With 95 percent of the world’s consumers located outside of the United States, expanding your operations outside our borders can be a smart strategy for your business. Can being the operative word.
Your research may reveal a sizable market for your product or service in a foreign country. But before you open your doors in a different country, see how well you can answer these make-or-break questions.
1. Is your local business strong?
Most small business experts recommend achieving success at the local level before shooting for international stars. If you’re not already in business, you might be tempted to start from the ground up in a country with cheaper labor and fewer regulations.
If those are your motivators, remember you’ll be doing business in an area with less consumer spending and a completely different culture. With very few exceptions, it’s always safer to start at home.
Some entrepreneurs with struggling businesses will blame their current market. True, a better market for your business may exist beyond our borders. But running your business in a foreign country the same way you do stateside will likely produce the same—if not worse—results. The grass isn’t always greener on the other side of the border.
2. Do you speak the language and understand the culture?
According to an Escape from America article, the number-one mistake eager foreign-bound entrepreneurs make is failing to speak the language or know the culture. The logic goes like this: If you have English-speaking contacts in a foreign country, those associates can handle contracts, forms, and conversations on your behalf. That means placing a lot of responsibilities on others with no way to verify their work.
Lacking language skills is bad, but neglecting the culture is worse. Assuming your country of choice wants a business run the American way, products advertised the American way, and customer service the American way often means you’ll go home packing the American way. With everything from labor efficiency to government corruption differing, you’ll have difficulty creating a successful business presence without first-hand knowledge of the culture and the language.
3. What will your tax obligation be?
You may figure with all the news about America’s high corporate tax rate, you can open business anywhere and pay a lower corporate rate. You’re partially correct. But, odds are, you’ll be obligated to pay taxes to Uncle Sam and the foreign government. In some instances, the international double taxation burden can make a foreign presence a money pit.
Some small business owners in this situation find relief through the foreign tax credit. However, the tax credit has specific parameters your business must fall within in order to qualify. Find an accountant who specializes in small businesses with foreign presences to ensure your international plan won’t create an overbearing tax burden.
You’ll have myriad other considerations to weigh before you open a foreign location. But answering these will show if you’re on the right track—or if it’s time to turn the train around.
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