Globalization requires that companies forge business relationships with parties from different countries, cultures and legal systems. All of these relationships present unique challenges and companies must be prepared respect the differences and the values of the other party as they negotiate and eventually begin to conduct a cross-border relationship. In order for this process to be successful, a careful analysis, popularly referred to as “country analysis”, should always be made of the country or countries in which the business activities will take place.
Country analysis is a holistic approach to understanding how a country, particularly its government, has acted in the past and may act in the future. A comprehensive country analysis should begin with an evaluation of environmental factors, including all relevant economic, political, legal and cultural factors. The next step is to examine the institutional framework of the “target country”, a process that focuses first on identifying the national goals and objectives of the country and the various policies the government is pursuing to achieve those targets. The analyst must then evaluate the performance of the country vis-a-vis its national goals and objectives using objective and easily verifiable measures. Other elements of a country’s institutional framework that should be considered include the financial system, human capital, legal and regulatory systems, ownership and governance practices, business-government relations and the media. The last, and most difficult, step in any country analysis is constructing scenarios that might represent the evolution and development of the country over the period of concern to the company (e.g., the term of a proposed joint venture).
Country analysis is typically discussed in the context of advising foreign investors on whether to launch or expand business activities in a particular country. In addition, however, country analysis is a valuable tool for managers of enterprises already engaged in business activities in the country since those managers will presumably want to create internal business plans and set internal performance goals and objectives and will need to make forecasts about the local environment and the actions of local institutions. While business counselors are often not directly involved in the selection of foreign markets for their clients’ business activities, it is important for them to understand all of the factors regarding a chosen country in order to be an effective advisor on selection of the form of entry into the new country and contractual arrangements with local business partners.
Chapter 260 in Business Transaction Solutions (§§260:1 et seq.) is a valuable training resource for business counselors on evaluating foreign markets and help them understand organizational practices for monitoring the environment in promising foreign markets; understand how to conduct an environmental analysis of a foreign market; define and describe the elements of a national business system; describe the dimension of the national institutional framework; understand and analyze differences in management styles and practices in foreign markets; understand techniques for forecasting and scenario planning; and understand the process of market and site selection. The first stop should be a review of the Business Counselor’s Training Materials: Evaluating Foreign Markets (§ 260:81).
While trade garners the headlines, direct investment by companies or nationals of one country in assets or free-standing companies in another country is a much more significant part of the international economy. It is also much more important for companies–the commitment in money, time and risk is much more material than deciding simply to export products to a foreign market. A cross-border investment, whether a new green field project or acquisition, involves a whole host of decisions. The first is whether to serve a foreign market. For many companies, the local market is sufficient; and, as long as it is growing, they are happy to stay focused on that market. For other companies, once they have achieved a certain level of sales in the domestic market, whether in terms of total sales or market share, they must look to other markets for continued growth. In some cases, the other markets can be new products. In many cases, other markets can only mean new geographical ones. While both new product and new territorial markets pose advantages and risks, the choice often depends on where a company feels its competitive advantage lies. The wider its core competency, the more likely it is to expand into new products. The narrower it feels its competencies are, the more likely it is to take that narrow product skill into new geographical markets.
Once a company decides to enter a new geographical market, it is likely initially to serve the market in one of the ways described in other chapters–direct sales through exporting, indirect sales through local sales agents or distributors, or franchising. After awhile, if it discovers sufficient demand or believes it exists, the company is likely to decide to set up its own physical presence in the foreign country through direct investment. There are several common methods that may be used for direct investment. In a new chapter added this month to Business Transactions Solutions on WESTLAW (§§ 283:1 et seq.), we discuss the use and operation of a branch office or facility, sometimes referred to as a permanent establishment, in a foreign country and the creation of a wholly or majority-owned foreign subsidiary, sometimes referred to as a central enterprise. While the primary focus of the discussion in the chapter is the formation and organization of a new branch or subsidiary, it is possible to take over an existing operation in a branch or subsidiary structure through acquisition or merger.
