The ABCs of Starting a Business Overseas
After leaving her overseas insurance underwriting job in 2007, Ashley Hunter decided to return to the U.S. and hang her own shingle. There was just one problem: She wasn’t landing the types of large accounts she handled during the years she worked for large insurance companies such as AIG.
Her former boss and mentor encouraged her to return to the Middle East, where she’d already built a reputation in the industry. So she moved to Bahrain and started her commercial insurance brokerage, HM Risk Group. The bet paid off: In 2014 her five-person company wrote several million dollars in annual insurance premiums for startups, as well as Fortune 500s and other large companies, in the Middle East, U.S., U.K. and Australia.
That’s not to say that launching a company abroad was easy. Despite Hunter’s familiarity with the local business landscape, there were international laws and tax regulations to decipher, corporate customs to adopt and countless hours of travel between Bahrain and her satellite stateside office in Texas.
“I firmly believe it takes twice as long to grow a business abroad,” Hunter says. “You’re spending a lot of time just trying to meander through countries and laws and ‘Yes, you can do this’ and ‘No, you can’t do that.’”
Setting up shop on foreign soil doesn’t make sense for all businesses. There may not be a market for what you’re selling. Overhead may be too high. Infrastructure may be too unstable. Working capital may be unobtainable. Tax, intellectual property and other corporate laws may not work in your favor. “Just because you understand the business in the U.S. doesn’t mean it’s going to translate dollar for dollar someplace else,” Hunter says.
For the sake of argument, let’s assume you’ve confirmed the viability of launching your product or service beyond North America’s borders. Even so, venturing overseas requires more legwork than crafting a business plan, snagging a visa and packing a bag. No matter what your reason for relocating—be it a screaming market opportunity, an attractive cost of living or voracious wanderlust—there are a number of steps you can take to get your company started on the right foot.
Mind the infrastructure.
Before planting your flag in an emerging market, investigate transportation, utilities, internet speed, political and economic stability—even weather patterns.
“It’s not America,” says Carmen Benitez, who in 2010 founded social media technology company Fetch Plus, which now has offices in Singapore and Manila. “It sometimes takes two hours to get into an office when you live three miles away.”
Among the factors Benitez researched before renting an office in the Philippines: proximity to bus lines, frequency of brownouts and propensity of typhoons to shut down area businesses. “Depending on where you are in the city, the drainage is really important,” she says. After a tropical storm, businesses in Manila’s hillier areas resume operations immediately, “but if you’re in the lower areas, they are out for a week.”
Even the most thoroughly researched details can change overnight, as New England native Christos Perakis, CEO of Zoottle, knows firsthand. He co-founded the Wi-Fi hotspot provider last year in Greece under the assumption that the business wouldn’t have to pay local taxes until it turned a profit. “Now the current discussion is that they’re going to change the law, and you will have to pay taxes on revenue regardless of whether you’re profitable,” Perakis says. “So, that stymies growth.”
Commune with the locals.
Acclimating to a new country takes time and effort, but it’s a mistake to limit one’s socializing to other expats. “If you’re just hanging out with the people who look and think and act like you, that will not get business done,” Hunter cautions. Better to live, eat and socialize among nationals so you can pick up the nuances of their culture, dialect and business attitudes, not to mention develop contacts.
Californian Kevin Yu, founder of the SideChef cooking app, chose to rent out a room of his apartment using Airbnb for research purposes when he first moved to Shanghai. “You get a lot of details that you don’t get staying in a hotel,” he says, from breakfast rituals to friendly chitchat and local knowledge.
During the first six months of building SideChef, Yu (who speaks Mandarin) lived and worked with three developers in a three-bedroom apartment, partly to save money, partly to learn more about his team. “Their backgrounds are very different,” he says. “Understanding where they come from is very important.”
Embrace the business culture.
Honoring local business customs can make the difference between winning and losing customers. In Bahrain, Hunter says, rapport is king; customers want to do business with “someone who feels like family” and offers personalized attention. For her, this often means wooing clients in all-day meetings and not learning for several weeks whether she’s clinched the deal.
