Opening a business in a new country comes with its own set of unique challenges, from cultural differences to compliance issues and everything in between.
A stark reality for companies operating in today’s economic environment is the need – or opportunity, rather – to establish an international presence in the marketplace. This means, of course, starting a business in another country.
There are different motivations for such an expansion. Perhaps there’s a strong market or local talent base that you want to tap into. Or, perhaps, there’s a steady stream of import/export happening between your company’s location and that other location, and you decide it might be more cost-effective to simply put boots on the ground there.
Whatever your reason for it, there are a few things you need to keep top of mind when opening a business in a foreign country. We asked employers who’ve been there and done that, and pulled together five main takeaways for you based on what they had to say:
1. Know the cultural norms
This may be obvious, but it bears repeating: doing things the way you do things in your own country won’t always mesh well with the cultural norms in your new office.
People work together differently
Charlie Marchant, a general manager at Exposure Ninja, a UK-based digital marketing agency, talked about her experiences working with employees based in Asia. As she says, those employees tend to avoid asking questions to managers and are more indirect in sharing their feedback and concerns.
“In comparison,” Charlie says, “our British and European teams are much more likely – and this is a behaviour we encourage – to question and [give] feedback to the management team.”
To a lesser extent, she pointed out cultural differences in the way American and British colleagues work together.
“Often in American culture and schools, you’re rewarded for speaking up and sharing your opinions and ideas, even if you may not necessarily have new insights to add. Whereas, in British culture, we tend to be more introverted and quieter with our opinions in group settings preferring to [share] feedback more openly in smaller groups or one-on-one.”
Charlie noted that none of these are right or wrong, or better or worse. It’s more important, she adds, “to understand the nuances of their team member’s communication and ways of working to ensure they’re getting the feedback and input they need from them, and that they feel confident and comfortable [giving it].”
Yuval Shalev, currently co-founder and CRO of Hunterz, has an extensive track record in penetrating new markets and territories across Europe, the Middle East, and Africa in previous capacities. One such instance called for expansion to Romania, where Yuval noted the stark differences in managerial culture, which led to issues between teams – listing examples such as micromanagement and favoritism. While those aren’t necessarily indicative of Romanian culture, Yuval’s challenge was to remedy that without looking like his company was trying to “fix” the culture.
His solution in the end was to standardize operating procedures across cultures, but more so, train staff to communicate performance feedback differently: “Romanian culture is proud and steeped in tradition so any issues had to be addressed carefully and diplomatically. We shifted to a constructive criticism format to foster a positive, productive workspace.”
Local values differ a little – or a lot
Polly Kay, currently a marketing manager at UK-based blinds manufacturer English Blinds, made what she called “some major errors” in establishing a previous company’s presence in the Middle East.
“My greatest personal mistake involved picking one of our most popular product lines in the US to offer to our Dubai audience – a branded product featuring a cartoon pig. I knew that the largely Muslim Dubai community didn’t eat pork, obviously, [but] it never occurred to me that this would also translate as not wanting to have anything to do with pigs in general, including children’s toys!”
“I was then left with two shipping containers’ worth of stock that was worthless within the target market, and that I had to offload across more appropriate areas of the company serving other markets.”
Kristina McDougall who works at Artemis Canada Inc. in recruiting for American startups expanding to Canada, is quick to remind readers of the nuanced differences between the two countries beyond their obvious similarities in culture and language.
In Canada, Kristina says, “[there is] a sense of collaboration and mutual success that can be a surprise for tech companies based in Silicon Valley.”
She adds: “Canadian tech companies typically help each other, working together to compete with global companies.”
This also impacts recruitment, making it a “delicate business”, Kristina says. “One of the things that foreign-owned companies are surprised with is the need to be an active part of this community. Giving back through participation in local philanthropy and arts and culture and also lifting up the local startup and tech community, with education oriented events and mentoring, will help these companies to be embraced.”
