Business abroad

How to properly prepare for expansion into foreign markets
By Gregg Bundschuh
August 19, 2010
FABRICATION : BUSINESS

Editor's note: This article is part one of a two-part series on steps glass company owners should take prior to expanding their business into foreign countries. Look for part two in the November issue of Glass Magazine.

There's no doubt the world is becoming smaller, at least in terms of doing business. Companies routinely do business in countries around the world, and the trend has been catching on in the glazing industry. Today's economy and construction market have prompted many glass and glazing manufacturers to consider taking on projects in other countries or expanding operations into foreign markets.

While doing business in a foreign country is not uncommon, it requires some homework. Learning more about the foreign country's business and legal climate, employment laws, taxes and insurance issues is critical to assessing the possible risks and values of an overseas venture.

Finding the right adviser

So, how does a company avoid making costly mistakes? It all starts with the right adviser. It is essential to find a good local adviser with practical, hands-on experience in the country where a potential project is located. One likely candidate is an international law firm, either with a strong presence in or domiciled in the U.S., and with offices in or near the foreign country. There are U.S. and foreign country laws, regulations and customs that a company must navigate to be successful. Several law firms specialize in representing design and construction firms overseas.

U.S. laws and regulations

There are a number of U.S. laws and regulations that govern operations overseas. Perhaps the most prominent of these is the Foreign Corrupt Practices Act of 1977 and the various subsequent updates to this federal legislation.

What is and is not permitted depends in large part on the country in which a firm intends to operate. Companies are not permitted to do business wherever they choose. There are total economic sanctions against some countries, such as North Korea and Iran. In other countries, such as Syria, firms can engage in certain activities, but not in others. This can change quickly: What is permitted today might not be permitted next month, and vice versa.

International businesses must also comply with United Nations and other international mandates, as well as regulations and restrictions from the Office of Foreign Assets Control, the Department of Justice, the Treasury Department and the Department of Commerce.

As part of the decision-making process, it is good to have a sense of the level of corruption one can expect to find in a given country. Transparency International, a global civil society with offices in Brussels and Berlin, issues the Global Corruption Report, which ranks countries by the level of corruption in each country. The free report can be found at www.transparency.org.

The bottom line is that a company needs to look in many different directions to get a picture of whether it can operate in a foreign country — and how —  without running afoul of any U.S. laws and regulations. And that's just one side of the puzzle. The foreign country will have its own legal hoops through which one must jump.

Foreign business laws and regulations

Not surprisingly, foreign laws often differ from, and sometimes conflict with U.S. laws. Beyond the garden variety laws, there might also be special laws and regulations that pertain to certain professional activities, such as those performed by design professionals.

As a first step, a firm needs to know the administrative framework for starting a new business in a foreign country. The World Bank is one good source of this type of information.

Employment laws

Foreign employment laws might pose an additional hurdle, and some of them might be in conflict with U.S. employment laws. Holidays, religions, gender and other issues might involve local customs that run afoul of U.S. laws and a firm's own best practices.

Dispute resolution

Dispute resolution mechanisms vary widely from one country to the next. Resolving disputes can be particularly difficult in developing countries. A firm cannot expect to handle dispute resolution the way it does in the United States — for example, by mediating or arbitrating pursuant to contract. 

In many countries, one way or another, a firm is really doing business with the government. And dispute resolution provisions against the government, even if the contract is well-drafted, might not protect the firm very well. Will the courts enforce judgments against the government? Argentina has presented problems in this area, as have Russia and China, to name just three. Thus, any decision to operate in a particular country must be made with full awareness of business and political reality.

Tax issues

Tax is a particular area of concern. A firm must consider the U.S. tax ramifications from repatriating overseas profits. There might be foreign tax implications to engaging U.S. staff to work in the country. What makes sense depends, in part, on income-tax regimes in foreign countries. For example, U.S. companies can sometimes benefit from employing nationals of countries that have more favorable expatriate income-tax laws than the United States.

Another factor is the overall tax attitude of the country. For example, the United Arab Emirates is viewed as tax-friendly. There is no corporate tax except in the oil and banking industries. However, this is a matter of custom, not statute. There are corporate tax laws on the books, but they are not enforced and not expected to be enforced in the foreseeable future. However, things can change suddenly and sometimes without warning in many countries, especially those that are monarchies or dictatorships. Think long and hard before making substantial long-term investments based on laws or custom subject to change.

Cultural customs and norms

Last, but certainly not least, it is critical to understand the customs and cultural norms, whether they involve the appropriateness of making eye contact or not, addressing people by their first or last names, shaking hands or bowing. Having a command of local customs makes it easier to do business with local people.

The author is an executive vice president and equity partner of Ames & Gough, Atlanta, who specializes in emerging issues that affect the construction, design and development communities. Write him at gbundschuh@amesgough.com.