When planning for the formation, organization and operation of foreign branches or subsidiaries, it is important to remember that the branch or subsidiary will ultimately need to perform many of the functional activities associated with any business. The range of activities, as well as the timing for introducing a specific activity, will depend on the strategic purpose of the branch or subsidiary. For example, if a branch is established exclusively to launch direct sales activities in the foreign country, then it is obvious that the initial investment should focus on those areas that support sales–recruitment of sales personnel, development of marketing and advertising campaigns, and customer support. Other functional areas, such as new product development and manufacturing, will continue to be handled at the headquarters level until the decision is made to establish those capabilities in the foreign country. However, even if the activities are limited to a single function, the branch or subsidiary will still need to establish procedures to satisfy accounting and financial requirements; locate suitable facilities and negotiate real property purchase and lease agreements; purchase and lease equipment and other personal property for the business; obtain insurance covering its activities; implement legal compliance programs; and establish management guidelines and human resources policies and procedures to recruit and retain qualified personnel.
Financing the new legal operation is obviously an important issue and many parent companies set up a simple form of loan facility agreement through which the new foreign subsidiary can easily obtain financial support from the parent in order for the subsidiary to conduct various operational activities. The subsidiary may have been formed and organized by the parent or it may be an established company in the foreign country that was acquired by the parent with the intent that it continue to operate as part of the parent’s global network of businesses. While the subsidiary may attempt to obtain a term loan and/or revolving line of credit on its own from a local financial institution it may be easier to set up an inter-company loan facility that the subsidiary can use without having to abide by the restrictive covenants that will inevitably be imposed by outside lenders.
The specialty forms library in the new chapter includes a management services agreement, a consulting agreement for management of European subsidiaries, a services and royalty agreement, a general assignment and assumption agreement and intercompany loan facility for a foreign subsidiary. The chapter also includes a checklist of matters to consider when forming a foreign branch or subsidiary, a checklist for managing a global subsidiary governance framework, executive summaries for clients regarding ways of doing business in foreign markets and forming and organizing foreign branches and subsidiaries, and a slide deck presentation on forming foreign branches and subsidiaries. Related issues are covered in the chapters on Launching and Managing Global Business Activities (§§ 259:1 et seq.), Evaluating Foreign Markets (§§ 260:1 et seq.), Developing an International Business Plan (§§ 261:1 et seq.), International Sales of Goods (§§ 274:1 et seq.) and Cross-Border Investments (§§ 286:1 et seq.).
Want to learn even more? Sign up for the webinar on “Helping Your Clients Launch a Foreign Branch or Subsidiary” being presented by West Legal Ed Center and the Business Counselor Institute on Tuesday, December 13th at 11:00 AM Central Time. Follow this link for registration information. It’s the fourth and last part of a series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries. You can learn more about the series here.
Many countries, including the United States, have specific laws on conducting business with foreign government officials that may come into play in any given export sales or other international transaction. The US Foreign Corrupt Practices Act (“FCPA”) includes comprehensive anti-bribery provisions and accounting and internal audit requirements designed to ensure that companies establish and maintain adequate compliance procedures. In general, the FCPA prohibits US companies from making corrupt payments to foreign officials for the purpose of obtaining or keeping business. The FCPA also requires issuers of securities to meet its accounting standards. These accounting standards, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require companies covered by the provisions to maintain books and records that accurately and fairly reflect the transactions of the company and to design an adequate system of internal accounting controls to ensure that transactions subject to the FCPA are properly executed and recorded. The Department of Justice (“DOJ”) is the chief enforcement agency, with a coordinating role played by the Securities and Exchange Commission (“SEC”). The consequences for a violation of the FCPA are extremely severe, both for the company and individuals, and may include criminal sanctions and civil liabilities.
While the FCPA is obviously a matter of principal concern to US companies with respect to corrupt practices in foreign countries, notice should also be taken of global initiatives relating to bribery and extortion such as the OECD Guidelines for Multinational Enterprises and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, December 18, 1997, 37 I.L.M. 1 and UN Convention Against Corruption, G.A. Res. 4, UN GAOR, 58th Sess., Agenda Item 108, UN Doc. A/RES/58/4 (2003). Other international agreements relating to bribery and corruption include the African Union Convention on Preventing and Combating Corruption (2003), the Inter-American Convention against Corruption (1996) and the European Union Convention on the Fight against Corruption Involving Officials of the European Communities or Officials of Member States of the European Union.
