In my recent Bank of the West Palo Alto event, I addressed the issues of foreign companies establishing operations in the U.S. Now I can describe the salient issues for U.S. companies attempting to do business internationally. With accessible transportation logistics and electronic money transfers, SMBs can dive into international sales and marketing. Sometimes too easily. There can be many problems not anticipated by young companies with little international business experience. Each country’s laws are sui generis and should be evaluated one by one prior to market entry.
Regional international trade agreements to consolidate or homogenized laws have been promulgated to facilitate cross border business enterprises with some success. They still have landmines, however. NAFTA covers North America. European Community Treaties homogenizes the cross border economies of the member countries. But, still, you have weird exceptions. In the case of NAFTA, a U.S. patent filing does not protect the company’s IP in Mexico. It simplifies a form of expediting the process for NAFTA companies. Treaties between the U.S. and Europe simplify the process for U.S. companies. Yet the EC presents a balkanized structure on telecommunications hardware certification. Regional treaties do help, but always look for what those treaties do not cover.
Since we first discuss Europe, let us first compare the U.S. simple, yet very important, administrative rules – privacy laws. U.S. privacy laws are covered by the Federal Trade Commission. The U.S. privacy rules entail only a few pages in the Federal Register, and the legal precedence has always been in the favor for companies with some exceptions, rather than the individuals. Not so for Europe. European judges have ruled incessantly for individuals. In fact, the European judicial philosophy has always protected the individual consumers over corporations for decades. And the penalties for violating privacy regulations in Europe can be daunting, unlike the enforcement by U.S. regulators. Recently, Google now has to abide by the European ruling on eliminating past information on individuals who formally request it, to protect their individual privacy – a ruling one would not expect from U.S. regulators. I recommended to a web based client to make sure that its privacy notices would reflect European standards, not U.S. The technology would be used predominantly in Europe, and that represented a major exposure to violating European privacy rules, not U.S.
Another European differentiator is exporting telecommunications hardware that needs to be certified. I once discovered that a MUX device could not be installed in Austria unless it was certified by the local labs, even though such equipment had not problems in Switzerland. Then the manufacturer rushed to have the product certified for Austria.
Other concerns include the duties and import taxes to ship to countries with different philosophies. The best example is Brazil’s severe importation charges. On account of previous historically high inflation and dramatic unemployment numbers, Brazil has maintained high import duties and taxes to encourage the import of goods. Why? To force companies to build local factories and hire locally. And it works. Whenever a client or employer needs to export to Brazil, I recommend the creation of a local company to reduce those sizeable taxes. I also would treat countries with potentially similar economic philosophies, for example, Greece and Spain – countries that have suffered high unemployment rates. They will promulgate import taxes and duties to promote employment.
In my international work, I believe I have encountered many crucial differences that changed the way a company does business, for example – to eliminate double taxation, incorporate in a third party country; to accommodate local product certification, I treated each country differently. However, I never discouraged any company to enter into that market. I believe that it is important to generate new international revenue sources. I simply made sure that the revenue source was never at risk or at high costs. Further, I also discovered that these high duty approaches created initial barriers to market entry to deter competitors from entering that market. So in the long run, such keen problem solving adds value to the company.