Many businesses that attempt to expand internationally fail within the first five years.
The top two reasons for this?
- Insufficient market research
- Not knowing the ropes of foreign laws
You see, trying to do business overseas without understanding the local rules is like trying to drive a car without a license.
You might get away with it for a while, but eventually you’ll get pulled over and fined.
To avoid such pitfalls, you got to get a handle on the legal stuff before you dive in.
This article will provide you with valuable tips and insights to help you do just that and allow you to conduct international business expansion without hitting any legal roadblocks.
Keep reading to find out more about how.
Tip 1: Get to Know the Local Laws and Regulations
Before you even start packing your bags, you need to get a firm grasp on the local laws and regulations in your target country.
This includes everything from business registration requirements to tax laws, employment regulations, competition rules, and international trade laws.
When you know the local laws, you can structure your business in a way that’s compliant and efficient. More importantly, you can adapt your business model to take advantage of tax incentives.
Of course, don’t forget to also:
- familiarize yourself with the local employment laws, especially those regarding minimum wage, working hours, and labor rights.
- research the competition laws in your target country to avoid antitrust violations and promote fair competition.
- Be aware of import and export regulations, customs duties, and trade agreements that may affect your business operations.
Our advice is to always have an international lawyer at hand who can provide you with up-to-date information and guidance.
Tip 2: Register Your Business as a Foreign Entity… Or Not?
When you’re ready to take your business global, the first thing that might come to mind is registering it as a foreign entity in the new country.
This decision makes sense, as it is often the easiest way to expand.
However, there are instances when setting up a whole new legal structure in the new country might make more sense.
For instance, say you’re opening a restaurant in a country with completely different food regulations. In this case, it might be easier to start fresh with a local company that understands the rules.
Also, if the new country has strict regulations that don’t align with your current business model, or it offers tax incentives to attract foreign investment, a new structure might be more beneficial.
In such cases, consulting with an investor visa attorney can provide valuable guidance on the most suitable legal structure and help you obtain an investor visa.
With that said, when should you register as a foreign entity?
Well, besides the obvious case of the new country having similar business regulations to your home country, a foreign entity can be a low-risk way to test waters if you’re just starting a small-scale operation abroad.
Because if things don’t go as planned, you’re only risking the investment you’ve made in the foreign entity. Your main business back home remains protected.
Either way, every situation is unique, so it’s always a good idea to consult with a lawyer and get personalized advice. They can help you weigh the pros and cons of different options and choose the one that’s right for your business.
Tip 3: Plan for Dispute Resolution
Even with the best intentions and careful planning, disputes can arise in international business.
For that reason, you need to be prepared for such contingencies and have a clear dispute resolution strategy in place.
The most common place to define dispute resolution mechanisms is in a contract. This could be a sales contract, a service agreement, or any other type of business agreement that involves parties from different countries.
These are some key elements your lawyer should include in a dispute resolution clause:
- Choice of Forum: This could be a specific court or arbitration center.
- Governing Law: Which country’s laws will apply to the dispute?
- Dispute Resolution Method: Will it be litigation, arbitration, or mediation?
- Time Limits: What are the deadlines for initiating and resolving disputes?
- Costs: Determine who will bear the costs of the dispute resolution process.
- Confidentiality: To protect sensitive information, of course.
This way, if a dispute arises, you’ll have a pre-agreed dispute resolution mechanism that can help you avoid lengthy and costly legal battles.
Tip 4: Partner Strategically
When you’re ready to take your business global, you might want to consider finding the right local partner.
Essentially, you want someone who shares your values, has complementary skills, and is easy to get along with.
So, how do you find the right business partner in a foreign market?
Well, there are legal considerations to factor in, and that’s where a skilled lawyer can be your trusty sidekick.
For starters, a lawyer can help you create airtight partnership agreements that outline everyone’s roles, responsibilities, and share of the profits.
They can also make sure your interests are protected, especially when dealing with different legal systems and cultural norms.
But, most importantly, a lawyer can help you assess a potential partner’s financial stability by conducting due diligence.
Because you don’t want to partner with someone who’s financially shaky, just like you wouldn’t want to live with a roommate who can’t pay their rent.
Right?
Tip 5: Focus on Payment Terms and Delivery When Drafting International Contracts
When you’re expanding your business internationally, crafting clear and comprehensive contracts is essential, particularly when it comes to payment terms and delivery.
These areas can often lead to misunderstandings and disputes if not addressed carefully, so it’s wise to define them with the help of a lawyer.
When it comes to payment terms, you’ll need to decide on the currency for payments.
Keep in mind the fluctuations in exchange rates and potential risks associated with them.
Additionally, choose payment methods that align with your needs—whether it’s wire transfers, letters of credit, or credit cards.
Each method has its own security features, speed, and costs, so it’s important to weigh these factors carefully.
Also, establish clear payment schedules, including deadlines and penalties for late payments, to prevent future conflicts. If applicable, consider including a retention of title clause to ensure you retain ownership of the goods until full payment is made.
Moving on to delivery terms, it’s beneficial to use Incoterms to clearly outline the responsibilities of both the buyer and seller regarding delivery, costs, and risks. Make sure to specify exact delivery timeframes and prepare for potential delays or disruptions.
As with any international expansion, seeking legal advice ensures that your contracts are thorough and made to your specific needs.
Tip 6: Consider Cultural Nuances – Especially During Negotiation
Expanding your business internationally means stepping into a whole new world, and that world often comes with its own set of cultural customs and norms.
This is especially true when it comes to negotiation.
If you’re trying to strike a deal with a business partner from a different country, you might find that they have a completely different approach to negotiation than what you’re used to.
Some cultures might be more direct and assertive, while others might be more indirect and relationship-focused.
For example, in many Middle Eastern countries, it’s even considered polite to haggle and negotiate hard. Contrary to that, negotiating in Nordic countries and in Germany might be seen as rude or disrespectful.
Overall, understanding these cultural differences can be the key to successful international negotiations, and a skilled lawyer can be an invaluable asset in this process.