Numerous countries have also adopted their own laws relating to bribery of public officials and there is a decided increase in enforcement activities in foreign jurisdictions. Anti-bribery training should be localized and should cover not only the company-wide policies adopted at headquarters in the US but also the actual requirements and prohibitions of local laws. This means that all training and compliance tools should be translated as needed in order to be understood and followed by employees in all countries where the company is conducting business. When necessary, advice should be obtained from local counsel; however, care should be taken in selecting local counsel since lawyer in many developing countries rely heavily on relationships with local governmental officials and those relationships may cloud the advice they provide to foreign companies considering inbound investment activities.
When assisting clients with developing anti-bribery programs for activities in foreign countries, business counselors should also refer to several useful indexes and related tools that have been developed to measure corruption around the world. One well-known index is the Corruption Perceptions Index, or “CPI”, published annually by Transparency International. The CPI consists of scores for various countries based on how corrupt their public sectors are seen to be. Also useful is the TRACE Matrix developed by Rand Corporation and Trace International. The TRACE Matrix is an index for business bribery risk in various countries that takes into account factors such as difficulty of doing business; need for interactions with government; the relevant antibribery laws and regulations; information concerning enforcement of domestic and international antibribery laws and regulations; a measure of government transparency and quality, including budgetary transparency; information about a government’s civil service quality and management; and civil society oversight, including the role of the press and media.
In addition, companies can and should adopt antibribery management systems. Of note in this area is ISO 37001, the antibribery management systems standard adopted by the International Organization for Standardization (“ISO”) and set for final publication by the end of 2016. ISO has described ISO 37001 as being designed to help an organization establish, implement, maintain, and improve an anti-bribery compliance program or “management system” by adopting a series of measures and controls that represent global anti-corruption good practice. ISO 37001 applies both to bribery by the organization, or by its personnel or business associates acting on the organization’s behalf or for its benefit, and to bribery of the organization, or of its personnel or business associates in relation to the organization’s activities. The recommended measures and controls should be familiar to companies that have consulted prior international standards and the DOJ guidelines and include an anti-bribery policy, procedures, and controls; top management leadership, commitment and responsibility; senior level oversight; anti-bribery training; risk assessments; due diligence on projects and business associates; reporting, monitoring, investigation and review; and corrective action and continual improvement.
ISO 37001, like ISO 9001 (the quality management systems standard), is a “requirements standard”, which means that companies will be able to seek and obtain certification from accredited third parties that their antibribery management systems meet the standard’s criteria. It is expected that implementation of ISO 37001, including certification, will provide reassurance among investors and other stakeholders that an organization has an effective system in place to manage the risk of bribery. It is also likely that companies will require participants in their supply chain to obtain ISO 37001 certification. In addition, ISO 37001 certification will become an important part of a company’s corporate social responsibility initiative and can be cited as an indicator of the company’s commitment to ethical business practices.
New Chapter 271 of Business Transactions Solution on WESTLAW, titled “Anti-Bribery Compliance”, covers the design and implementation of compliance programs necessary for fulfilling the requirements of the FCPA as well as local anti-bribery laws that have been adopted by foreign countries around the world. The chapter includes a detailed discussion of the key provisions of the FCPA and the essential elements of an anti-bribery compliance program. The materials include a Master Form and Clause Library for an FCPA compliance policy. The specialty forms library includes a letter from the chief executive officer to employees regarding the FCPA compliance policy and FCPA policies and procedures. The chapter also includes foreign subsidiary FCPA compliance audit worksheets and conflicts of interest policies, FCPA accounting and internal control review worksheets, a client executive summary regarding the FCPA, a template for a client alert regarding FCPA recent and anticipated developments and a slide deck presentation on FCPA compliance counseling suitable for law firm and department training purposes. Related issues are covered in other Business Transactions Solution chapters on Compliance Programs (§§ 229:1 et seq.), Launching and Managing Global Business Activities (§§ 259:1 et seq.) and Building and Managing a Global Law and Compliance Program (§§ 269:1 et seq.).
