Opening a foreign office
Business First of Buffalo - by Michael Demassi
Friday, January 8, 2010
Business owners should consider whether they have a strategy before trying to open a foreign office or expand abroad.
Just like any adventure, without a destination and road map, the trip can be full of wrong turns.
That means businesses need to think through whether there’s demand for their goods or services, and if they’re willing to devote thepersonnel to the effort.
“It’s not something you can just dip in and dip out of,” said Karen Zens, a deputy assistant secretary at the International Trade
Administration’s U.S. and Foreign Commercial Service in Washington.
“They need to think about what are the best markets for their product, how much company time are they willing to invest and come up
with a plan,” Zens added.
The value of the U.S. dollar is an important factor in the decision.
When the dollar is trading low compared to other currencies, it’s less expensive for customers in foreign countries to buy U.S. products.
Companies that want to start exporting don’t need to first open a physical office in another country. Doing so just for the prestige value is too costly. There are also foreign tax and labor law implications.
Rather, companies must first start looking for a distributor or a representative/partner that can get their product or service to potential customers.
With the next-day ground services provided by the U.S. Postal Service and companies such as FedEx, it’s not important for an
exporter to be close to a major airport, railroad station or sea port. The currier can serve as the freight forwarder.
The language barrier
It’s more important to meet with a contact in a foreign country who has a position of authority – but cannot speak English – than it is to meet with a lower-level staff person who happens to speak English.
“You shouldn’t make a business appointment based on the language they speak,” Zens said. “You want to meet the right person in the
company.”
Understanding local customs is also critically important. In some countries, for instance, it would be impolite to first discuss business issues at lunch before getting to know each other on a personal basis.
The International Trade Administration, which is an arm of the U.S. Commerce Department, can help business owners navigate the
complex world of exporting. It offers free counseling sessions. Other services, such as language interpretation, have a fee.
The ITA has offices in 108 American cities and 122 offices in 77 foreign countries.
Canada and Mexico are the top two markets for U.S. exports.
That’s due to their geographical proximity, few (if any) language barriers, strong acceptance of U.S. products and the lack of tariffs under the North American Free Trade Agreement.
About 125,000 U.S. companies exported to Canada or Mexico in 2007, the most recent figures available, according to Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.
The bigger they are...
Bigger countries are generally easier to break into because they have more established business networks, U.S. Commerce Department
contacts and a potentially large customer base.
But the biggest country of them all, China, is very difficult due to language differences, government rules, tariffs, an underdeveloped distribution system and other factors, Vargo said.
Other countries have high import duties if there is no Free Trade Agreement in force with the U.S.
Brazil, for instance, assesses import duties of 15 percent to 25 percent, Vargo said.
Depending on the type of product being sold, a country may require testing and certification to ensure it complies with national health and safety laws.
The International Trade Administration can do background checks on potential trading partners and customers to be sure they are
legitimate and credit-worthy.
Businesses that are already exporting and want to increase sales can turn to the Export-Import Bank of the United States – aka the Ex-Im Bank – buyers to protect U.S. companies from non-payment, and offers working capital loans to fulfill export contracts.
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