A whole new world: six obstacles to overcome before setting up shop overseas
Dec 1, 2008 | Download this article (.PDF)
Language barriers
It is unlikely that all members of your foreign labor force will speak English, and your current U.S. employees might not speak the language of the destination country. Even if they do speak common languages, not all things translate the same between languages. I encountered an unusual situation while working with a U.S. subsidiary of a Dutch parent company. The executives of the parent company spoke excellent English, but our conversations always involved some type of “scheme.” I eventually figured out that their use of the word “scheme” did not represent anything sinister, but was simply the English word they used instead of “plan.” The “pension schemes” and “compensation schemes” sounded much more legitimate once I understood the language translation.
Custom barriers
Local or national custom barriers can also present a challenge. For instance, due to the education and literacy levels in some developing countries, product packaging always has a picture of what’s inside of the package. In the U.S., we do the same for many of our products, but also put pictures of the “users” of the product on the packaging. For example, baby food and pet food normally have a picture of a baby or animal denoting that the food is for that “user.” Imagine the problem of using a U.S. packaging method for goods sold in a developing nation: the consumer comes across a can or jar with a picture of a beautiful baby or a handsome- looking dog. What must go through their minds at that time?
Supply chain gaps
You might consider relocating to be closer to a supply of cheaper raw materials or labor. That’s only one part of the equation. It might be easier to move a raw material to a production location than it is to get a finished good to your customer. You have to consider whether the cost savings of the cheaper labor or materials is offset by the opportunity cost of getting the final product to your customer. If your supply chain is operating at a lower cost but taking more time to get the product to market, you could conceivably lose more profits on lost sales than you gain in cost savings.Your supply chain is competing against the supply chain of your competitor at a cost and service level.
Quality control
Recently there have been significant quality control issues involving products from China. Although it is easy today to get to any part of the world, it is much easier to monitor quality control on a regular and long-term basis if the location is closer to headquarters.
Currency
Foreign currency and transfer pricing issues are major economic and tax issues for any company doing business internationally. You may get a great deal on your next purchase of materials, but if you buy it in a foreign currency that performs poorly against the U.S. dollar, you might find your business incurring a higher cost solely due to the exchange rate. In addition, when goods are sold from locations or divisions in one country to another, taxing authorities want to make sure you are not arbitrarily shifting income to a lower tax country to evade taxation.
Ownership restrictions
Many countries restrict ownership of businesses to their own citizens. If that is the case, a business usually has to find a “friendly” business partner in that country. In many situations, even if you do come up with a business relationship that works, many countries, including the U.S., make it difficult to get the profits back to the parent company’s country. This happens by adding levels of taxation when the profits are withdrawn from the foreign operation and transferred back to the parent company.
So what do you do when a business situation presents itself that might involve doing business internationally? Do you look at it and just walk away because it’s too much trouble? Of course you wouldn’t do that any more than you would walk away from a business opportunity right down the street from you. You should, however, make sure you are doing your homework and have all the facts regarding the pros and cons of relocating any business operations, especially if you cross international borders.
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