Tax, labour (or labor!), VISAs – expanding into the US market can seem like a great way to make a business bigger and more profitable, but it can be an incredible waste of resources if you go about it in the wrong way. Before you think about expanding internationally, make sure that your business is in the right state and stage of development.
US entrepreneur Gary Vaynerchuk advises caution before looking to expand a business internationally.
“Unless you are doing 7, 10, 12 million dollars in the Nordics (your home country) you should not be thinking about Eastern, Western Europe, the US…scalable what?…until you ******* make money, you shouldn’t be worried about global” Quote Source (Youtube)
Win locally, before looking to win business internationally, seems to be the message of caution from several respected entrepreneurs. Uber, for example, started in just San Francisco and spent 1.5 years just trying to figure out how to make the business profitable in San Francisco alone.
Uber has also had a relatively difficult time expanding into Europe. The organisation is banned in France and banned in several cities in Spain. Fortunately for Uber, they had a profitable foundation of success in the United States before they looked to expand internationally. What might prove to be a pain or inconvenience to Uber, could mean bankruptcy to other smaller organisations, however.
You can see a map detailing all the areas Uber is banned on the QZ.com website.
That being said, the US is one of the largest countries in the world, with one of the most powerful and most diversified economies. With over 480 million potential consumers, for businesses, the US may well be the land of opportunity.
A great example of a business which has made a successful transition from the UK market to the US, is the phone answering service Moneypenny. Founded in 2000 they established themselves as the leading company in the UK before expanding to the US.
Why the US?
With seaports on both coasts, multiple airports in every major city and a population that speaks mainly English (although Spanish is catching up fast!) – the US is an obvious target for successful UK businesses looking to expand internationally.
Before you look to expand into the US, ask yourself:
- Why the US?
- Are there other national markets that you could succeed in?
- What are the pros and cons of each international market?
- What contacts or mentors do you have?
- What logistical issues could there be?
- What is the cultural, political & economic difference between the local market & the UK?
Like with many types of big projects, there are often unforeseen problems to tackle. Reading case-studies and learning from other companies’ problems is arguably the best way to cover all potential problems. For example, there are often issues with customs when exporting goods, with some businesses reporting that their goods were stuck in customs for up to 3 months!
There are also international and local US laws that you may not know about – hiring a lawyer in the US may be the best way to tackle any potential legal issues before they begin.
Another good way to start is to find a non-competitor in a similar industry that has made the leap to the international market. If you can discuss the transition and offer some type of value in return, it can save you hours of time and could potentially be the difference between success and failure. Several studies have outlined the importance of networking when expanding into foreign markets (you can see one study here that outlines the importance of networking).
Pricing of your product or service can also be difficult. Whilst you need to conduct a full ‘competitor analysis’ on pricing and other facets of business, you may have to raise prices to cover or factor-in any risks involved with international expansion. For example, if a company was to get goods stuck in customs, there may be international costs involved in hiring someone to negotiate or expedite them through. Either way – prepare for added costs that come with unexpected issues.
Culture can also be very different in some countries or even some areas of countries; especially in terms of a population’s attitude towards work. What is the national culture towards work? Will you be able to hire the right people with the right experience and attitudes?
Will you be able to hire a manager that can motivate a team overseas? What expectations should you have of your employees? For example, in London, you may be able to call your employees at 2 am in the morning and get a response, but this might not be considered fair or appropriate in other areas of the UK, never mind the world! Any, networking or even finding a local mentor can help you garner all the local knowledge that you may need.
Where in the US?
Interestingly, Delaware is touted by many experts as a great place for international businesses to gain a foothold and establish a presence in the United States. It’s said to be a very flexible state in terms of incorporating an international business. The fees for doing so are also relatively low. Of course, each state has its own ‘selling point’, with Texas touted as having a burgeoning tech industry and California famous for Silicon Valley, boasts a huge economy, largest than those found in most counties.
Many companies including Moneypenny have put down roots in Georgia, thanks to its strategic location and good transport links. With remote working infrastructure now in place across most the developed world, the best location in the US might be one with low overheads, low taxes but in reach of major cities such as New York.
The exact location of your business is a crucial decision to make and this is something to research yourself and discuss with any relevant members of your business network. Consider the price of commercial real estate, the main industries in each area or state, the logistical factors such as ports, airports, roads and train/rail networks.
Legalities of Expansion into the US
In terms of actual operations and processes, consider how you will do the following in the US:
- Set KPIs
- Financial Statements
- US CFO services
- Find office space
- Insure the business
- IT infrastructure
- Recruitment & HR
- What company name will you use?
To begin the process of expanding into the US, it can be a good idea to get in touch with a specialist team of solicitors or lawyers.
There is something called the “L1 Visa Process” which is required for opening a branch office or a subsidiary of the business inside the United States. The L1 is typically applied for and issued to someone who works for the business, as either an executive or a person of specialist knowledge. Managers may also be issued an L1 Visa. This often occurs when a business is looking to transfer a manager to the United States to set up a new office or to work as a senior member of staff, in an office that has already been established.
Depending on the state, you may have to incorporate your business as an LLC – Limited Liability Company. You will have to choose an official name and you will usually have to work with a register-agent, to handle the official correspondence from different government departments.
You will also have to apply for an EIN/FEIN number – this is a number from the IRS that you need if you want to run a business. If you don’t have a social security number, again, you may need a third party such as a local lawyer, to file the necessary paperwork for you.
The next step is normally to open a corporate bank account. You can hire someone to do this for you, but most business-owners will fly to the US themselves to do this. You will need a range of documents to do this, including articles of incorporation, certificate of formation, written LLC operating agreement, etc.
Please bear in mind, that the order of all these steps may be different in each state. It’s a good idea to speak to a mentor, member of your network and/or a lawyer before initiating any of the formal processes involved in establishing a business in the US.