Setting up a business in a foreign country can be a daunting prospect. But in this global economy, this is often precisely what has to be done to give an enterprise a competitive advantage. If you’re interested in setting up shop outside your home country, here are some of the most important considerations you should take into account.
1.) Incentives
The governments of some countries offer special incentives designed to attract foreign investments or to jumpstart local innovation. For instance, the SME grants Singapore-based businesses receive from government agencies have helped transform the microstate to a global startup hub. Some countries offer special economic zones that grant investors a range of privileges, including tax breaks and subsidies. A few countries even offer citizenship to certain classes of investors.
2.) Incorporation Process
The process of registering and incorporating a business varies dramatically from country to country. While there are plenty of exceptions, most countries that are thought of as “business-friendly” have streamlined incorporation processes that involve less government red tape. This can be an important consideration if your business plan has a specific timeline.
3.) Local Tax and Employment Regulations
Once your business is duly registered, continued legal operation will largely depend on your compliance with local tax and employment laws. Many foreign investors are often shocked at how different the laws of their chosen country are from those back home, even in countries that share a common culture. For this reason, it’s best to consult with a legal expert even before you register your business.
4.) Available Labour Pools
The specific qualities of the available labour force can play a role in the success of a business. Some locations such as Singapore and Dubai have highly cosmopolitan workforces while others may have a far more homogenous labour pool. Different labour forces also have different relative competencies, which are often further influenced by geography as well as the availability of schools, training centres, and universities. All these and other factors may determine how easy it is for an investor to build the team they need.
5.) Property Rights
The ownership of property, including such things as IPs, land, and businesses, can vary greatly from country to country. Some countries may also have restrictions on what properties and assets could be owned by foreign businesses. If such restrictions exist, they may impact a business’s relative risks and income.
6.) Supply Chains
Some countries also have local industries that could supply a business’s needs at a competitive cost. Others have geographic advantages or infrastructure developments that allow them to do the same. Especially fortunate ones have all of these together. Whichever country you do choose, ensuring that it has the right supply chains in place can dramatically bring down the cost of doing business.
7.) Startup Costs
The cost of registration and paperwork, plant asset acquisition, rent, legal and standards compliance, hiring, wages, training and development, and utilities are just a few of the things businesses have to consider before they even start offering their products or services. Most countries offer cost advantages in certain areas and relatively few countries offer competitive costing across the board. This makes it doubly important for investors to know the areas they need to invest more in and what sacrifices they may have to make.
8.) Foreign Exchange Situation
Some countries that are considered desirable investment destinations require foreign businesses and individuals to comply with foreign exchange regulations. For instance, the People’s Republic of China has controls in place to prevent foreign currency from freely flowing in and out of the country. While this is not always a problem, it can limit what a business can do with its available funds, especially in the short term.
9.) Political and Economic Stability
Stability reduces risks and permits more predictability, which helps in long-term planning and in reducing the cost of day-to-day operations. It can also influence the level of personal safety investors can expect. Unstable areas are more likely to host disenfranchised people with motives to commit crimes such as theft, kidnapping, and piracy.
10.) Target Markets
Ideally, the country you choose should either be your target market or close to where it is. Failing that, the country should at least be within easy reach of your target market through established global supply chains. Considering this beforehand will help a business maintain its initial capital through the critical first few years of operation.
11.) Local Cultures
The local languages, attitudes, and cultures may all play a role in the success of a startup. For instance, though India initially led the world in business process outsourcing (BPO), the Philippines eventually took the lead, despite its higher relative cost of labour. This was mostly put down to the compatibility of baseline Philippine culture with the Western markets served by BPOs as well as the quality of English language education in the country. The takeaway is that it pays to understand the peoples, cultures, and quirks of every place you’re seriously considering investing in.
Should You Open a Business Overseas?
Whether as a link in your supply chain or as a market unto itself, most countries have something going for them that makes them appealing as a place for expansion. While the list isn’t comprehensive, taking some time to look up these items should give you an idea of the potential perks and pitfalls of investing in different countries.
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