Although most Bahrainis speak English, Hunter has learned that meetings are most successful when she begins in Arabic. “You will never get the respect you want if you don’t at least attempt to communicate in their language,” she says. “It’s the courteous thing to do.”
Also key: knowing what motivates locally bred employees. For Benitez, this means clearly outlining objectives in daily meetings so her Singapore and Manila teams stay on task. “It’s very different from the U.S., where people have a lot of feelings of empowerment,” she says.
Likewise, the Chinese nationals on Yu’s founding team wanted a salary and bonuses but didn’t care about equity in the company, like many U.S. startup employees do. “To be able to negotiate in a way that fits the environment is important,” Yu says. “Not everybody wants the same things. Having sensitivity to that will go a long way.”
In fact, notes Nancy Yamaguchi, a San Francisco attorney who works with international startups, depending on where you’re based, compensating employees and consultants with securities may violate local laws.
Seek global tax and legal counsel.
It can cost you dearly to assume that the tax and legal protections you enjoy in the U.S. apply worldwide. Yamaguchi, a partner at international law firm Withers Bergman LLP, says one of the biggest mistakes she sees American entrepreneurs make is assuming they’ll have the same intellectual property protections in other nations as they do at home.
For example, she says, U.S. companies often enter into IP transfer and assignment arrangements with employees, so the organization owns any intellectual property that is developed. Not so in Germany, where a tech company needs to separately compensate employees beyond their salary to own intellectual property created on company time with company resources.
Don’t attempt to navigate this alone. You need advisors who understand both local and U.S. laws. Such counsel can be tough to find, unless you can afford international law and accounting firms.
Hunter, whose company is domiciled in the U.S., went through three U.S.-based accountants who didn’t have a firm grasp on international tax laws an d implications before finding a Bahrain-based accountant educated in the U.S. who understood the tax regulations of both countries. (“I’m a small business, so I cannot afford the Deloittes of the world who are going to charge $500 an hour,” she points out.)
If you don’t know anyone who can make a reliable referral to internationally savvy lawyers and accountants, check with regional business incubators and accelerators for recommendations.
Find a partner on the ground.
Enlisting a trustworthy business partner who’s native to the region or intimately familiar with the local business climate can simplify everything. Perakis, whose startup recently opened an office in Boston, relies on his two Greek co-founders—one a former Nokia executive, the other a serial entrepreneur—to navigate the country’s HR intricacies, from salaries and bonuses to severance packages and social security costs.
Benitez credits her partnerships with regional media and telecommunications giants for helping fuel her company’s growth by more than 300 percent year over year. “Unless you understand how to do direct customer acquisition really well and can compete against a local company that would potentially do it faster, you may be better off going in with a partner,” she says.
Enlisting a local partner also can be a lifesaver if you haven’t mastered the native tongue. “I don’t think I would have ever attempted to do this without a Japanese partner,” says Californian Traci Consoli, who has run Tokyo bar and restaurant The Pink Cow for 15 years.
Consoli oversees the front end of the establishment, booking bands, managing employees and interacting with customers, while her partner, a Japanese national, handles accounting, contracts and financial transactions.
“I can’t do the bank negotiations,” Consoli says. “I just don’t have the language skills. Basically I speak ‘hanging out at the bar’ Japanese. I can have drinks with people, but we will not be discussing the theory of relativity anytime soon.”
For help building a business abroad, you need to know more than local museum hours. One place to start is the U.S. Chamber of Commerce, which details information on regional chambers abroad; you should also check out trade and industry organizations in your regions of interest (such as the Japan External Trade Organization) and overseas accelerators and incubators (such as Start-Up Chile and Italy’s M31). Here are some other entrepreneur-friendly resources.
- NomadList.com is a filterable ranking of worldwide cities, based on cost of living, internet speed, weather and other criteria.
- GoToLaunch.in produces digital guidebooks on starting a company overseas.
- TropicalMBA.com is a podcast and blog about starting a business anywhere in the world.