It wasn’t long ago that the idea of doing business overseas, especially in a place as distant as Asia, wasn’t an option for most mid-sized businesses.
The logistics of such an enterprise were overwhelming, and the opportunities didn’t outweigh the costs and risks. But much of that has changed. Today, a foreign market presence is a realistic option for many mid-sized businesses looking to grow and increase market share.
The most important thing after deciding to extend operations overseas is to decide who to enlist as a local partner to assist in this effort; many businesses have a difficult time starting a new manufacturing plant in the United States, much less across the ocean.
To create partnerships overseas, you must have established contacts that have direct links into those specific international markets in which you’re interested.
Although the markets in Asia are continuously improving and becoming more sophisticated, maneuvering within those countries’ strict, bureaucratically controlled financial, legal and business markets can be a major challenge. Simple operations such as setting up a U.S. dollar or local currency bank account can require pages of forms to be completed. One must depend on a local expert who is familiar with such processes to guide you through the system.
New players in foreign markets require a network of local introductions and recommendations in order to even begin discussions with overseas partners. These qualified local advisers who are familiar with local customs, laws, language and currency, will get your business a lot further, a lot faster.
After China’s entry into the World Trade Organization, modifications, revisions and alterations were made to 2,300 of its foreign trade laws and regulations, of which approximately 550 were related to foreign investment. Unfortunately, the laws are still very complex, and there continue to be numerous practical business difficulties posed by these legal and bureaucratic complexities.
One example of the problems foreign businesses face involved an American business with a partnership in China. The business was advised that it would be unable to collect its trade receivables because it had not complied with Chinese bank regulations. It was necessary for the company to bring in a third-party financial adviser to evaluate the situation and determine both the regulatory and bureaucratic issues and the solutions.
Other companies have found it difficult to repatriate funds back to the United States out of China after setting up local manufacturing operations. Teaming up with knowledgeable financial partners has allowed a number of U.S.-owned businesses to navigate the most basic and efficient legal means of setting up a third-party company in order to pay dividends back to the U.S. parent.
In looking to expand overseas, here are some basics to keep in mind.
- Initially, keep the project simple, going with a time-tested product or process.
- Set up a formal system of communication between management and key people abroad.
- Be able to trade in local currency and employ basic currency hedging systems, and make sure all transactions in and out of the country can be tracked by your in-house financial officers.
- Don’t send troubled projects overseas. No matter how tempting it might be, you’re not going to have the same amount of management control.
- Be cautious when exporting any process that includes copyrighted material or patented product designs; you can’t protect them overseas as well as in you can in the United States.
- Factor travel costs into the overall cost of doing business overseas.
Expanding overseas involves a significant commitment of financial and logistical resources. However, if managed effectively, overseas expansion can improve productivity and increase profitability.
Finding and working with qualified local partners will make all the difference in ensuring a profitable, well-run operation.
JOHN BARRETT is senior vice president and division head of commercial banking at LaSalle Bank in Cleveland. His office is responsible for developing new banking relationships with mid- to large-cap companies throughout Ohio. As a subsidiary of ABN AMRO Bank, LaSalle offers an advantage that few banks can match; local support in more than 3,400 locations in more than 60 countries and territories. Anywhere your business takes you, LaSalle can meet your needs. Reach Barrett at (216) 802-2207 or [email protected].
