We’ve gone over how to expand from a startup to a small business, but what about taking your startup to the international stage? Expanding to a global market is no small feat, no matter the size of your company, but especially so for startups. There are many considerations to take into account, from taxes to import and export pricing. Here’s a quick overview of topics you’ll need to plan around when looking to break into international business.
First and foremost, you need capital to actually expand. As you will soon see, this is not an insignificant amount, with importing and exporting, distribution, taxes, and more all requiring money. Your company may or may not have money leftover from a venture round, which could help. If not, you will need to provide the money another way.
Depending on your country of origin, there may be organizations that can help with the costs. For example, if the content of your product as at least 50 percent from the US, you can obtain financial help from the Export-Import Bank of the United States, commonly known as the Ex-Im Bank. Since 1953, the bank has helped finance the overseas sales of more than $300 billion worth of US goods. The bank also offers insurance against nonpayment by foreign buyers.
Export costs fall under general pricing considerations. Continuing with a US-based startup as an example, the International Trade Administration, part of the US Department of Commerce, offers a few questions you should ask about your product, including:
- What should you price your product at for sale in a foreign market?
- What customer perception does your company want from the price, such as being a bargain or luxury product?
- Is the product’s quality reflected in the export price?
- Is the price competitive with similar products?
- Will the foreign government consider your price exploitative?
If priced too low, the product won’t generate a profit due to export prices. Thankfully, it may be possible to take a tax break using the Interest-Charge Domestic International Sales Corporation, or IC-DISC.
This can help defer exporting costs in the long run, as long as the business falls into one of three categories: The company manufactures and directly exports goods; it provides architectural or engineering services in the US used to construct buildings outside the US; or it manufactures a good included in another product for export (think a computer chip used in a larger product). For more information, Accounting Today has 10 strategies for making use of IC-DISC.
Speaking of exports, you will also need to determine the logistics of how your company will export its items.
If your startup has intellectual property or a patent needed to manufacture in another part of the world, you may need to deal with transfer pricing. Even if your business is transferring the IP to another (likely new) arm of the company in another country, there will be a transfer fee. Factor this in when doing a cost study for globalization.
More costs to factor in include overseas marketing, which could be vastly different from US marketing; new storefronts; shipping and storage; and travel for high-level employees. These may vary between companies, but unless your company only deals in intangible goods, you will likely need to factor all of these in.
Export taxes were mentioned earlier, but there are other taxes to contend with. There may be provincial, city, federal, or county taxes. Many countries have a value-added tax, or VAT, also known as a goods and services tax, or GST.
Your company will also need a cash repatriation plan, as income transferred into the US is taxed at around 35 percent. Companies avoid this by opting out of transferring the cash and keeping the money in the country of origin. However, there may be a reform on the horizon, giving companies a chance to repatriate much of their earnings. Employees may also be qualified for a Foreign Income Tax Credit if the foreign income is liable to domestic taxation.
Regulations and Legal Requirements
Finally, there may be regulations to follow or legal requirements, such as licenses. While we have discussed a few, such as repatriation of currency, The Business Journals lists a few more, including:
- Duties and treaties
- Producer or distributor liability provisions
- Currency exchange rates
- Labor and employment laws
- Investment and business procedures
While the last two may seem less like financial considerations on first thought, the problem is accidentally breaking said laws. The Hult International Business School pointed out that Airbnb broke local tourism laws in Barcelona in 2014, resulting in a fine.
Also consider hiring new employees who understand international accounting and tax compliance, as well as trade laws. It’s best not to skimp when it comes to accountants or lawyers, as it could be the difference between a smooth expansion, a fine, or simply not being able to work in your foreign country of choice.
Another note on recruiting internationally from recruiting advisers: use social media. A job posting on Twitter, Instagram, or Snapchat will surprise you with responses, as users come from around the world. Be sure to use country-oriented hashtags. About 86 percent of Americans, for example, use social media. Two important platforms are Facebook, as 76 percent of Americans use it, and LinkedIn, which is geared towards business and professionals, with 31 percent of Americans using the platform.
However, it’s a two-way street, as a prospective employee will check out all social media platforms to determine your online presence, especially in the country you are targeting. Does your company post photos to Instagram? Do they answer questions on Facebook or Tweet directly at customers? Do they answer questions when only the business’ headquarters country is awake, or around the world? If your startup is going to expand, especially globally, you need to have an international social media presence.
It’s best to have strategies already in place before going global. Between multiple costs including export, storage, storefronts, and taxes, as well as adhering to legal requirements, make sure your company is ready before breaking into the world market.