3 Obstacles (And Some Advice) When Starting A Foreign Branch Office
Updated: Feb 13, 2018
Starting a foreign branch of your business in a developing nation can be a strategic business move. Even so, when starting an effort in a developing economy, it is probably best to prepare yourself for some foreseeable hindrances.
1. Undeveloped and Incoherent Legal Structures
Often, developing economies are doing just that: Developing. Therefore, legal code, police systems, database systems, and everything all the way down to ID printers may not be up to date. It's not always “someone’s” fault either, and you are best prepared if someone is ready to work with local officials who are usually just trying to do their jobs.
Paperwork Timing Discrepancies
You may face timing issues. For instance, there could be a gap between when an old ID expires, when a new visa is issued, when the new ID arrives, and when you are able to register with a State employment agency (which, for this example may not register you until the actual ID arrives). “Holes” in the legal code or policing customs may prevent you from reapplying too early, and yet, because of the overlaps, a foreign registered employee who is trying to follow the rules may find herself in the dissonance between differing laws.
I faced a situation where I needed to put start-up-capital loan into our new Eastern European branch to make payroll (required minimum wage) and pay the lawyer. No problem right? I needed to pay our lawyer (I’ll say it for the first time, “Hire a trustworthy and chilled out lawyer”) ...but I didn’t yet have capital in the business...and although I had my residency permit, I didn’t have my new local ID card (because the ID machine was broken)…but, despite my legal status, the bank wouldn’t let me put a loan in without the physical ID...so, I couldn’t pay the lawyer. The ID came in the mail, and eventually she was paid.
Yes, if you are wondering, I have had ID issues. Thank you for letting me get that off my chest. I haven’t even mentioned the stamps. Let’s not go there.
“Hire a trustworthy and chilled out lawyer”
Maybe, you are thinking, “This is complex AND boring!” I know it’s a bad combo, but that’s sometimes the reality on the ground in a foreign start.
I know we get to eat gelato and drink great macchiatos, and I’m grateful for the experience. Be aware, though, that without outside logistics help, you may be facing some mind-numbing bureaucracies in your international start-up process.
All this should not lead you read between the lines and think that I’m saying a foreign businesses should engage in or expect illegal “necessities.” What I am saying is that, because the systems and legal structures have not had the time to mature and come into alignment (much like a young person during puberty), there may be some awkward moments where literally no one knows what to do. I’ll say it for the second time, “Hire a trustworthy and chilled out lawyer.”
Restrictive Labor Laws
Sometimes, in developing economies the labor code can makes it tough to get anything done.
Because of the prevalence of the gray market and party-oriented hiring systems, and because of burgeoning governments’ counterbalance-through-governance, doing something as simple as hiring someone can require waiting times and significant paperwork.
Separately, because of the mistreatment of employees in the gray market, countermeasures (such as limitations on work-hours) can actually inhibit flexibility with your staff. So what if your foreign team needs to put in a 65 hour week to meet a deadline? Something to consider.
2. Tribal- or Connections-Only Business Circles
Consider that, in some undeveloped economies, social circles can actually be quite developed. Especially where citizens were forced by war, oppression, or persecution to fly under the radar, many have become adept at developing trustworthy (but closed) business-circles.
In order to do business, your foreign representative will probably have to do relationships. How do you do this? Exactly like it sounds, and if the person you are considering sending to run the branch struggles with what this means, consider sending someone who intuitively knows how mix and mingle across cultural circles. It probably needs to be someone who knows they have 2 ears and only 1 mouth.
The mixing and mingling could involve everything from developing real friendships (don’t be a fake), to being brave enough to sit down at a restaurant-gathering and engaging the local business leadership. Generally, local people want to know your angle before they determine if you are a threat or an asset to their town, there people, or there nation. Your foreign Rep will need to mix it up.
“It probably needs to be someone who knows they have 2 ears and only 1 mouth.”
3. Culture Shock
Yep. It is simple, but it can be real. Your foreign Rep or Reps may have the skills to grow your business in the unique challenges of an international developing economy, and it is important to prepare them for the emotional / psychological impact of prolonged work in another culture.
I’ve heard it said that culture shock can occur, not just as an up-front wave, but also as a cumulative stacked weight. First, the banking issues. Then, the language struggles. Then, lack of friends. You get the picture.
Short-Term Preparatory Trips
A short-term up-front work trip prior to the long-term deployment could save your foreign Reps and their families from taking the brunt of their lifestyle change all at once. Consider it as in investment in the future (imagine the replacement hassle and costs of putting a new Rep and family in the field).
New Site Assistance
Get some on-site help. Simple things like paying bills and learning your way around a city can create significant culture shock stress. By establishing on-site assistance to welcome, orient, and assist your foreign Reps in the early period of their stay, you are removing non productive stress from your employee.
Get Some Help
Consider the concept of hiring out your “Scout Team” efforts. Someone else can handle the nuances of research, logistics, and on-site work.
If your business is, for instance, providing oil-field chemicals, then that is probably what you do well. Much of the logistics, new-site research, on-site set up, and other “Advance Team” duties can be outsourced to provide advanced on-site solutions.
Feel free to reach out to Lewis-Gray Solutions Group regarding our Via Scouts new location service. You can let us know if you are looking to expand internationally. Consider how we might assist in market-scout research, on-site logistics, legal counsel identification, on-site assistance for new Reps, and other services to get the ball rolling overseas.
Kind regards from E. Europe,
VP/Director, EMEA Representative,
Lewis-Gray Solutions Group, LC