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How to Effectively Expand Your Business Globally

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How to Effectively Expand Your Business Globally

These days, businesses that are quickly growing don’t necessarily know the ‘do’s and don’ts’ of expanding into new jurisdictions.  In this post, we will dive into the key issues you should project manage as you plan your expansion beyond borders.

Elon Musk, Jack Ma, Steve Jobs. Each of them started small but shared an outsized goal of making the world a different place. Eventually, they all accomplished this, becoming some of the most influential entrepreneurs the world has ever seen, and scaling their businesses globally.

Almost every business owner I’ve met has similar-sized ambitions. Few are content with staying small. They want to build something that can make a massive impact and become a household name.

But the gulf between aspirations and reality is often vast. You may be standing in your way by not doing something important from the beginning: thinking globally.

Location. Location. Location.

When your company is looking to expand business overseas, pay attention to where and why. Especially the “why.” For instance, many American companies are setting up in various portions of Europe because of the critical talent in those areas. Once you’ve decided on the best location for your business to grow, it’s then time to hire. In your country of choice, you may need to hire a country manager that can help build a team as well as a person or many who can run that facility in areas including administrative, R&D, sales, etc.

Next, you have a few different ways you can expand into your chosen country. The smallest footprint you can have is a rep office, one being established to run market research, but governments have strict limits on how long you can have a rep office. For example, in Singapore, you can only set one up for one-year, but you can get a two-year extension. So, know exactly what you plan to accomplish.  Setting up a subsidiary will be the right choice if you want to send a message that you are there to stay.

If you establish a local subsidiary or other local legal entity, you may need to establish a minimum capital reserve, make your entity subject to legal liability in that jurisdiction, pay taxes, comply with corporate formalities around incorporation, shareholder and board meetings (how frequently and where they are held), local directors and shareholders (nationalities) and more, maintain a local corporate secretarial function, make public disclosures of your accounts, maintain a bank account and comply with local commercial rules that impact how you record revenues and bookings.

While sometimes your business is simple enough that compliance can be managed by an outsourced service or local law firm, some jurisdictions will require you to have people on the ground.

People in places

As you start your operations, next, you’ll have human capital considerations. When you hire somebody overseas, you need to follow local laws. For instance, in Poland, the contract must be bilingual if you are a foreign employer. Bilingual requirements exist in many countries, including Canada, France, Germany, Russia, Ukraine, and Japan. However, in other countries like Singapore and Australia, you will not need to worry about this.

Additionally, you may have to find a payroll service, but there are limitations in some countries, including China, Serbia, and Russia, to get capital into and out of the country. So, it might be necessary to open up a local bank account to pay your local employees. In some countries, you are even able to wire the money to the employees and the government.

How you pay your people may have currency requirements.

Whether you are bringing in human capital locally or from the home country, you may need to complete pre-hire checks and comply with immigration regulations.

Employment regimes

In certain countries like Poland, employment is a matter of the contract, not at-will, which is different in a country like the U.S. The U.S. is the only country that offers employment-at-will. You can say, “I do not want you to work here anymore.” And then you can leave at that moment. But, in most countries, you have to give notice by contract and get severance.

Most countries have collective bargaining agreements, which sometimes can benefit you, while other times not. For instance, if you are party to a collective bargaining agreement (CBA) in Sweden, it negates the need to deal with each employee as a bargaining unit, negotiate with the union or the CBA, and all the employees fall under it. Depending on the country, you have to comply with local working time regulations – for instance, you can’t work on weekends in France. And, in California, if you work more than eight hours a day or 40 hours a week, you’ll receive overtime pay.

When it comes to expanding your business, the right hiring process is just as necessary as the proper exit process. This protects you from being sued for employment practices. By executing the correct standard, the right contract, and the country’s law, you ensure no breach of your contract for the employee or the employer. Next, you have to think about benefits because even though you have an infrastructure that supports medical care in many socialist countries, most employees are used to having supplemental benefits.

Intellectual property protection

This also relates to intellectual property if you hire contractors to do your development work in a foreign country. The IP they are creating may belong to their contractor and not to the company paying for it, so it’s key to have agreements in place with the contractor, so you own your IP.

