At some point in their development, many exporters will or should consider whether or not to sell directly into a profitable market. The decision to set up and open a foreign legal entity is one of the most important that a company will make. It’s an enormous commitment of time, resources, and focus, so it’s critical to get it right.
Governments agencies offer resources to help companies export. But most are not really equipped to help companies answer questions about opening a foreign office, such as whether the company is ready to open a oreign office, where it should locate, and the options available in setting one up. 
Here are 8 key decisions to consider so that your new foreign office delivers the results you’re expecting.
- The country of you new foreign office. Sometimes the choice of where to set up a new office is driven by a key customer or partner. In that case, you may have little or limited choices about where to set up shop. In many other cases, the choice may look obvious at first, but may actually not be.
- The type of legal entity and its place in your overall corporate legal structure. These decisions involve not only the type of entity, but how the entity is tax-maximized within your overall legal entity structure. One place NOT to skimp in your process is getting good tax advice. Proper tax planning can save you tens of thousands or more. You’ll also usually have several choices of types of entities — not just the legal form, but also whether your new company is merely a warehousing and distribution company, or just a sales or service office.
- The agreements that will be needed. This can include everything from intercompany agreements, to having local customer agreements, localizing supply or other partner agreements, employment agreements, and service agreements. It’s safe to say that many (if not most) of your standard U.S. (or insert country of your home office) agreements will not work in the new country and at a minimum will need to be localized to some degree.
- The support services required. This begins with the decision of whether or not to have a physical office and whether or not it will simply be an occasional meeting place, or a fully-functioning office with staffed with several people who regularly work there. From that decision will come many other support-related questions, ranging from office furniture and cleaning to IT support to benefits administration, to assistance with tax calculations and filings.
- The people you pick to manage and support the new company. Do you hire employees, how do you find the right ones, and what is a reasonable compensation package? It is not always necessary to hire any employees, at least at first. Many companies start new offices with contract employees or outsourced services. If employees are needed, many companies start an office with at least one employee who is temporarily moved to the new location to get operations set up. But sending someone who is resident in a different country will often trigger immigration and taxation issues. If you decide to hire local employees, it’s essential to find a good local headhunter to provide advice on local labor laws, customary and statutory employee benefits, typical employment contracts, whether trial periods are common or advisable, and termination processes.
- How do we sell to and contract with our customers? For many reasons, you’ll want to thoroughly understand how your products or services are typically sold in your new local market. How are similar or competing products typically sold? What should the supply chain look like? How are they typically marketed? How are they priced? Take the timeto understand customer buying preferences and if any middlemen may be involved. If sales will be made to government bodies, fine out what the bidding process involves.
- The government permits or approvals needed. It’s safe to assume that some permits or approvals will be required. You may need a business license, a tax registration number, an import license, product registrations, or special applications to get on an approved supplier lists.
- The business processes needed. This is often overlooked by companies first setting up a foreign office. Many companies — especially smaller and mid-sized ones– are weak on business processes and rely on institutional knowledge. This approach generally does not serve companies well when expanding internationally because of the additional complexity and risks. Most companies benefit greatly from mapping out the processes needed and the skills required. This process almost always unearths opportunities to make the overall business more profitable.
If you focus on these issues well in advance. you greatly increase the chances of early success for your new office.
What do you think? What’s been your experience with these issues?
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