Wednesday, March 09, 2016

When International Expansion Doesn’t Go as Planned

(This post is sponsored by:  True Partners Consulting)

Despite your best intentions, hard work, and diligent planning, sometimes your expansion into a new territory doesn’t quite go as expected. You might find yourself with an operational footprint in a country that doesn’t reflect your current business needs. Perhaps you’ve outgrown your initial business plan (great!), or you’re facing a merger, acquisition or joint venture opportunity? Or, maybe you need to wind down operations completely and exit the country.

Whatever situation you’re facing, changing your operations on the ground in a foreign territory can often be more challenging than setting them up in the first place. There are many obligations and requirements that must be addressed, and they often have an impact on one another.  Here are four.

1.  Track your corporate footprint.

The corporate footprint you established initially may not be right for your current business needs. Be sure to understand what your corporate entity is approved to do before you start making changes to actual operations. You should also fully understand any obligations you have committed to with a development authority, or another government body authorizing your presence in the jurisdiction. Even if your proposed change in operations is not restricted, you will want to fully understand the new commercial flows in and out of the country before proceeding. Don’t get caught with an unexpected tax hit, import/export requirement, or treasury restriction after it’s too late to plan around the issue.

2.  Monitor your employment and human resource options.

With respect to personnel related complexities, note that new hiring, reductions in force, changes to responsibilities and reporting, and any other matter that affects an individual’s status of employment, will generally be governed by statute in some way. You should know what your obligations are, both financially and from a compliance perspective, well ahead of taking action from an operational perspective. Nobody wants to learn about requirements in an employment court.

3.  Plan your exit strategy.

Winding down and exiting from a country altogether can be an ugly procedural process that is often misjudged by executives when they enter a country initially. Unless your local business is working on a project with an expiration date, exiting was not part of your initial plans. Generally you can expect the process to take years, and not months, no matter how simple your operations in country are. Courts will generally not allow you to close your local entity until all governmental bodies have approved and issued you a clean bill of health. This includes tax authorities, labor governing bodies, development agencies, and a slew of other entities that must complete a due diligence process that will take time and effort on your part.

4.  Do your homework. 

As a general rule of thumb, you should do your homework and plan well ahead of taking action that will result in change to your foreign business operations. Not only should you understand your various obligations and compliance requirements, you should also understand how they interact, and make sure to take measured steps that are well thought out. Know your limitations and seek as much help and guidance as necessary to ensure a smooth change.

Note:  Don’t miss my Doing Business Abroad webinar series, beginning March 30, 2016. We’ll cover issues like these and dig deeper into the international challenges facing CFOs and their finance teams.

About the Author

Justin Smith is a Managing Director with True Partners Consulting and leads the firm’s Global CFO Solutions practice. Justin has managed a variety of advisory practices throughout his career and has nearly 20 years of experience assisting executives with their international operations.


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