If you are conducting R&D or exploiting patents or trademarks created in the home country, local intellectual property regimes will be essential in protecting the IP that you create, export, import and ultimately monetize. Sometimes, that might also mean the capability to enforce your IP rights in a country.

Compliance requirements

Beyond employment law, there are compliance requirements to pay close attention to. For example, you may need to have a registered office or provide an office address to the local government. The office might need to be staffed during business hours if somebody wants to give notice, or the government wants to get in contact with your business. In some countries, like Spain, this is changing to an electronic system where you must have a registered email that the government can use to send communications.

When it comes to data privacy, there seem to be new and overlapping (if not contradictory) national, regional, and local regulations published every day. In Europe, the General Data Privacy Regulation, or GDPR, has strict requirements that apply to companies far beyond the borders of the European Union. The China Data Protection Directive has civil and criminal repercussions to those accessing Chinese consumers through the Internet and otherwise. Recently, the California Consumer Privacy Act, or CCPA, became subject to enforcement.  Going global means threading the needle to ensure that you have compliant solutions everywhere you are doing business.

Taxes

Depending on your footprint, it could create a “permanent establishment,” which makes some portion of your revenues subject to tax in a particular jurisdiction. If you establish a permanent establishment, you will have to file a tax return at the end of the year. Even if you do not have a permanent establishment, you may need to file another type of tax return and comply with other requirements.

Additionally, there are tax requirements from both an indirect perspective and a direct perspective. For instance, if you are making a lot of money, you might have requirements to pay estimated taxes during the year and file the income tax return at the end of the year.

Summing it up

Technology, life sciences, medical device, and clean energy companies can not be successful when confined to one or more jurisdictions. Indeed, by definition, they know no borders. To disrupt markets and build share, new businesses increasingly need to grow faster, and go global, from the earliest stages of development. Accessing global markets is key to achieving value and liquidity, and ultimately, ubiquity. Good advisors are critical to helping companies define and execute on a mission to expand their business globally.

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Louis Lehot is the founder of L2 Counsel, P.C., an elite boutique law firm based in Silicon Valley designed to serve entrepreneurs, innovative companies and investors with sound legal strategies and solutions.  Mr. Lehot is a corporate, securities and M&A lawyer, and he helps his clients, whether they be public or private companies, financial sponsors, venture capitalists, investors or investment banks, in forming, financing, governing, buying and selling companies. He is formerly the co-managing partner of DLA Piper’s Silicon Valley office and co-chair of its leading venture capital and emerging growth company team. 

Kateryna Mamyko-Golomb is a law clerk with L2 Counsel, P.C. She advises corporate clients, startups, and investors. She graduated Cum Laude from Northwestern University Pritzker School of Law. Previously, Kate clerked with a major global law firm in Silicon Valley, and prior to her LLM, Kate led an independent corporate law practice in Central and Eastern Europe and served as General Counsel for one of the leading startup accelerators in the region. Kate graduated Summa Cum Laude from Taras Shevchenko National University where she published her thesis: “Government Regulation of Technology Venture Investment” and clerked for the Kyiv District Attorney.

L2 Counsel, P.C. is an elite boutique law firm based in Silicon Valley designed to serve entrepreneurs, innovative companies and investors with sound legal strategies and solutions.

Anti-Counterfeit Efforts Finally Go Global

Washington, DC – It’s no longer just the US and the European Union that are concerned with the festering issue of counterfeit products, say Michael Czinkota and Ilkka Ronkainen of Georgetown University.

“Globally, companies reportedly lose a total of $657 billion every year because of product counterfeiting and other infringement on intellectual property,” they say. “Today’s key problems are with high-visibility and strong brand name consumer goods.”

Intellectual property enforcement “ensures that new ideas can blossom into economic opportunity,” they’ve written in a recently published paper addressing the topic of counterfeit goods.

“Intellectual Property Rights (IPRs) have become a core issue in the global economic debate. No longer confined to cheap knockoffs of luxury goods, IP theft is placing industry and the public at risk of highly adverse economic, safety, and health consequences,” they added.

Earlier, the only concern was whether a company’s product was being counterfeited; now, the raw materials and components purchased for production may be counterfeited.  In general, countries with lower per capita incomes, higher levels of corruption in government, and lower levels of involvement in international trade tend to have more intellectual property violations.

