Most firms only set up an overseas operation after testing the market. This can be a logical progression from working with an agent or distributor as a company grows its sales. There may be a demand from customers that the exporter has a local presence, and to win government contracts this could actually be a requirement.
The main reasons that businesses consider establishing their own operation overseas are to save costs, increase market penetration and improve customer service.
The drive to reduce costs is usually the initial motivation. It may be possible to find lower cost locations for manufacturing or supply chain management.
Local staff can often be recruited at wages below those in the home market, and there are often generous incentives offered by governments to attract inward investment.
These same factors can help to increase market penetration as lower costs enable the firm to be more price competitive, and the local presence sends out a signal that the company is serious about its commitment to the market.
Improved customer service is another key benefit as local staff will have much better language skills and cultural knowledge than those based in the home country, and they will be able to respond quickly to customer queries and problems. In some cases, having a local operation may also be essential to comply with government regulations, especially if the product is regulated (e.g. food or pharmaceuticals) or if tenders for government contracts stipulate that bid winners must have a local presence.
There are of course some risks associated with setting up an overseas operation, but these can be mitigated by careful planning and due diligence. With the right preparation, setting up an overseas subsidiary can be a great way to take your business to the next level.
When it comes to global expansion, there are a few legal issues that you should take seriously:
It's a common misconception that by avoiding establishing a subsidiary or other presence in a foreign country, businesses can sidestep local laws and regulations.
Nothing could be further from the truth - especially if you're selling to consumers. Individuals are almost always protected by the laws of their own country, whether it's under consumer law, employee regulations, or data protection rules.
Just allowing access to your website can trigger local obligations, and actively selling within a market will create a permanent establishment requiring registration and filings - not to mention taxes.
Failing to put the correct structure in place can lead to filing obligations relating to US financial information, which private corporations usually prefer to keep confidential. In other words, it pays to do your homework before doing business internationally.
Otherwise, you may find yourself in hot water - financially and legally speaking.
Most European countries have similar laws to the US when it comes to the difference between contractors and employees. If someone is working for your business and you are telling them what to do, they are classified as an employee. Employees have certain rights, like being paid and having protection under the law. As well as these obligations, you also need to file and pay taxes for your employee.
According to adamslaw.ie, European countries like Ireland take employees' rights seriously. While this means that employers and businesses must check their contracts and ensure they don't run into disputes, it is a great way of building loyalty from employees.
You should make sure to provide a local employment contract to your employees. This will protect them and also clarify the terms of their employment. You should not provide them with a US offer letter, as European employment laws offer significant protection to employees.