Attorney General Paul McNulty said: "If you think compliance is expensive, try noncompliance." He couldn't be more right.
With FCPA, UKBA and other international regulations to add to the already complex local in-country list of legalities, it is likely your business will not be aware of every single compliance matter in the way that a local lawyer or compliance specialist would be.
It is not necessary to read the "Top 10" FCPA fines, where Siemens tops the list at $800million US dollars in 2008, to understand that this is serious business. Countries across the globe are joining forces to make sure that "things are done right".
Still, these regulations don't only apply to the world's giants but to every single business. A compliance fine of any size and colour can be a devastating blow to your business and its future.
It is also important to mention that compliance is not only legal compliance, as most companies usually think; there is also tax, payroll, data protection and KYC (know your client) compliance that must be taken into consideration.
Take compliance seriously.
Myth 4: There is no information available and it is expensive to get it.
It is hard to believe that in the era of communications and the internet people still believe this. You don't need to hire the most expensive lawyer or consulting firm to get good quality information on a specific market of your interest.
There are many articles by the biggest world advisory firms, law firms, etc. on specific countries that are free to download. If you don't believe me type "Doing business in [insert your country of interest]" into your search engine - you won't get less than a few reports (or more if it is a high-interest country) on the specific country you want to research.
If the problem is that you don't know where to start looking, there is a report for that too! Try the Ease of Doing Business report from the IFC, browse through the World Economic Forum website and its many reports, as well as many other sources, such as the aforementioned trade promotion agencies and SBA.
Myth 5: Expanding internationally is too hard to do and I'm doing well where I am.
We live in a business world that is globalising at a pace that's never been seen before; of course expanding internationally is not for every business type and it is not in the hearts and minds of every single company or business owner but it is still a reality that must be taken into consideration. Even in your city, town, neighbourhood, you are seeing new businesses from other parts of the world, new food, new clothing, coffee places...even if you are not going global, globalisation is coming to you.
This fact should be a factor when elaborating on your business plan or when reviewing your next five year strategy. And if you are one of those businesses that can benefit from going abroad, I invite you to start thinking about it sooner rather than later. As I've tried to demonstrate, the world's barriers have almost been eliminated and it is easier than ever to expand your business and find success in other countries.
Take time to research your industry, your economic environment and the vast sea of opportunities awaiting you and your business. Then talk to qualified people that show real interest in you and your business and start taking those important first steps to see your business grow and thrive.
This article was first published by Gonzalo Garcia on LinkedIn. View it here.
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.