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Newsletter - Summer 2008
Going Global: Tips for Small Businesses
Lewis Kevelson, Partner, Tax and Business Services
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Although international trade is dominated by the large multi-national companies, economic evidence suggests that eventually one-third of all exports will come from small private companies. Following are some tips for small businesses looking to expand abroad.
Understand the Culture
Before entering into a foreign market, the company's strategic decision makers should spend time in the region to become familiar with local customs and business practices. Equally important is establishing relationships with qualified individuals in the host country who understand the business and political culture. Consider attending overseas trade shows and meeting with representatives of foreign companies. Finding a trusted advisor in the host country who can trouble shoot and advise on local market practices can make the difference between success and failure.
Have a Specialty Product or Service
A small business has a better opportunity to expand its overseas sales if it has a unique product or service. Focusing on a specific country and finding a niche can increase profitability dramatically. Imagine how a small business could increase its profitability if it was able to provide a niche product or service to countries with emerging middle classes like China (population 1.3 billion), India (population 1.1 billion) or Brazil (185 million).
Optimize Your Website
Going global requires a retooling of the company's website and Internet strategy. Businesses with an on-line presence are far more likely to enhance export opportunities for their goods and services. Strategies to find export opportunities include keyword search engine optimization, language translation for products and services and providing logistic support for the exportation of goods.
Find a Local Legal Advisor for Contracts and Legal Matters
If a contract is needed with a key customer or supplier in the foreign country, it is advisable to use a legal advisor based in the host country that can provide guidance on how deals are traditionally negotiated and how disputes are resolved.What works in the U.S. might be misunderstood or offensive to a foreign business partner.
Consider the Tax Implications
Once a business is ready to open an office, hire employees or enter into a joint venture, the company should decide how best to arrange its activities to minimize U.S. and foreign country tax implications. Companies are afforded flexibility in how they structure their operations in foreign countries for U.S. tax purposes. The proper structure can help avoid double taxation and potentially offer bilateral income tax treaty benefits.
Determine How to Classify Sales Agents
If the company plans to hire a commission sales or other representative agent in the foreign country, an upfront consideration should be how the individual will be classified for employment law purposes. If the individual is classified as an independent contractor, some income tax and payroll tax concerns may be alleviated. If employee status is unavoidable, the U.S. company may have to deal with additional compliance and tax costs of doing business abroad. Each country's laws are different however, so this should be a consideration in every expansion market.
Seek Local Country Accounting Assistance
Last, finding a good local accounting firm early on in the foreign country can help alleviate headaches in dealing with the foreign country and U.S. audit, tax and accounting requirements. Expanding abroad opens a new world of opportunities for small businesses. As is often true however, success is contingent on careful planning and preparation.
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