Ronkainen teaches marketing and international business at Georgetown University, while Czinkota researches international business and policy issues at the school.

According to the writers, China, long seen as the focal production point of global counterfeiting operations, has taken significant steps to counter what has plagued the country’s e-commerce market particularly hard.

Alibaba “spends more than $16 million yearly fighting counterfeit goods,” they say. Another example is “Hong Kong’s commitment to the protection” of intellectual property.

“With the goal of enhancing consumer confidence in Hong Kong, and to strengthen the city’s reputation as a ‘Shopping Paradise’ for genuine products, the Intellectual Property Department has launched the ‘No Fakes Pledge’ scheme,” Czinkota and Ronkainen said.

The issuing bodies of the scheme are the Hong Kong & Kowloon Electrical Appliances Merchants’ Association Limited and the Hong Kong Coalition for Intellectual Property Rights of the Federation of Hong Kong Industries.

“The international marketer must act to enforce intellectual property rights.  No industry or country is immune from infringement, nor can they address the threat alone. There is also need for better education regarding the risks IPR violations pose and how to defend against them,” they said.

For example, the pharmaceutical industry lobbied to make sure that provisions for patent protection in the NAFTA agreement were meticulously spelled out.

Pharmaceutical Research and Manufacturers (PhRMA) addressed the issue of international IP protection by responding to the Special 301 Report issued by the US Trade Representative in May 2012.

The PhRMA statement cited the need for IP protections in spurring innovation, research and development, as well as the need for fair international market conditions to ensure that patients have access to medications.

One research firm estimated the global market for counterfeit pharmaceuticals to generate revenues between $75 billion and $200 billion a year.

The Pharmaceutical Security Institute (PSI), a trade association created to address illegal pharmaceutical incidents, collects data on the number of counterfeiting, illegal diversion, and theft incidents. These incidents increased seventy-eight percent from 2005 to 2009.

Pfizer reports that between 2004 and 2010 it seized more than 62 million doses of counterfeit medicines worldwide.  More than 200 million counterfeit Eli Lilly medicines have been seized in 800 raids around the world.

“A number of other governments are drafting similar policies, which have served as a catalyst for enhancing protection in both the public and private sectors in those nations,” said Czinkota and Ronkainen.

Efforts to protect intellectual property, and modernize the patent and trademark system are crucial, they added.

“The power of creativity and innovation applied to the solving of practical problems is not the exclusive province of any country or people. A victory over fakes and counterfeits will protect the quality and reliability of products and services, and lets customers be more informed and secure in their usage decisions.”

10/21/2014

WTO Slams China for Lack of Trade Transparency

Los Angeles, CA – China is coming under harsh criticism from the World Trade Organization with members of the 160-nation body asserting that Beijing has failed to live up to key transparency commitments it made when it joined the organization in 2001.

The WTO Secretariat recently released the results of a critical 200-page report on China’s trade policy which concluded that, over the past two years, the country continues to exhibit a lack of clarity, organization and centralization of its trade rules and regulations.

EU ambassador Angelos Pangratis described the lack of clarity on trade issues as “striking,” while Canada’s representative also criticized the “often vague and insufficent information available” from Beijing.

Release of the report came during the WTO’s recent, bi-annual policy review held at the group’s headquarters in Geneva, Switzerland.

Many of the 50 WTO members who took part in the review also criticized Beijing’s use of export restraints and taxes, restrictions on foreign investments and said it must improve protection for intellectual property rights (IPR).

The US Representative to the WTO, Christopher Wilson, said that China’s “apparently retaliatory conduct” in its use of duties, and said the country appeared to ignore a number of WTO findings against it.”

Wilson added, “An enormous amount of work remains if China is to close significant loopholes in its legal framework and reduce the unacceptably high IPR infringement levels.”

Responding to the WTO report, China’s Assistant Minister of Commerce, Wang Shouwen said its findings were “baseless” and that China “has one of the best track records of implementing WTO rulings.”

But, he added, though China “has made great strides to address these issues…it has pledged to do more to improve transparency.”

07/30/2014