In this increasingly international world, many businesses are going global for new growth. Here to help guide us through the “legal minefields” of such a move is US-based consultant and foreign business expert Ed Marsh.
Legal Considerations and the International Businessman
Even business people experienced in international trade paint themselves into legal corners. And when it happens, it is expensive, delays projects, creates negative publicity and can disrupt carefully cultivated partnerships.
How do experienced folks get in trouble? What can you do to avoid it as you take your business international? Obviously, it is important to find competent counsel experienced in doing business with Americans to advise you locally in key markets. But, you also have to change your mindset…
A Different “Paradigm”
OK. I hate that trite word too. But it fits here. Domestically, good business people learn to “walk the line.” With so many decisions coming down to judgment calls, it's second nature for them to weigh the benefits and consequences of decisions and let a career's worth of experiences guide those decisions.
But international business is different. And what's worse is that, the same body of experience which guides you in those “gut feeling” decisions domestically … will actually mislead you in many cases internationally (we'll see a few examples in a bit).
Remember that the best counsel is that which helps you avoid problems. In many markets litigation can take years, adjudication may be corrupt, and resolutions inadequate. That's why, to avoid hassles, it's important for the international businessman to realize what he doesn't know and to partner with the right advisors.
The Known and the Unkown
International business has minefields – known and unknown – and “horror” stories abound. Companies learn painful and expensive lessons in ways, which, seem implausible based on a “common sense” understanding of North American business practice. Naivete, like ignorance, isn't an adequate defense. You need to “know what you don't know” and have strong relationships with your legal advisors.
For example, here are areas you need to consider:
- Export and anti-corruption compliance – did you realize that you are potentially PERSONALLY responsible for the actions of your distributors? If their practices are corrupt, you could be investigated by the Department of Justice. However, well-designed programs for FCPA compliance (including documented training and periodic reminders) will largely obviate the risk. Similarly, you have to cross-check several governments lists for “denied & restricted parties” prior to shipping products overseas and also require your buyers to confirm they won't resell or reship without confirming your permission.
- Trademark protection (and other IPR issues) – not only must you protect your proprietary designs, patents, etc. … but you also must ensure that you don't end up competing against yourself! Trademarks registered by others (i.e., your trademark) can be used against you. A holder of your mark can demand your product seized as it enters a market as counterfeit and not only will you lose your product (without compensation), you could also be subject to penalties and sanctions!
- Labor and partnership obligations – in some places informal commitments of distribution rights are essentially binding in perpetuity without explicit up-front conditions. For example, employees who you thought were only contracted agents might actually be entitled to substantial severance based on nuance in your agreements. Your obligations in this area can be completely counterintuitive, which is why, again, you can't rely on your personal experience.
Who can help you wade through this minefield? Many of the areas outlined above are pretty routine and most law firms have good standard documents which can be easily adapted (and increasingly, most mid-size US firms have decent international affiliations). But you need to work directly with local counsel. Just because your primary domestic firm “introduces” you to a local firm, that doesn't mean they are the right ones to work with. You need a local firm that's a good business fit for your company and is one with thorough competence.
Language and Detail
Regardless of which law firm you choose internationally, one thing you probably won't have to worry about is translation. Normally, documents are transacted in English between even small companies, and although foreign business people are often stunned by the complexity and volume of our legal agreements, they understand that is an American attribute and grudgingly comply. (Nevertheless, countries like India make our documentation appear brief!)
Economical and Sensible
Is there a cost? Yes, but it should be viewed more as an “investment” in new, healthy growth. And you wouldn't proceed in any other way domestically. To do so in the 'foreign' world of international business would be folly. Difficult business situations which you anticipate are manageable – so don't expose yourself to unanticipated, yet eminently preventable, hassles and complications. While legal details in each market will vary, awareness ensures that your business model is influenced but not fundamentally changed from what you know works.
Just remember that while you can't simply “trust your gut” abroad, strong domestic and local legal counsel will make sure your internationalization efforts go smoothly.
[If you enjoyed reading this article, you'll probably also like “Selecting Your First Overseas Market: Do's and Don'ts” and “Diversify Your Business Internationally“.]
Ed Marsh has in-depth experience on a number of continents, in various capacities and industries. He founded and managed a start-up in India; successfully built channels throughout Latin America; leveraged his German birth and marriage to a German national in his extensive work in Western Europe and has deep cultural experience with Vietnam. Ed's B2B and B2G pan-global experience has involved a variety of products and services including capital equipment, industrial automation, distribution services and homeland security and defense technology. He is a Founder and Principle at Consilium Global Business Advisors.