When Facility Cleaning International decided to expand into new countries, the challenges went beyond language or culture. The journey from registering with local authorities to opening day in the new country was an exercise in patience and perseverance.
In order to replicate the success of a U.S. business in a new country, the expanding company will be challenged to fit their business model into the new environment. Cultural differences, worker expectations and local regulations can prove daunting.
Getting Started Tips From Facility Cleaning International
The decision to expand a business within another jurisdiction requires research and planning. When Facility Cleaning International started down the path, they created a team to investigate the costs and benefits.
“Just because a business model is a success in your home country doesn’t guarantee it will be profitable in another location,” Nicole Elkind, Vice President of Facility Cleaning International, said.
Before moving forward, it is important to know who the competitors and customers for your product or services will be. Read the local newspapers and trade magazines, talk to other U.S. companies who are working in the country, and determine if there is a market for your business.
Once the homework is done, assessing the local market is essential. This should include making appointments with civic and government leaders. Talk to potential customers as well as investigate the condition of the local labor market. Spend time with locals and hear what they have to say about where they live.
Once the decision has been made to move ahead with the expansion, the first place to start is by registering your business. Most countries have three levels of business infrastructure and they all need to be informed of your presence. Be sure to include all local and national officials in your expansion plan.
Most local officials will welcome your interest in setting up shop in their district. However, if you bypass the officials when registering, either intentionally or by accident, it will create a problem. When setting up a new office in a new country, making friends will prove to be a huge benefit.
Office Branch or Subsidiary
The first decision is whether to register the business as a Regional Office (RO), Branch Office or Subsidiary. Each of the designations has benefits and disadvantages to an international company. A RO is a non-taxable entity but comes with restrictions on their activities. Local regulations limit the number of employees, usually 2 or 3, and scrutinize the business to be sure they are not operating as a business.
The U.S. government website usbranchoffice.com describes the difference between a branch office and a subsidiary. A branch office “A branch office is not a separate legal entity of the parent corporation.” This means “the parent corporation is subject to taxation on its entire corporate income, rather than just the branch's income.”
This is why most companies, including Facility Cleaning International, choose to set up as a subsidiary. A subsidiary according to the U.S. Government site is, “is a separate legal entity from the parent, although owned by the parent corporation.” This means taxation would only apply to the earnings of the subsidiary.
While most companies will have an insider in charge of the new venture, hiring locally for key positions is advisable. Local officials love to see employment created by new firms, especially at the executive level. The real challenge will not be in hiring an executive, but to find quality employees for the hands on work.
In a 2005 report for The Harvard Business Review, authors Tarun Khanna, Krishna G. Palepu, and Jayant Sinha say there is a lack of personnel services for operational positions in most countries. “The high-quality search firms that do exist focus on top-level searches, so companies must scramble to identify middle-level managers, engineers, or shop floor supervisors.”
Once the research is done, the company has been registered and the employment search is concluded, the next objective will be to introduce your business model to the new employees. This can prove to be challenging.
As Nicole Elkind, Vice President of Facility Cleaning International, found out, local cultures and business practices are not the same as in the U.S.
“It is important to listen to the concerns of employees to be sure any objections are quickly addressed. This may result in changing the culture of the subsidiary to conform to local practices,” Elkind said.
These differences can include the hierarchy of employees, clothing or even something as simple as what to serve at a “coffee” break. Be flexible so that small problems do not become a major issue.
There are many benefits to expanding your business to a new country, but also there are many obstacles to overcome. Before making a commitment to expand, it is advisable to follow the tips from companies like Facility Cleaning International who have already found success abroad.