How underestimating the complexities in international corporate development hurts the company and shareholders


uber

As the head of Corporate Development and General Counsel for technology companies with substantial international footprints, I had the unique responsibility to expand the young telecommunications company’s enterprise value by expansion. In one month, I established one company’s presence in five major countries from Europe to Latin America. The process was complicated. I met with major accounting and law firms, VAT experts, and international tax gurus. Law was only part of the process. I also had to concern myself with foreign labor laws and contract designs. And my experience was not limited to those 5 countries; there were many other countries numbering about 50 in which I had to set up foreign operations.

I discovered that my expertise was unique, as I kept looking for foreign counsel to assist me. Instead I found myself training them myself by providing them with instructions. As an example, with a publicly traded software company, I was brought in to handle Germany when the Harvard educated lawyer had not made any inroads. I read his emails to Europe and realized he had no experience in this subtle corporate development process. I took over and remedied the situation. I contacted the German lawyer to instruct him with the various legal documents needed. This example demonstrated that even with notable Harvard law graduates it did not mean that they have the legal expertise to handle that work. And when communicating with external resources, I had to coordinate those efforts like a football quarterback.

In another situation, I discovered that timing is critical when one is capable of handling this type of work. Once I had to handle an international treaty issue with the country of Chile. Prior to making any filing, I researched the field and even inquired the U.S. State Department about the duration to achieve any final determination. All experts said it would take years until a final resolution. The average was 3-4 years, with others going for 10. Again I noticed several things – many of these so-called lawyers and experts claimed that they had the expertise. As I always state, the fact that someone has a law degree does not guarantee that the person is capable. I began the legal action in September that was completed by December – a total of 3 months with a favorable resolution. Even the State Department was impressed. But this particular experience underscores the undeniable fact – that specific strategy that relates to international corporate development demands a unique expertise not easily found. Jean Piaget, the noted child psychologist, was quoted that when asked about what is intelligence, he replied “anyone can add one plus one but some people do it faster than others.” I have discovered myself that same situation in various corporations – many stumble depending on the quality and experience of the executive leadership.

This convoluted introduction is just a way to describe why some international expansions fail. Uber just suspended its Parisian operations after riots and fines. (http://vator.tv/news/2015-07-03-uber-suspends-uberpop-in-france-after-riots-and-arrests?) European labor has considerable clout, unlike the U.S. For example, in the U.S., virtually all employees are hired “at will,” unless an employment contract exists. In Europe, there are many layers protecting any employee being hired. Replacing a politically savvy cab industry is not an easy task. Now Uber will raise its disruptive technology argument, but what does it have to do with the European labor laws? Nothing.  And this mistake impacts the bottom line, no differently from building defective products that need to be fixed.

How do these international misunderstandings arise? In one publicly traded company, I observed that the General Counsel had substantial SEC experience. However, he had zero international experience. Still every lawyer he brought in to handle international had no appropriate experience, believing that they would learn on the job. They had graduated from top tiered law schools. But none had never traveled to foreign operations, established subsidiaries, observed the local legal process, or met with the accounting firms to discuss efficient corporate structures for that country. That expansion was doomed to failure. And it is revealed in its NASDAQ share value. (Note that under the Sarbanes-Oxley Act, the company executives have a legal mandate to clear up their international operations.)

There are tax considerations, labor laws, corporate process, financial restrictions, politics, and legal presence factors. I myself invested countless hours in meetings that covered many countries. I even participated in tax treaty discussions.

Another announcement that caught my eye was Netflix’s claim that the company will be operating in 200 countries by the end of 2015. Granted that they have substantial capital, but I believe that the worldwide experts who can achieve successful outcomes are less than 10. Further, international presence takes time to register and file. I am also predicting that Netflix revenues will be taxed on a country by country basis. So I am willing to bet Las Vegas odds that Netflix will not achieve that objective.

In summary, I have observed that many senior executives underestimate the level of complexities in international corporate development. Once I see that a weak, inexperienced leadership has made such decisions, I certainly have my doubts.

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About Juan Ramón Zarco, SVVGP 胡安•雷蒙•扎尔科

Juan Ramon Zarco, 胡安•雷蒙•扎尔科, Silicon Valley Ventures Growth Partners llp, Hygieia Healthcare Technologies Company, AllRest Technologies LLC, Crimson Growth Partners LLP, jrzarco2001@yahoo.com, is an experienced as CxO, General Counsel and Secretary to public and private companies with global operations. Established track record of producing practical, revenue-focused solutions. As Counselor and Secretary, demonstrating vision, integrity, and sound business judgment, to CxOs. Managed complex, strategic transactions, M&A, contracts support, PE Financing, IPO, SEC compliance, Corporate/HR governance, IP licensing, Budgeting, Staff, outside counsel management, International market access strategies, Domestic & foreign government relations and advocacy. Creative in designing and implementing market access strategies. Practices law beyond conventional model with low-overhead and project-based fees. Effective at managing departments, formulating marketing strategies, balancing budgets, and implementing cost-saving measures. Extensive in-house and private practice experience, advising clients on commercial, corporate, international business, and technology law and policy. http://www.docstoc.com/video/89135472/make-your-business-an-international-presence; http://www.youtube.com/watch?v=fx5gijf3yoc For Sprint, he managed iDen international development in Southeast Asia, Middle East, and Africa, and contractual issues with Verizon. In Private Equity, he worked with Pegasus in vetting international investment deals and interim President for portfolio companies, such as Data Foundation, a data storage company, handling marketing, strategy, fund raising, and accounting. Before Pegasus, Mr. Zarco, as CLO and V.P. of Corporate Development, played a principal role in the structuring, international expansions for 2 telecom companies, U.S. Cable Group and Viatel, Inc. in financing and M&A deals exceeding $200 million. Mr. Zarco earned a J.D. from NYU Law School, M.B.A. from Cornell, and B.A. from Williams College; is fluent in Spanish, Portuguese, French, and German, with working knowledge of Russian, Arabic and Japanese.
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