What are the pitfalls to look out for when entering another market?
Many companies assume that their intellectual property protection here will carry over to another country. As a general rule, you need to seek registration in that country, whether it’s a trademark or a patent. Also, you need to have the right agreements in place with whomever you’re working with to make sure that they’re also obligated to protect your trade secrets. And if you’re going to have employees in another country, make sure their employment agreements specify that anything they develop belongs to the company. Otherwise, in many countries, an employee developing intellectual property on the job has a claim to it.
Legal regimes in both developing and developed countries can be quite different from ours. For example, in most U.S. states, we have the concept of employment at will. We can fire employees for any reason, unless it’s discriminatory. That’s not true in many countries, where employees are entitled to severance at the time of the termination of contract. So reducing your work force in markets where the business hasn’t been as successful as you’d anticipated can be a very expensive proposition.
The tax laws can also be very different. One of the first things to analyze is what your tax exposure is going to be for the type of operation that you’ll have in that country.
What other challenges might businesses encounter?
If you’re going to strategically develop markets, your investments will be greater than for a comparable-sized domestic market. Travel takes longer and is more expensive; plus you’ve got to spend more time training in-country people.
As we draft contract provisions to capture the terms of the deal, normally we’re looking for balance so that both you and your in-country partner believe that it will be mutually beneficial. The value that they’re getting may not be completely equal because their investment may be smaller than yours, but it ought to be commensurate to their investment. Otherwise, resentment will grow, they might want to try to cut corners in order to compensate themselves in other ways and it will undermine a successful relationship.
What other advice can you provide to businesses establishing international operations?
Despite the ease of electronic communications with other countries, the timeline will be slower because of travel time and time zone differences. You will also face cultural differences. The work style may be slower than it is here. If you haven’t invested the time in that market and you’re asking for a major commitment from them early on, they could drag their feet because they haven’t yet been shown the respect that they expect before making their own investment.
When you establish your budgets and your expectations about how long things will take, those kinds of cultural disparities can make a difference. That will impact the time at which you can expect to start seeing profits from your work, and that then needs to be factored into realistic timelines.
S. Martijn Steger is chair of the International Business and Mediation practices at Kegler, Brown, Hill & Ritter. Reach him at [email protected] or (614) 462-5495.