5 considerations for entrepreneurs seeking international expansion
As many restrictions imposed during the pandemic are being lifted, many business leaders are now re-igniting their growth ambitions, including bold plans for international expansion. 66% of leaders in J.P Morgan’s 2021 Business Leaders Outlook (BLO) survey expect their international sales to increase in the next five years.
Expanding internationally can be a daunting prospect, but launching operations in a new country brings new opportunities. When expanding overseas, organizations are typically looking for regulatory consistency, strong demand for their products & services, and a stable political and economic backdrop. Nonetheless, however attractive the business environment, you need to be prepared before taking the plunge.
Here, we consider some of the administration challenges entrepreneurs are facing when growing their business abroad.
1. Timing is everything
One of the key considerations when expanding abroad has always been timing. This has become even more critical during the pandemic. Scaling businesses cannot put their expansion plans on hold forever, and those that understand both the opportunities, and the risks could stand to benefit.
Beyond the macroeconomic drivers, time to set-up and launch a presence in a new jurisdiction needs to be considered. In some countries it may take weeks to set up, while in other countries it may be done within a matter of days. Think about differences in incorporation process, involvement of a notary, local board and shareholder representation, registered address requirements, mandatory local bank accounts, capital and registration requirements, the list goes on. Make sure you have the right advisors in place before starting the process, who can translate these local requirements into an action plan so you know exactly what is required to get you off to a smooth and time efficient start.
2. Branching out
In this initial stage, you will also need to consider what operations you will need to successfully expand your business into this new market and how can you set-up these operations to be most efficient for your purposes.
A key question to ask is: “Do you require local presence through a formal legal entity (e.g. limited liability company) or would a branch or representative office suffice?” Apart from the differences in time, funds and resources needed to set up a legal entity instead of a branch, the legal and other corporate governance requirements can vary significantly – not to mention tax obligations.
You can’t cut corners when it comes to corporate governance, and local differences between directors, proxies and (branch) representatives, management board composition and residency, board and shareholders meetings need to be understood.
3. Letter of the law
Fast expanding businesses can often get caught out by the tangle of legislation and regulation – whether the tape is ‘red’, ‘rouge’, ‘rojo’ or ‘rood’, it exists in all countries!
Dependent on the type of business, specific regulations may apply requiring an alphabet soup of licenses before operations can be conducted: AIFMD, REACH, EMA/FDA, SFDR, GDPR, the list goes on…
Some regulations may apply in single markets, while others may apply to certain regions or larger economic blocs (e.g. EU). With global regulatory compliance obligations evolving rapidly it is key to have a good understanding of how business operations may trigger regulatory obligations when entering a new market, and more importantly understand what is required to be fully compliant.
4. Balancing the books
When expanding into a new market, you may find that most daily bookkeeping and financial reporting can still be done by a centralized finance team. However, annual statutory and tax reporting and filing obligations require local knowledge, especially when filing exemptions or extensions may exist or specific tax reporting is required.
5. People power
People matters must be considered well before the first employees are hired.
You need to be aware of local employment practices and laws. Employee benefits and incentive plans cannot always be implemented the same way in every jurisdiction. Similarly employee handbooks and company policies may require some tweaking to become compliant with local employment laws.
As a result of the global pandemic, hybrid and other forms of remote working are here to stay. With more staff working remote and across jurisdictions, global companies need to understand how rules, regulations and taxes apply differently in jurisdictions.
Key takeaways
You can’t do it alone: having the right local experts in place across all of these business administration areas is essential to enable fast and efficient international expansion, preferably through one local single point of contact to optimize your growth potential in a new market.
The pandemic has been the latest in a series of seismic events that business leaders have had to contend with this century, and yet again they have shown have shown huge amounts of resilience and ingenuity in rising to the challenge. The show must go on.
