As we all struggle with COVID-19 in our own way, the world can feel as though it is shrinking. Just because we are confined to our homes more than we’d like right now, however, international business is not a thing of the past. In fact, expansion overseas is likely to become increasingly commonplace over the next decade.
Why expand overseas?
The one-two punch of a global pandemic and impact on the environment will make toing and froing between countries increasingly unappealing. This does not change the fact that commerce is a universal language, though. Business owners will remain keen to expand reach and marketing opportunities to every corner of the globe.
This makes the idea of expanding a company to enjoy a presence in foreign climes appealing. By forging a market presence for your brand overseas, you can enjoy all the benefits of international trade without the jet lag and living out of a suitcase. It’s not just individuals that gain from expanding to different territories, though. Expansion to foreign countries can reap huge rewards for businesses themselves.
For a start, establishing a business presence overseas opens up the potential for trade with entirely new markets. Different countries have agreements and preferences with a wide array of other territories. Did you know, for example, that Spain has an international business relationship with several African nations? An expansion could provide the key to doors that have remained stubbornly locked thus far.
Gaining access to overseas talent and manufacturing ability will also enhance any business. First, we have to consider the sheer volume of output. China, for example, is responsible for 28.4% of all global manufacturing. The UK, for comparison, accounts for just 1.8%. The size discrepancy between the two nations plays a part, but it’s still food for thought.
In addition to skilled labour forces, you will also gain access to new strains of research and development. If you operate in the automotive sector, for example, Germany spends over €10 billion on R&D. Meanwhile, it’s no secret that Japan leads the world in technological R&D.
Finally, we have good old-fashioned international renown. It’s great to be successful in your home country. Ultimately, though, this will always have a glass ceiling. If you are met with blank stares and shrugs whenever you mention your business name to a potential international investor, you will eventually peak as a big fish in a small pond. By ensuring that your business enjoys a global reputation, you will earn the trust of countless potential funding sources.
Which countries should be considered for business expansion?
Unfortunately, expanding a business overseas is not as simple as popping a pin in a map and going from there. You’ll need to think long and hard about which countries would provide the biggest boon to your business – and vice versa. International governments will understandably be keen to ensure that your operation will benefit their citizens, not hinder native business enterprises.
Ease of doing business is also a significant concern. No successful business owner or entrepreneur has the time to dedicate hours, and even days, to negotiating tiresome bureaucratic red tape. Some nations make it easier to trade than others. This was the idea behind the Ease of Doing Business Rankings, designed by The World Bank.
These rankings are drawn up from a weighted aggregate score, based on a range of different factors. Overall though, the rules are pretty simple. The higher a country ranks, the easier is considered to do business within. The top 15 looks like this:
- New Zealand
- Hong Kong
- Korean Republic
- United States
- United Kingdom
As you’ll see, the UK weighs in at #8. If you find business practices in this country to be a headache, look at the nations listed at #7 or above. If you are looking for a more significant challenge, the full table contains 190 options. If you’re wondering, Somalia is considered the toughest cookie to crack for entrepreneurs and business owners.
Now, let’s take a brief look at the biggest industries located in this top 15. This will give you some idea of whether these are the nations for you, based on what their existing corporations and companies presently excel in. You may wish to join the race for these prominent industries – or seize an opportunity to start a venture that has limited competition.
|New Zealand||Agriculture, tourism, retail and wholesale trade|
|Singapore||Finance, energy, tourism, healthcare and biotechnology|
|Hong Kong||Financial and consultancy services, stock trading, tourism|
|Denmark||Agriculture, renewable energy resources, tourism and transport|
|Korean Republic||Textiles, metals, automotive, shipbuilding and electronic appliances|
|USA||Pharmaceuticals, technology, construction, retail and manufacturing|
|Georgia||Metal and wood, machinery and gadgets, mining and wine|
|UK||Finance, steel, transport equipment, oil and gas and tourism|
|Norway||Oil and gas, tourism, seafood and retail|
|Sweden||Automotive, pharmaceuticals, electrical appliances, wood and metal|
|Lithuania||Oil, agriculture and retail|
|Malaysia||Electronic appliances, pharmaceuticals, timber and petroleum|
|Mauritius||Agriculture, tourism, mining and manufacturing|
|Australia||Finance and consultancy, retail, healthcare and mining|
|Taiwan||Service, agriculture and manufacturing|
Considerations surrounding an overseas business expansion
Naturally, expansion into foreign markets is not a decision to make on a whim. You’ll need to perform your due diligence, ensuring that your business model can sustain itself internationally.
Let’s consider the most important factors that will weigh into your decision to expand your business overseas. We can take a look in broad strokes through the table below.
|Incorporation||Before you can start doing business, you’ll need to register your business with the local company’s house. This can take up to twelve weeks, and there will often be a fee involved|
|International payroll & HR||You will need to set up many things before you can launch a payroll. Discuss these with the local company’s house – your business will need to be registered as a tax-paying entity|
|Employment law||Different countries offer workers different rights around termination and working hours. Some nations are also more ingrained with labour unions than others|
|Employee benefits||The standard benefits package for employees, including personal holiday days, sick pay and maternity leave, will be at the discretion of the local government|
|Tax implications||Check the tax implications of your chosen country carefully, most notably whether they have an agreement with the UK. This will also impact if you should open a branch or a new limited company|
|Residency and visa requirements||You do not need to be a resident in most countries to open a business, but you’ll usually need at least one local representative. A residency permit or Visa is essential for entrepreneurs|
Expanding an existing business vs. starting a new company overseas
If you have read this far and still feel like expanding your business overseas is the way forward, you still have another critical decision to make. You will need to choose whether you are would like to open a branch of your existing business or start a new limited liability company in your country of choice.
