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Expanding Abroad I: Strategic Issues

Andrew J. Sherman, Partner, Dickstein Shapiro Morin and Oshinsky LLP

Many entrepreneurs have identified international expansion as a critical component of their overall growth strategy. Many countries, even developing ones, take a positive view of the expansion of U.S. companies into global markets via partnering, alliances, franchising, licensing, distribution and local branches. Not only is it a way to import U.S. products and services, it's also a readily acceptable source of technological development and system support. Taking your company overseas can introduce American know-how to a fledgling business community in a cost-effective manner.

The economic interdependence created by a truly integrated international financial system and the advent of strong regional associations such as the European Union, NAFTA and ASEAN have also contributed to the need for companies of all sizes, in virtually every type of industry, to be thinking in terms of global business. Your next customer may be global, and so may your fiercest competitor. Your best solution for outsourcing may be an overseas company. Your next legal battle may take place in a foreign courtroom. Your next round of capital may be from a foreign investor and your next hire may be a citizen of another country, triggering immigration challenges and costs.

Geography no longer stands in the way of an emerging company's aspirations. However, it also no longer serves to protect local market share. Business growth strategies need to be built around a global vision where quality, pricing, service, distribution, etc. must be globally competitive but also be custom-tailored to meet local requirements and market conditions. Technological developments such as the rapid growth in the use of the Internet to facilitate international e-commerce, advances in telecommunications and videoconferencing and satellite technology have made that process considerably easier and less expensive.

Do Your Homework

Before you embark on an international expansion program, consider the following factors:

  • Language barriers. Translating your core marketing and operational materials into the local language may seem simple enough at the outset. However, marketing may present unforeseen difficulties if the concept itself does not translate well. Make sure your product name, slogans and concepts say something meaningful in and are acceptable to the target language and culture.
  • Marketing barriers. Perceptions at the deepest cultural levels may have repercussions on overseas marketing. The American taste for fast food may not be appreciated in cultures where meals are supposed to be leisurely and relaxing. In France, cultural demand actually forced McDonald's to offer beer and wine on the premises. Cultural norms can also be affected by other factors, such as the high cost and limited availability of retail space in Singapore and Japan. Certain retail concepts may be tailored for large regional malls, readily available in North America but rare in the Middle East.
  • Legal barriers. A country's legislation may not be conducive to the establishment of certain types of distributorship arrangements. Tax laws, customs laws, import restrictions, corporate organization and agency orliability laws may all prove to be significant stumbling blocks. Technology transfer laws and foreign investment laws may force a given business relationship to be essentially a joint venture, when it was originally intended as a master franchise or license.
  • Access to raw materials and human resources. Not all countries offer the same levels of access to critical raw materials and skilled labor that may be needed to operate your core business. If your company requires highly trained computer technicians, you may need to locate these resources in a country where educated employees are available for lower salaries than you would have to pay at home.
  • Government barriers. A particular country's government may or may not be receptive to foreign investment in general or to certain types of distribution relationships. A government's past history of expropriation, government restrictions, high tariffs and limitations on currency repatriation may all prove to be decisive factors in determining whether the cost of market penetration is worth the potential benefits. You may need to review the tax treaties between your country and the targeted nation or even to seek governmental intervention.

In the United States, the U.S. Trade Representative or the Department of Commerce's International Trade Administration may be able to intervene on your behalf with trade authorities elsewhere. It is also a good idea to have a lawyer who is experienced in international matters review the laws of the targeted nation and establish a liaison with a local attorney who can represent your interests in the foreign country.

Checklist for Gathering Data

Take the time to measure market demand and competition for your company's products and services. Be sure to gather data on the following:

  • economic trends
  • political stability
  • currency exchange rates
  • foreign investment and approval procedures
  • restrictions on termination and non-renewal (where applicable)
  • regulatory requirements
  • access to resources and raw materials
  • availability of transportation and communication channels
  • labor and employment laws
  • technology transfer regulations
  • language and cultural differences
  • access to affordable capital and suitable sites for the development of units
  • governmental assistance programs
  • customs, laws and import restrictions
  • tax laws and applicable treaties
  • repatriation and immigration laws
  • trademark registration requirements, availability and protection policies
  • the costs and methods for dispute resolution
  • agency laws and availability of appropriate media for marketing efforts

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