Want to learn even more? Sign up for the webinar on “A Short Course in Implemeting and Maintaining an Effective Foreign Anti-Bribery Compliance Program under the FCPA” being presented by West Legal Ed Center and the Business Counselor Institute on Tuesday, December 6th at 11:00 AM Central Time. Follow this link for registration information. It’s the third of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries. You can learn more about the series here.
While companies are often heavily involved in a specific transaction or activity involving a foreign partner or assets and resources located outside of the US, it is always important to remember that the goals and objectives of the transaction or activity should be consistent with the company’s overall international business plan and strategy. While companies, particularly small ones, can globalize their businesses without a formal plan, it is recommended that management invest the time and effort necessary to develop an international business plan. While all plans will differ depending on the company, its products and services, and the key purposes for conducting business outside of the US, an international business plan will typically include a comprehensive analysis of global competitive conditions and the current status of the company and then set out strategies for using foreign markets and resources as a way to improve performance across all the company’s business functions and activities. The guiding principle in preparing an international business plan is recognizing that the markets and resources that the company needs in order for its business to be successful can be found, and must be pursued, all over the world. The planning process also has other important byproducts, including identification of potential export markets and customers and overseas investment opportunities and organization and presentation of information necessary to obtain capital from outside sources to expand foreign operations.
The structure and focus of the international business plan will be influenced by the type of business engaged in by the company and its stage of development in its traditional US markets. For example, for an established company, the international business plan will focus on identifying and penetrating foreign markets that are most likely to be quick adapters of the company’s existing products and services. The plan for these companies is also more likely to include a search for opportunities in foreign countries to reduce costs of manufacturing and raw materials, while still concentrating sales activities on their home market. The international business plan for product-driven companies, such as consumer goods companies or software and computer manufacturers, will focus on identification and exploitation of new foreign markets for their products and sources of labor and materials. For these companies, effective competition will be based on rapid innovation, brand identity and development of local distribution capabilities. For a service-based business, the planning process should be used to determine whether there is sufficient potential demand for the services in the target foreign market and what changes will need to be made to the company’s domestic service offerings in order to accommodate local conditions and cultural attitudes.
There are no formal requirements that must be satisfied in determining the contents of the international business plan; however, there are certain guidelines that should be followed in order to insure that necessary information is collected and all the relevant issues are considered. While there are a variety of ways to organize an international business plan, it is generally useful to begin by describing the company’s current business, including activities already conducted outside of the US, and the main products or services offered by the company. The next step is evaluating the company’s current position, both in the US and within the broader global industries in which the company competes. This competitive analysis is crucial to determining the content of the balance of the international business plan. For example, if the analysis points to softening of the US market for the company’s products, exporting strategies should be an important part of the action items in the international business plan along with the possibility of launching product development initiatives in foreign markets. Organizational changes should also be addressed in the plan since globalization generally requires a substantial shift of resources and management authority away from US headquarters. Finally, as with any other business plan, the working group should expect to prepare budgets, schedules and tactical plans. For further discussion of the elements of a business plan and how a plan should be organized and prepared, see Strategic Planning (§§22:1 et seq.).
While there are a large number of books and articles available on how to write an effective business plan, relatively little is available on the preparation of a business plan that is global-focused, or international. An international business plan is quite challenging to prepare and maintain because the following key differences always need to be carefully considered:
- While a domestic plan must acknowledge the need for market segmentation based on demographic differences within a single country, an international plan must account for the unique cultural and language differences in each of the countries designated as targets for products and services.
- Since countries have different regulatory policies with respect to foreign participation in the local economy, the plan must include entry strategies for each of the new target markets that will satisfy applicable local law requirements.
- An international business plan is inherently more risky due to problems in obtaining and analyzing information on local markets. As such, the company must explore different scenarios and attempt to anticipate a broader range of problems than if the company was active only in its local market.
- While a domestic-only business plan tends to be product and sales oriented (i.e., what products should be developed and how should they be sold within the domestic market), an international business plan should be broad enough to include acquisition of resources that can be exploited back in the domestic market. For example, a company’s “business plan” with respect to a given country might be limited to acquiring low-cost manufacturing capacity or raw materials, as opposed to actually selling products in the country.
