There are many companies outside the U.S. that would like to establish a presence in the country. But before doing so, there’s a lot to consider.
“Regulatory compliance and organizational structure are concerns for foreign companies looking to establish a presence in the U.S., especially small to midsize businesses,” says William F. Hutter, CEO of Sequent. “But there are other hurdles such as living arrangements for foreign employees, location of the business and onboarding. It’s important for a foreign company to think through these decisions and processes before establishing a presence in the U.S. in order to function well in the marketplace.”
Smart Business spoke with Hutter about what foreign companies should consider before setting up a business in the U.S.
What should foreign companies understand in terms of regulatory compliance before they can operate in the U.S.?
It’s important to ask a lot of questions when determining the organizational structure the foreign company will establish in the U.S. For instance, is the company wholly owned as a foreign subsidiary? Will it be a standalone business? And if it’s the latter, will there be officers of the corporation in the U.S? How will the company repatriate the funds back to its home country? These are all interconnected issues to consider before getting started. Too many companies rush to set up in the U.S. and then need to backtrack. It’s better to find a knowledgeable adviser that can offer a broad perspective of considerations before business is established.
Another issue is the collective insurance environment. Corporate insurance from a foreign parent company likely won’t extend to the U.S. Foreign subsidiaries will likely need to purchase insurance from a carrier recognized in the U.S.
Understanding the differences between the U.S. and European health care environment is critical but very difficult. It’s hard to explain the cost factors and deductibles and co-insurance to a European company. But the most difficult concept is that of workers’ compensation coverage. European companies tend to think that by having general liability and health care coverage they’re set, but they aren’t. The European system covers everything, so it’s a big difference.
What are the challenges overseas companies face when it comes to HR functions and how can an outsource partner mitigate them?
The HR function for foreign domiciled companies in the U.S., again, is about the foundational items. Companies certainly need to meet compliance guidelines to protect themselves from exposures, but HR functions to nonresident aliens in the U.S. involves advocacy — help negotiating the various systems, explaining health care insurance benefits and explaining the pension or retirement plan system.
The employees coming to the U.S. from a foreign company’s headquarters to work are typically accomplished. They’re not sending rookies. They’re sending senior employees who have agreed to live in the U.S. for a period of time to plant the seeds of the parent company. And it typically takes a year before a foreign company hires local employees because its primary focus is on business development activities.
Among the basic considerations for these employees is determining where they will live in the U.S. and where to locate the business. Socioeconomic data of a region can show consumer lifestyle, which is compared to the company’s target clients to determine where the best opportunities exist. There are relocation specialists that can help companies make best decisions regarding location when expanding into the U.S. They can help employees think through their personal living arrangements based on the work they’ll do and where potential customers are located.
Foreign companies interested in establishing themselves in the U.S. should start with the end in mind. They should ask a lot of questions to determine what the goal is for those setting up the business, such as the lifestyle they expect, family issues such as schools and community, and also the business needs and client locations. It’s not something to jump into blindly. Develop the strategy and a road map to the goal well ahead of any permanent move and that should relieve much of the anxiety associated with setting up a business in the U.S.
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