Kristina also warns of aggressive recruitment which may rub Canadians the wrong way: “Companies need to consider how they are developing the local skill base and also avoid overtly predatory practices. Targeting entire dev teams or blatantly offering inflated salaries that would upset the local ecosystem would make you appear a parasite.”
However large or small the cultural differences are, do your homework and learn about what works and what doesn’t work in the new environment you’re about to operate in. It’s no accident that locals appreciate it when you make the effort to work with them in their “language” – be that in words, gestures, culture, gesticulations, feedback, commentary, conflict, or anything else.
Employee motivations count no matter what
One thing remains consistent – people are people everywhere. They’re motivated by many of the same things regardless of background, culture, language, etc. This includes benefits, perks and other potential motivators in the workplace.
Yuval noted that stock options and tools for career development are effective. “Good employees are interested in growing, so I encouraged them to move between departments. […] We adjusted salaries to the highest tier of the local market rate and made an effort to understand cultural norms.”
“If a post-lunch nap is common for the culture, embrace it! Set parameters, of course, but something about it must be working.”
Ted Rollins, founding partner and chairman of Valeo Groupe, which develops and builds student and senior housing communities in the U.S. and Europe, attested to growth opportunity as a universal motivator while adhering to your core company values: “Adapt to and blend in the various cultural values and norms, but do not stray from your core. Let the energy and passion lead the process and keep people at the center of what you do and the international distinctions become less challenging.”
2. Know the local laws
Whatever the country you expand to, it’s essential to know the local laws because the consequences can be dire if you run afoul of compliance.
It’s more than just signing contracts
David Jackson, CEO of software development agency – and Workable customer – Fullstack Labs in Sacramento, California, took note of some of the legal requirements during his introduction to business as done in Colombia.
“They have a lot of unique rules that you would never think about in the United States. For all new employees on their first day of work you have to send them to the doctor and get a physical,” he says, noting that this dates back to times when Colombia-based workers were primarily in labor-intensive jobs that required medical clearance.
Even finding an accountant was difficult due to local legal requirements in Colombia.
“There’s only one or two accounting systems you’re allowed to use in Colombia and they have to be approved by the government. Because of that, this one company has a monopoly, so it’s really expensive to buy the accounting software. And the software is really old and outdated. And then I don’t know how to use it. It makes it difficult for reporting.”
David notes that this continues to be a challenge. “You can’t just sign up for QuickBooks like you would in the United States.”
Everything is regulated
Kristina at Artemis Canada emphasizes that while at-will employment can be a standard in many U.S. states, it’s actually illegal in Canada. She adds, “we also have different norms for vacation and benefits – which is important in the competitive market for technical talent.”
Law is a minefield, no matter where you go. Of particular relevance is the “right to disconnect” – in other words, the right to not deal with work-related emails and other communications outside of normal work hours. France’s precedent-setting El Khomri law, adopted in August 2016, offers employees and employers the opportunity to set expectations in regards to off-duty communications prior to tenure, with many other countries and U.S. states considering similar legislation. This especially becomes pertinent when a company goes international, with employees working across different time zones.
Beyond legislation, it bears noting that some countries are accustomed to long work hours whereas others are more inclined to clock out entirely at the end of the day – which could lead to miscommunications and misaligned expectations within remote teams. So, it’s best to implement a standard expectation across the entire company when it comes to communications outside of normal work hours, regardless of location.
3. Know the logistical challenges
It’s not just nuances, legalities and stigmas. Working on the same projects across offices poses logistical challenges as well.
Building bridges between distributed teams
Communication becomes an issue because it’s not like going to someone’s desk or office to ask them for a quick favor. The difference in time zones poses an additional problem, particularly when the overlap in working hours is reduced to just a couple of hours every day.
Darko Jacimovic, co-founder of e-learning company Whattobecome.com, pointed to technologies that enabled his colleagues to overcome the physical remoteness between colleagues:
“We use Slack for all internal communication and Hubstaff for tracking hours and productivity. Team building [events] take place once a year, with big company gatherings that include all the international offices.”
