29 Sep Small Business Approach to International Business
International work has limitations and challenges. Many firms fail in the global market because they view international business as an extension of working in the United States.
Recognizing the difference between international business and American business practices can be a painful lesson. Some examples of common mistakes include:
- US Laws Do Not Apply to Local Countries – Each country is different and have their own set of laws. When working in another country, pay particular attention to the local work laws. Most US Companies are familiar with working in multiple states, and each state having similar laws. This is not the case internationally. Violating work visas, visitation visas, tax requirements and payments can severely impede your success. Just because you have successful operations in the US doesn’t allow a firm to be ignorant to the local country’s work requirements – research them.
- Cultural Differences are Important – Each country has a different tolerance level for Americans doing business in their country. For example; it is common US practice at the end of a meeting to summarize what each party is responsible to complete prior to a deadline or the next meeting. The English culture considers that approach to be bossy and pushy. Should you insult the local participants they may delay or not perform often claiming your directions were unclear.
- Do You Stand Out as a Foreigner? What shocks me is how often Americans from the Northeast, particularly New York, will go to the Caribbean attempting to conduct business in the same manner as the Northeast. Building relationships is more often more important than the transaction. Becoming impatient or arrogant because of the length of time needed to consummate the deal is not appropriate. An accent will attract attention to your being from another country. If you feel you do not have an accent, listen to the local countryman. If they sound different, you have an accent. Acquire an etiquette booklet for the local area and study the local characteristics that encourage cooperation.
- Local Tax Laws v. US Taxes Laws – All governments need revenue and expect to be paid. Ignoring the local tax requirements can result in penalties, double taxation, loss of business, loss of assets or worst, prison. For example, Jamaican tax laws (and many other countries) provide for taxes to be paid on worldwide income. Creating a local entity limits the tax obligation for that business.
- Payment Terms May be Extended – As a general practice, anticipate a slower pay cycle. If the US payment cycle for services is 60 days, the international pay cycle could extend to over 180 days. The financing of that receivable should be include in the fees. Obtain a fee advance for goods and services upon signing of the contract. The international client expects this request. We suggest the advance should cover the anticipated costs for 60-90 days of work. Therefore if there are payment issues the losses are minimized. We also suggest the advances be credited on the final invoice. Some international entities find it acceptable to skip the final payment. The local collection laws will often make it more costly to pursue the final amount than to write it off.
- Extending Credit to International Company or Government is Not Recommended – International companies and governments expect to pay for goods and services before they leave port. This is a common practice around the world and compromising this principle can include a great deal of risk. Extending credit to internationally based companies or governments is risky and must be anticipated. The risk cost should be factored into the proposal price for goods and services. Remembering the previous point, collecting overdue invoices in a foreign country can be expensive.
We have also found that establishing a joint venture with a local business partner enables us to reduce our exposure to local business practices and cultural risks. Local business partners should have a similar business philosophy as your firm. Partner recommendations can be found through business associations or the local chamber of commerce. Establishing a local presence on your own can be very expensive.
As a general practice, we seek US clients doing international business. This practice helps reduce our risk in managing their construction programs. This practice enables contracting with US laws and collection processes. If that is not possible, heed the warnings noted above.
The international business marketplace can be extremely challenging and rewarding-ly profitable. Avoiding the common obstacles will increase your firm’s success. We encourage firms to seek guidance when starting work internationally.
British Colonial Hilton Nassau, Bahamas. DRB Property Improvement Plan (PIP) Project Management, Owner Representative Services