This month’s supplement to Business Transactions Solution includes a new chapter on International Business Plans (§§ 261:1 et seq.) that covers the key steps in the development of an international business plan. While companies can globalize their businesses without a formal plan, it is recommended that management invest the time and effort necessary to develop an international business plan. While all plans will differ depending on the company, its products and services, and the key purposes for conducting business outside of the US, an international business plan will typically include a comprehensive analysis of global competitive conditions and the current status of the company and then set out strategies for using foreign markets and resources as a way to improve performance across all the company’s business functions and activities. The guiding principle in preparing an international business plan is recognizing that the markets and resources that the company needs in order for its business to be successful can be found, and must be pursued, all over the world. The planning process also has other important byproducts, including identification of potential export markets and customers and overseas investment opportunities and organization and presentation of information necessary to obtain capital from outside sources to expand foreign operations. The chapter discusses the elements and special characteristics of an international business plan and the steps that should be taken to draft the plan and implement and monitor the plan once the drafting is completed. Each of main sections of the international business plan is described with specific emphasis on content and focus that distinguishes an international plan from the plan that the company might otherwise prepare for purely domestic operations. The specialty forms library includes Examples of international business plans for the formation of multi-functional foreign subsidiary, a software company adapting foreign products to local market, a technology product company entering multiple global markets and a consumer goods company opening outlets in new foreign market. The chapter also includes a checklist for preparing an international business plan and a slide deck presentation on international business plan preparation to be used for law firm and department training purposes. Related issues are covered in the chapters on Strategic Planning (§§ 22:1 et seq.), Offering and Disclosure Documents (§§ 152:1 et seq.) and Evaluating Foreign Markets (§§ 260:1 et seq.).
Want to learn even more? Listen to the webinar on “Assisting Clients with Developing and Implementing an Effective International Business Plan” presented by West Legal Ed Center and the Business Counselor Institute, which was available live and “on demand”. Information on registration is available here. It’s the second of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries. You can learn more about the series here.
For the past several centuries, companies wishing to do business internationally were faced with two major problems: distance and time. Fortunately, with the emergence of virtually instantaneous communication methods, including telephones, computers, videoconferences and mobile communications devices, and the ability to be in almost any other part of the world within 24 hours, distance and time are no longer major concerns for operating on a global playing field. In fact, today all businesses, from start‑up firms to large mature companies, must operate and compete in a rapidly changing international environment that includes both opportunities and challenges. For example, firms cannot afford to pass up foreign markets that can offer supplies, technology, low cost manufacturing, human resources and, most importantly, potential customers for their goods and services. However, going global is not always easy and firms can expect stiff competition from local companies with access to emerging capital and credit markets. In addition, foreign countries are joining together to form regional trading systems and US companies must invest time and effort in understanding these systems in order to successfully penetrate markets in these countries. Many foreign governments are also aggressively supporting their own industries and firms through comprehensive industrial policies. Finally, each new market has its own unique requirements with respect to product characteristics and distribution. As a result, US firms must develop the capability to differentiate existing products to meet the needs of foreign markets and must understand the distribution channels in those markets.
Companies, both large and small, consider “going global” for a variety of different reasons. Some of the more tangible benefits include opportunities to reduce costs and risks, secure additional access to necessary supplies, improve customer service and relations and, of course, gain access to new markets for the company’s goods and services. For example, for most companies, one of the primary reasons for establishing a facility or function in a foreign market is to take advantage of perceived opportunities to reduce the costs of operations and production. As for risk reduction, this will hopefully occur through diversification of the company’s market opportunities that comes from tapping into the interests of foreign customers.
Companies may also look at global operations as a way to learn about new ways to improve operations throughout the company and to gain access to attract talented managers, engineers and scientists from foreign countries who can make a contribution to the entire organization. For example, a US company seeking to decrease the costs associated with its manufacturing activities can partner with firms in foreign countries that specialize in “lean” production techniques. This allows the company to immediately lower its production costs and gain access to know-how and technology that can be deployed in the US and in other foreign countries. In addition, companies are establishing offices and research centers in foreign countries to expand their knowledge network and improve the quality and breadth of their core competencies. For example, a company can literally globalize its innovation processes by establishing multiple R&D laboratories around the world and connecting scientists and engineers from different countries through networks that allow them to collaborate on continuous development of new technologies and product concepts.
