Expand Your Business Internationally: Risk Management

Dealing with the regulatory environment of the United States is complex enough. There is a lot more volatility when taking your business international. In light of the growth potential, businesses must prepare for supply chain disruptions, currency fluctuations, tariffs, and regulatory compliance issues.

International business legal experts can help you evaluate the risks and rewards of taking your local business international. Talk to an experienced international business lawyer about effective risk management strategies for your company.

Risk Assessment and Tapping Into Global Markets

“Sometimes companies just move at lightning speed, and they either knowingly decide that they’re taking a risk, or they naively don’t realize a potential risk is there,” says Terese M. Connolly, an international labor and employment partner with Taft in Chicago.

Risk mitigation strategies are the bulk of Connolly’s job as someone who advises companies with global workforces in multiple countries. And there’s plenty of it.

“I get a lot of questions from U.S.-based companies looking to expand outside the U.S. They tell me, ‘We just want to test out expanding in this other country. We’re not going to set up an entity there yet; just send one person to test the market,'” she says.

So what is the verdict? Is this OK or not? Are there compliance risks? As with nearly anything in international employment law, “it depends,” Connolly says.

Global Expansion and Risk Mitigation

If you’re a business owner in the U.S. thinking about international growth, Jeffery Daar has some choice pieces of wisdom to share. First and foremost: “Check your assumptions and expectations at the door.”

Daar is an attorney at Daar & Newman in Woodland Hills who has worked on countless international business and cross-border transactional matters. Having reputable legal counsel in such situations is important because planning ahead is key.

“For the businessperson, you want to know enough to pause and make sure you’re addressing them,” he says. “Have them in mind so you know when to pause, when to make sure you’re thinking this through right, when you need help to do it correctly. Most importantly, do these things early so that you’re being strategic. It’s all strategy.”

Questions Entrepreneurs Need to Ask Before International Expansion

“The biggest red flag I see is, ‘I’m just going to send Jimmy over there, and he’s just going to see if we can sell the product,’ versus, ‘Jimmy’s going to test the market conditions and do some real market research and isn’t going to generate revenue,'” Connolly says.

To determine the best approach, Connolly must seek answers to a number of questions:

• What is this person going to be doing?
• Are they going to be generating revenue?
• Are they negotiating and concluding contracts?

“Depending on the answers, the company might be dealing with a permanent establishment issue, and then we need to bring in a tax attorney to figure out whether there is a tax treaty between the two jurisdictions, et cetera.”

It’s a lot to parse and requires legal due diligence of business operations in the target market.

“Other questions I ask are, ‘What is the purpose of the assignment? How long will the person be there? How will the individual be paid?’ There are a lot of angles to assess. These could involve labor laws, tax laws, corporate laws, and immigration laws. Assembling the right legal team is essential,” she says.

Language and cultural norms are other barriers in these kinds of business meetings, but something you may not know is that translating doesn’t always work.

“Lots of things don’t translate,” Daar says. “If they appear to be in English, it doesn’t mean that they translate to what you actually think they may mean. And of course, words can have many different meanings. There’s a whole art to translation when you’re doing business with people in other languages.”

Even a word that has an understood meaning, like “now,” can vary from one international market to another. In Mexico, for example, Daar says attorneys in Guadalajara have a similar concept of punctuality to the U.S. However, “you have other parts of Mexico where mañana doesn’t mean tomorrow, but maybe a week or two from now.”

Cultural Nuances in New Markets

What is normal to some is not normal to others, Daar says. You want to be conscious of those cultural differences before starting on the wrong foot and putting the other one in your mouth.

“Don’t generalize or assume that everyone in one country is the same, or all cities and regions in the country are the same,” he says. “A good example is Germany, which is a big place with lots of different regions, much like the U.S. If you were doing business or marketing with somebody in the United States, would you assume the Northeast versus the South versus the West are all the same?”

Daar cites examples such as social status, gender, age, work-life balance, and levels of formality. “You need to try to do your homework, or at least be sensitive without misunderstanding,” he adds. “People usually appreciate it if you show awareness and interest in their history, customs, and culture. It just warms people up, in my experience.”

If you believe you’ve broken a cultural rule, Daar encourages bringing that out in the open and apologizing for it rather than ignoring it. “Most important of all: just stay open-minded,” he adds.

Choice of Laws in Foreign Markets

When you get to the point of doing business overseas, where contracts have to be drawn up, it’s imperative to understand the local laws of not only your country and state, but others’ too. In some cases, you may be able to work them in your favor.

“Every deal should have a choice of law so you control the outcome,” Daar says. “If you were in California or New York, you would want your state law to apply, but it may not be so simple if you’re dealing with somebody in another country because they’re going to want their law to apply. You need to know the differences between the possible laws, so you know what’s really in play. You should consider consulting with a local counsel in the foreign country. You want to have that person, even if it’s just a quick consult, because you don’t want to be the one who later finds out that you missed something big.”

Not only should you know which laws are helpful or not, but also which country’s court will enforce them and how it might do so, Daar says. When you consider selling goods to other countries, for example, an international treaty from the ’80s will come into play: the Convention on the International Sale of Goods (or Vienna Sales Convention).

“Virtually every country you would do business with is a member of this treaty, and it basically creates an international sale of goods law, which, if you don’t know about it and you do a sale of goods between the US and about 83 other countries, guess what? This treaty applies,” Daar says. “It’s something that probably applies to most people’s contracts. They don’t even know that they’re opting in by being silent. The CISG applies to sales of goods where each party is in a different nation that has adopted it. So, if somebody is in the US and the seller is in China, guess what? This treaty applies unless you affirmatively exclude it by name.”

“You’re the dealmaker. You need to know enough to know, ‘OK, I don’t want to get too far ahead because I need to make sure we’re thinking through correctly how we’re going to make this work the way I want it to work,'” Daar says. “I’ve seen so many times where things, even with really good strategy, don’t work out as intended, just because that added dimension of multiple cultures, countries, languages, legal systems, venues just don’t play out as intended—even with the best planning.”

Doing Business Outside the U.S. Requires More Work

In short, if your intentions are to test the waters by exploring the international market, scouting locations, talking with potential local market partners or customers, and generating general interest, you might be OK from a tax perspective.

If you’re looking at money/goods changing hands, you probably aren’t without taking other steps. Regardless, there are still global employment and immigration issues to figure out. These issues can arise even with short-term global business trips.

“There are a variety of ways to structure an expatriate assignment like Jimmy’s, and it is essential to get it right. We have to address under what circumstances that’s doable and get the right team together in order to be compliant with applicable laws,” Connolly says.

Find an Experienced International Business Law Attorney

International trade laws are confusing at the best of times. Add multiple jurisdictions, governments, stakeholders, languages, time zones, local regulations, and cultural differences, and it’s downright daunting. But international business attorneys like Connolly are up to the challenge. With a high-level knowledge of worldwide employment laws, Connolly says she’s constantly in touch with local experts to “sign off on any advice and advise on the more in-depth legal issues.”

The key with any new business venture or multinational expansion strategy — no matter how excited you are to jump at something — is to press pause and seek legal advice. What you don’t want to do is make too many assumptions or think you can do everything on your own. Getting it right on the front end can save a lot of money.