There are benefits and drawbacks to both of these approaches. Let’s start by discussing the pros and cons of opening an international branch.
|Pros of opening an international branch||Cons of opening an international branch|
|Your business will primarily be governed by UK law, not those of your host country. This can afford greater control||Your host country will have some say in how you do business. It could end up being a ‘worst of both worlds’ situation|
|You can trade on your existing business name, potentially increasing global awareness||If anything goes wrong with the overseas branch, the reputation of the parent company will be sullied by association|
|If the country has a double-tax agreement with the UK, you will pay less in business taxes||If the host country does not have a double tax agreement, you may be taxed twice – on local and global profits|
|The same decision-makers, usually a board of directors, will oversee the parent company and the branch. This creates consistency||A corporation may adopt one, universal way of doing business without taking country nuances into account. Great if this method is profitable, less so if it’s not|
|You will retain full control and liability over the branch, including absorbing any profit to prop up underperforming markets||If the branch runs at a loss or needs to file for bankruptcy, the parent company is responsible. There is no clean break|
And now, let’s consider the implications of starting a new company.
|Pros of opening an international LLC||Cons of opening an international LLC|
|An LLC is responsible for its own finances. If the business is in debt, the parent company is not legally obliged to pay||If the owner of an LLC does not separate business and personal expenses, they may need to cover losses from their pocket|
|An LLC is a clean slate, with no pre-existing baggage attached to the parent company||You may not be able to use the same name as your parent company|
|Business owners can appoint a management team to operate the business, taking a hands-off approach||Local managers may have different views on how to do business and have the final say on decisions. This can lead to friction|
|Fees, taxes and expenses are often quite favourable for an LLC||If a key director of the business quits, the company may be forced to wind up|
There is no right or wrong answer here. It all depends on what you are hoping to achieve through your business venture, and how you intend to go about it. Take a look in more detail about the differences between these approaches and make a judgment call.
How much does it cost to start a business overseas?
As always, this varies. It all depends on where you would like to start your business. Let’s take three different countries as an example.
New Zealand was declared the easiest country to do business in, so you may be attracted to the idea of expanding here. In New Zealand, you must pay NZ$115 to register your business but that’s it – you will not need any capital. The average wage in New Zealand is NZ$53,000 PA, and you are not obliged to pay social security taxes on a salary. This means you will not incur too many costs on top of this wage aside from income and corporation taxes.
The USA is quite similar. In the States, the average wage is US$40,000 PA, there is no minimum capital requirement, and social security taxes are just 6%. However, American employees are less interested in salaries and more in the benefits package that you can offer. An average hire will cost around 1.3 times their annual salary, but you’ll also be expected to pay for valuable benefits such as health and dental insurance.
Now let’s use a European example. Germany is a nation that has rarely been mentioned so far (it ranks at #22 on the Ease of Doing Business Rankings, as there is a lot of administration involved), but has a thriving economy. You’ll need €25,000 of share capital to open an LLC though, at least 50% of which must be paid in advance. There is no minimum capital for opening a branch. What’s more, you’ll need to pay up to 22% in social security taxes on top of an employee’s salary, the average of which is €45,000 PA. These financial considerations must be taken under advisement before choosing where to set up.
FAQs about expanding a business overseas
Yes, on paper you can start a business in any country – either as a branch of an existing corporation or as a new LLC. However, different countries have different restrictions. Ensure you are aware of these before applying. Bankruptcy in the UK, for example, will exclude the opportunity to open a business overseas in many cases.
The following countries offer Entrepreneur Visa programs. If they are known by a different name, this is will be noted below:
• Denmark (Start-up Visa)
• Finland (Start-up Permit)
• France (Tech Visa)
• Italy (Self-Employment Visa)
• New Zealand
• Portugal (Start-up Visa)
• Singapore (EntrePass)
• Sweden (Residence Permit for the Self-Employed)
• United States
There will be restrictions and fees placed on applications for Entrepreneur Visas. These vary by nation. Carefully check what you’ll need to qualify for this work permit, possibly seeking help from an immigration lawyer.
According to the Ease of Doing Business Rankings, New Zealand is the best country to start an overseas business in. Singapore, Hong Kong, Denmark and the Korean Republic make up the rest of the top five, in that order. Which is the best of these depends on what industry you are trying to enter.
It may surprise you to learn that the UK is the second-cheapest country to start a business in, based on Per Capita GNI. Slovenia tops the list and has an increasingly thriving tech industry. Macedonia, Kazakhstan and Denmark are third, fourth and fifth respectively. As Denmark is also in the top five easiest countries to do business in, this is an appealing location.