Since almost all of your clients will eventually globalize their activities, even if just in a small way, it is essential for you to see your role as a global business counselor and to take steps to familiarize yourself with the methods that your clients will use to “going global” and the legal issues they are likely to encounter. This month we have added two valuable training tools to Business Transactions Solution on WESTLAW to help make you a better global business counselor. A slide deck presentation on Globalization (§259:164) can be used for law firm and department training purposes and all of the basics are covered in a new Business Counselor’s Guide to Globalization (§259:165).
Want to learn even more? Sign up for the webinar on “Why Your Clients Must (and How They Can) Go Global” being presented by West Legal Ed Center and the Business Counselor Institute on Tuesday, November 22nd at 11:00 AM Central Time. Follow this link for registration information. It’s the first of a four part series on Going Global to help you be better prepared for client questions on growing their businesses in foreign countries. More materials relating to the subject matter of the post can be found here.
A version of this post originally appeared Thomson Reuters’ Legal Solutions Blog and all of Alan Gutterman’s posts on that blog can be accessed here.
As difficulties continue in domestic markets US companies looking to survive and grow must take a serious look at expanding their businesses through exporting. There are a number of export strategies that can be used; however, the most common method that firms use for getting their feet wet outside of the US is engaging a local sales agent or distributor in the target foreign market. In this report I discuss some of the factors to be considered when evaluating and selecting local foreign sales partners.
While some companies build global compliance procedures into their business operations from the very beginning, the more common situation is that the decision to implement a formal compliance program is not made until the company already has some level of international activities. At that point, the first action that should be taken is to conduct a comprehensive audit of the company’s international operations to identify the business and legal risks that will arise in connection with existing and proposed cross-border activities and transactions. This report outlines the steps that should be taken to conduct an international operations audit as the initial step in establishing adequate policies and procedures for complying with domestic and foreign laws, including US export control, anti-boycott, and foreign corrupt practices laws.
Importing goods into the US requires compliance with US Customs law, which is actually a complex set of statutes, rules, procedures and regulations that are located in a variety of sources. In addition to the statutes and regulations pertaining to determination and collection of customs duties, there are numerous laws and regulations pertaining to import transactions, particularly those that deal with various aspects of international traffic and trade. Moreover, given that imports present serious and substantial homeland security issues for the U.S., a plethora of new restrictions and procedures have been adopted to reduce the risk that terrorists will use U.S. ports to import dangerous and illegal items into the U.S.
General explanations of basic import requirements are provided on the website of the US Customs Service (“Customs”) at http://www.cbp.gov/xp/cgov/trade/basic_trade/. In addition, Customs regularly updates and revises a publication called Importing into the United States: A Guide for Commercial Importers (Importing Guide). The Importing Guide, which is written with the new importer in mind, is an extremely useful Customs resource. It provides the importer with a nuts-and-bolts type of guidebook to the importing process. It contains a great deal of general and specific information concerning basic import requirements, including lists of quotas and other restrictions on a variety of generic merchandise. A more succinct, but still very helpful, pamphlet on importing is also published by Customs is United States Import Requirements. This Customs resource offers only very general explanations of basic import requirements. It does, nevertheless, contain a number of references to other relevant Customs publications or sources for obtaining additional information.
Both Customs and the International Trade Resource Center offer the following suggestions of strategies for importers and their suppliers to work together in speeding up the customs clearance process:
1. Include all information required on your Customs invoices.
2. Prepare your invoices carefully. Type clearly. Allow sufficient space between lines. Keep the data within each column.
3. Make sure that your invoices contain the information that would be shown on a well-prepared packing list.
4. Mark and number each package so that it can be identified with the corresponding marks and numbers appearing on your invoice.
5. Show on your invoice a detailed description of each item of merchandise contained in each individual package.
6. Mark your goods legibly and conspicuously with the name of the country of origin, unless they are specifically exempted from the country-of-origin marking requirements, and with such other marking as required by the marking laws of the United States. Exemptions and general marking requirements are detailed in the Importing Guide.
7. Comply with the provisions of any special laws of the United States that may apply to your goods, such as the laws relating to foods, drugs, cosmetics, alcoholic beverages, radioactive materials, and others.