Timing is of essence
Sometimes, as much as it should be avoided, one needs to be flexible, as Yuval found in building markets in other time zones: “It’s never easy – we all like to sleep – but it is considered acceptable to take a call during the night or on a weekend to accommodate a U.S. or China client or international team.”
Time differences were a consideration for David at Fullstack Labs as well: “If you build a team in Eastern Europe or in India or in Asia there’s a 12-hour time difference, that makes it really difficult to work together. But in Colombia, they’re an hour or two ahead of us, depending on the time of year. And it allows us to work with them throughout the day.”
Bias can be a challenge
Even stigmas can get in the way of normal logistical processes such as recruitment and team building, as Dmytro Okynyev found in expanding his Ukraine-based company – Chanty, an AI-powered chat solution – to the United States. Not only did it take several months to set up the company in the U.S. in the first place, the hiring process hit some snags because of a lack of trust of the employer from potential applicants, Dmytro found.
“[The challenge was] coming from a country that has a bad rap for being financially unstable and our salaries, in general, are not that great. We had a hard time getting a good reputation in the U.S. where we could attract good candidates.
“Very few people wanted to work for a Ukrainian company […] with no employees and no physical office. We set up a virtual address and even then, we had to find someone based on recommendation and word of mouth, rather than getting candidates from job boards.”
4. Know why you’re doing it
Often, the motivation to expand to a new country goes beyond market considerations. There are advantages to that location that can be integral to business success.
A huge pool of local talent
Kristina at Artemis Canada noted the expansion of companies north of the United States: “Typically these companies are based in California or New York, and their primary reason for expansion is access to a talent pool that is highly qualified, culturally similar to their U.S. counterparts and English speaking. There are cost advantages as well.”
Similarly to Canada, Colombia has a deep pool of talent that appeals to American companies, says David at Fullstack Labs: “They also tend to have a good education system down there for computer science. […] And a fair number of them speak English. So that also makes it easy to build what we call blended teams. […] And you get the safety and security and convenience of having a lead U.S. developer with some of the cost savings of having a nearshore development team.”
Cheaper isn’t always better
But, David warns, that doesn’t mean that you can just go into a new country and take advantage of cheaper labor there. You still get what you pay for.
“The best developers and the best professionals in Colombia are more expensive than you think,” David says.
“It’s just like the United States where everybody’s getting recruited to death and there’s a lot of competition between companies for hiring. And people are moving around and getting better offers all the time.”
“Just because you’re a U.S. company, you’re not going to come riding into town and have your pick of the litter or anything. It doesn’t work like that.”
In short, don’t focus solely on how much you can save by opening a business in a new country, based on assumptions of lower wages. The nuances of finances go deeper than that – think about the skill sets available there, the competition for top talent, and other expenses associated with setting up shop in the new location.
5. Hire local experts
Many emphasized the need for local representation, when opening a business in a foreign country, to guide you around the potential pitfalls and misunderstandings. More importantly, they’ll help you ensure full compliance in every aspect of local business – be it financial in terms of reporting, taxes, etc., and legal in terms of labor and trade laws.
Recruitment, especially, is a major consideration and a challenge. Darko at Whattobecome.com attested to the importance of having a local team involved in the team-building process:
“We’ve overcome that challenge by hand-picking the core team and establishing a strong collaboration with the team. The core members have later gotten the task of recruiting the locals.”
“The key to success is that the local core team has ownership over the company’s success, which boosts their enthusiasm.”
Expats can be a valuable cultural bridge
Polly explained how a local, or someone who’s familiar with the country, can serve as a cultural consultant. In her case, she brought in an expat from the United States who had lived in Dubai for two decades, spoke fluent Arabic, and had an established business presence in the UAE.
