Joe Grasso, Associate Dean for Finance and Corporate Relations at Cornell University ILR School, and Steve Miranda, Managing Director for Cornell University’s Center for Advanced HR Studies and ILR School’s executive education programs, write in The Dollar Business on six areas that entrepreneurs and companies need to evaluate before considering ‘export’ strategies to take advantage of a seemingly inviting foreign market

Joe Grasso & Steve Miranda | @TheDollarBiz

If you are planning on doing business in a foreign country and locating your employees abroad, we have one piece of advice: “You gotta know the territory.” This is a quote from an old, but popular American musical called “The Music Man.” In it, Charlie, a salesman of musical instruments, tells his friends that they need to know the territory before they go out and sell instruments. We have the same advice for you today. Doing business in a foreign country can be a rewarding, frustrating or disastrous experience. Sometimes, it can be all three! Your own results will almost certainly be driven by how well your strategy fully recognises the financial, cultural and political realities of your target market. When considering business entry into a foreign country, it’s important to evaluate and think through six critical areas.

1 Consider a partner: If you have never before engaged in foreign markets, it may be useful to identify a partner, a distributor or an in-country agent who can introduce you to clients, help with trade financing and inform you of local laws and customs. For small- and medium-sized businesses without the deep or broad knowledge of foreign countries and markets, trusted partners are a lowcost and effective way to experiment with doing business abroad. In addition, they can provide critical local knowledge as it relates to navigating those areas of the country’s business “ecosystem” which may not be specifically spelled out in documented legislation and/or regulatory requirements. They can also provide required licenses or other legally required approvals which allow them to perform one or more aspects of the business (e.g., manufacture, collect payments, bid on government contracts, etc.) which your own business may not be legally allowed to do. In a phrase, they’re often a creative way to have “1 + 1 = 3.”  

2 Don’t ignore free resources: We have found that companies often forget about leveraging readily available and free resources as it relates to information on starting and building a foreign business. One of the easiest (and free) ways to get a quick assessment of how challenging a given market might be is to review the latest data from Transparency International, or TI. TI produces an annual report which ranks each of the world’s nations on their Corruption Perception Index (a comparative listing of corruption worldwide). [See chart titled, ‘Corruption Perceptions Index 2014’.] By assessing TI’s evaluation of the CPI, you can develop a good sense of how different the new environment you are planning to enter is from the one in which you currently operate. In India, another great source of information is the Confederation of Indian Industry (CII). CII is a non-government, not-for-profit, industry-led and industry-managed organisation that plays a proactive role in India’s development process. Founded in 1895, it has more than 7,200 members from both the private and public sectors. It also has an indirect membership of more than 100,000 and operates 64 offices and nine Centers of Excellence in India. There are also offices in China, Australia, United Kingdom, the United States, Singapore, France and Egypt. Equally so, don’t forget about “home grown” resources available in your target market. In the United States, the US Chamber of Commerce and the US Consulate General’s office provide extensive materials on how to do business in America. Information is also available from various consulting or “fee for service” organisations such as The Conference Board. 

3 Think through your full stream costs: If you are a larger business that has had some experience in foreign countries, but are considering a more aggressive expansion or an expansion into countries with more complex business and labour laws, you should do your homework before moving forward. For example, there are some countries where the labour and employment laws are skewed toward the employee more than the employer. In these countries, it may take up to a year to lay someone off and cost more than the employee’s annual salary in severance payments. It’s therefore critical to develop and estimate the total costs of doing business under two scenarios. The first is the total cost associated with a successful entry of your business into your new target market. The second is the total cost associated with a failed entry. This latter estimate should include all of the expenses associated with winding down operations, as well as all employee severance payments.

4 Don’t underestimate how complex employing staff can be: While many aspects of moving into a new market may be similar to the markets in which you currently operate, countless companies have been hurt by not paying attention to the operational details behind employment. The good news is that expert help is readily available. Some large companies in India have turned to national universities for advice about labor laws, workers compensation, works councils and provident/retirement funds. Other companies in US that have wanted to do business in India and China have hired Cornell’s ILR School to host a two-day session for senior executives on the pay practices, labour laws and cultural aspects of doing business in those countries.  

5 Beware the “cookie cutter” approach: While an overall framework and understanding of the high-level differences between domestic and non-domestic markets is critical, one should not make the mistake of believing that what works in one market will work in another. Take China and US as examples. In US, working with local and regional Chambers of Commerce and exhibiting at trade shows is both straight-forward and can be highly effective. Also, regulations, labour policies and general employment practices tend to be transparent, publicly documented and well understood – by both employees and employers. This transparency even goes so far as to include the compensation range for a position when it is advertised. And while differences in employment laws do exist from one state to another, in general, similar “rules” are followed across the country, with the most important of these for employers being the concept of “employment at will” [the term used in US labour law for contractual relationships in which an employee can be dismissed by an employer for any reason (that is, without having to establish “just cause” for termination), and without warning]. In China, the situation is far more complex. China has a narrower (but often more direct) route to customers through state-owned enterprises (SOEs), as well as highly complicated supply chain relationships. Also, small and mid-sized businesses used to exploring the US market and clients in a more open and public manner may not find this same level of openness available in China. Non-Chinese companies have recently been in the press complaining about being subject to a set of rules and regulations which apparently are not being enforced with the same vigour when compared to their Chinese counterparts. In addition, the Chinese dynamic of guanxi (personalised networks of influence) often requires newcomers to navigate an incredibly complex set of relationships before being able to get to the key decision-maker. Also, with more than 160 cities having a population of one million or more, competition for talent is fierce. Unlike US “employment at will” in which contracts are uncommon, documented contracts are the norm for many positions. Standard items in these contracts include the length of employment, the level of compensation, any benefits (such as vacation), intellectual property protection and/or severance details. One additional consideration is that, depending upon an individual’s situation, he or she may find themselves subject to the Chinese system of household registration known as “hukou”. While moves to reform this system have met with recent success in China, certain individuals may still find themselves unable to move from one part of the country to another without express government permission.   

6 Move from “you” and “me” to “us”: A large, multinational auto parts manufacturer located in India has used a highly-structured job rotation program so that its executives and mid-level employees become accustomed to the Indian workplace and culture. This has allowed the company to successfully adapt to doing business in India. In another example, a large Indian computer services firm with offices in US used a short-term job rotation program for its employees and has a structured recruitment program with engineering and business schools to hire Indian-American graduate students to staff its operations in US. The company will also bring its Indian employees for three- to four-week work visits at various offices in US, paying the lower Indian salaries while employees work closely with clients in the United States. While entering a new market is always risky, this risk is often counterbalanced by the opportunity for large profits. However, not fully knowing the territory can result in the creation of problems that could have been eliminated by a modicum of thoughtful planning. By considering six critical areas outlined above before executing their strategies, companies can save themselves untold financial, operational and reputational damage.

Written in coordination with: Steven Philip Warner, Editor-in-Chief, The Dollar Business; and Mary Catt, Assistant Director - Communications, Cornell University ILR School