8. Observe closely the instructions with respect to invoicing, packaging, marking, labeling, etc., sent to you by your customer in the United States. He or she has probably made a careful check of the requirements that will have to be met when your goods arrive.
9. Work with Customs in developing packing standards for your commodities.
10. Assure the security of your goods is maintained at all times. That means, for example, not allowing your goods to become a hiding place for illegal drugs or other contraband.
11. Consider using a carrier that utilizes the Automated Manifest System and a customs broker participating in Automated Broker Interface (ABI).
Companies should establish an internal department or unit to oversee importing activities and should create and enforce internal policies relating to compliance with laws and regulations governing the entry of goods in to the US, with special emphasis on steps that need to be taken to comply with US customs laws by preparing and filing appropriate documents, making sure that all applicable tariffs and duties are paid, and keeping all required records pertaining to importing activities. For information on how to help your clients with customs law compliance, see Business Transactions Solution at Westlaw Next.
Clearly emerging companies must confront significant risks during the early stages of development, even when operations are limited to strictly domestic markets. However, many such companies have found that expanding into foreign markets can actually increase their chances of success, even while they are still struggling to gain a foothold in their home market. For example, young businesses with limited financial resources may benefit from using low-cost manufacturers in foreign countries to produce goods that can be sold at attractive prices in the company's own domestic market. A new company may also seek out foreign markets that have not been identified by larger competitors and build significant market share as a barrier to entry. The success of the product or service in a smaller foreign market can then be used as a base for entering larger markets.
Globalization can seem like a daunting task for the founders of an emerging company when they are first starting out and struggling to complete development of their first product or service and identify potential customers and partners that can assist the company with scaling up operations quickly and efficiently. Nonetheless, the evidence shows that globalization should be incorporated into initial strategic planning, even if exporting is not the first priority. A group of researchers who surveyed and analyzed globalization among young high-tech companies from Germany and the UK in the late 1999s—and found that internationalization was the norm for those firms and that the key strategic question for them was not whether, but when, to internationalize—generated the following useful list of recommendations to founders and managers of similar firms who wished to improve their chances of successfully growing and internationalizing:
- Recruit as good a team of founders and managers as possible with high levels of international experience, preferably gained in both large and small firms.
- Start as large an enterprise as possible including the size of the founding team and the financial, technical and experiential resources available.
- Incorporate highly innovative technologies into products and services but not at the cost of usability and reliability.
- Select products which are sold to industrial users rather than consumers.
- Build a portfolio of demanding customers but do not become excessively committed or integrated into the non-standard needs of a few large customers.
- Commit the firm to international sales from Day 1 in both actions and all planning targets.
- Build a business model that is scalable in both volume and number of market targeted.
- Be prepared to enter additional new countries rapidly after the first internationalization activity.
- Plan for significant additional costs in developing international sales and marketing activities.
- Appraise markets in terms of aggregate international demand rather than domestic demand and growth.
- Develop a permanent and focused R&D activity.
- Avoid “deep niche” products if high growth is a desired goal and ensure a wide range of applications for both products and technologies.
- Continue to reduce product adaptation/transaction costs, particularly the installation and maintenance costs incurred by new customers or the vendor.
- Assess rigorously the ‘pros and cons’ of exporting direct versus the use of distributors, and consider the effect of industry sector, target country and technological innovativeness on channel selection.
- Manage distributor relationships effectively recognizing the need for continued investment of time and resource in supporting network linkages.
- Get known quickly and recognize the existence of the “liability of alienness” (i.e., larger firms, including customers, are likely to be very wary of entering into trading relationships with unknown firms).
- Be prepared for the rapid entry of new competitors into your product/market space.
- Consider objectively the merits of external finance (i.e., venture capital, business angels), particularly the consequential benefits of factor productivity, reputational effects and advice for fast growth firms.
While a relationship with a foreign sales representative can be an easy
and cost-effective method for penetrating a new foreign market, the distance
between the parties and numerous opportunities for misunderstanding, as well as
the potential liabilities created by local laws, make it essential that
companies establish and follow guidelines for successfully managing the
relationship. This issue of the Business Counselor Advisor addresses several
areas that should be carefully evaluated by every company before entering into
a formal arrangement with a new foreign sales representative.