“This helped us to make the most of our opportunities, understand the various cultural, bureaucratic, and logistical differences between Dubai and the U.S. and how they applied in practice on the ground, and to target our market much more effectively and profitably.”
Polly continues: “We [avoided] a huge range of problems in this way. [We ensured] that our U.S. workers knew that smoking in public during Ramadan is forbidden even if you’re not a Muslim, that the weekend days are Thursday and Friday, not Saturday and Sunday, and just in time to stop one of our big bosses potentially being arrested. […] If you want to talk business with the owner of a women’s beauty salon, you send a woman negotiator as such a business is a female-only space.”
Locals know logistics best
Yuval agreed: “For startups, the best strategy for recruiting [is] to find a local partner who [understands] the landscape, including wages, labor laws, and a typical office environment. […] They help us navigate everything from renting office space to contract norms for employees.”
David at Fullstack Labs admitted to the ease of business in the United States – for instance, you can simply go online to set up an LLC and it’s ready to go – and the differences in doing that in Colombia that required bringing in local support:
“We hired a big international law firm, which seemed to be the only choice to form an entity down there, for us. […] In Colombia it’s very involved. You have to get an attorney, it takes a long time. […] They’re a quasi-socialist country, and so the government has a lot of control over the free market. And they just have a lot of rules that you have to play by. […] We wanted to follow the letter of the law and make sure that we got off on the right foot and we didn’t have any sort of regulatory issues.”
It goes beyond establishing a legal business – which took Fullstack Labs eight weeks. Employment compliance was also a major consideration for David: “They have a lot of rules around how you could hire employees and they have a lot of employment law that you have to comply with. So we had to hire consultants to build our employment contracts. And then make sure that we are in compliance with myriads of employment law and all types of filings and stuff.”
“The best advice I would give in terms of getting started is to get a good attorney. […] [And find] a good accounting firm and a good bookkeeping firm to make sure you’re in compliance with all the tax laws.”
Necessity is the mother of invention
The advent of technology in our work enables us to work more internationally as organizations, and global expansion of companies likewise prompts further evolution of existing technology. For instance, Slack allows for quicker one-off communications between remote employees. Google Hangouts and Microsoft’s Zoom enables colleagues to have some type of face-to-face interaction, plus the ability to make presentations across different offices. And Workable’s international presence, of course, allows for an international hiring strategy to flourish.
David at Fullstack Labs signs off with a hat tip to Workable’s recruitment solution: “One of the things that’s really nice [about Workable] is we manage all of our Colombia job postings in the same way we do in the United States. So we go in and we create a new job, we publish it to Indeed and to LinkedIn.”
“We get a lot of inbound applicants in Colombia from LinkedIn, and to a lesser extent Indeed. And then we run them through the same candidate pipeline and the same in the hiring process. It was a nice surprise when we were expanding down there. It was nice to see that Workable worked in Colombia. And then we’ve also used the sourcing tool to find candidates down there and contact them. There’s a surprisingly good database of candidates in the Workable sourcing tool in Colombia.”
Frequently asked questions
- What are some key considerations when starting a business in another country?
- Understanding the local culture, laws, and logistical challenges is crucial. You should also consider the motivation behind the expansion, whether it's accessing a talent pool or cost advantages.
- Why is understanding the local culture important when starting a business in a foreign country?
- Cultural norms can significantly impact how businesses operate. Understanding these norms can help you adapt your business practices to be more effective and respectful of local customs.
- What role do local laws play in starting a business in a foreign country?
- Local laws can affect everything from business registration to employment contracts. Non-compliance can lead to severe consequences, making it essential to understand and adhere to these laws.
- What logistical challenges might a business face when expanding to a new country?
- Logistical challenges can include communication issues due to time zone differences, recruitment difficulties, and overcoming local stigmas.
- Why might a business hire local experts when expanding to a new country?
- Local experts can help navigate the complexities of starting a business in a foreign country. They can guide you around potential pitfalls and misunderstandings and help ensure compliance with local business laws and regulations.