Given Jonathan Blanshay's prior experience in opening one foreign office for his Montreal-based company, he could reasonably assume that opening the second one would be easier. But you know how that old saying about assumptions goes—and it applies doubly in most matters of international trade.
Revision Military Inc. develops and manufactures protective eye, face and head gear worn by soldiers in battlefield situations. With a product line like that, Europe is a key market. So, in 2010, hoping to gain all the benefits of a full-time, on the- ground presence close to prospective European customers, Revision established an outpost in Amsterdam.
But any benefits came at a high and unanticipated cost. "It was thousands of hours of work," says Blanshay, Revision's CEO. Thousands of dollars' worth of senior executive time was invested in the opening. What's more, the firm shelled out about $50,000 in travel, legal and accounting fees.
Many ambitious firms reach a point at which having an international bricks-and-mortar presence makes sense. A local face can help you land new clients and make it more convenient for them to deal with you. A local office also offers a front-row seat from which to spot local opportunities.
But expander beware: whether you're talking Texas or Timbuktu, establishing a foreign office can land you in a minefield of hidden surprises if you don't manage the process properly. Complex tax structures, strange employment laws and stiff professional fees can drain time, waste money, slow your expansion and even put you on the wrong side of the law. Acknowledge these barriers and deal with them proactively, however, and you can avoid the worst of what any country throws at you.
Blanshay says the time pig for Revision was in becoming familiar with Dutch tax structures and corporate laws. But red tape isn't an obstacle only in the Netherlands; in many countries, it's much worse than what businesses face in Canada. When Jason Tryfon's company, Vital Insights Inc., opened a Munich office last year, he was amazed by the German government's insistence that the Canadian government verify all of his fi rm's Canadian incorporation documents. "It added at least another month to the process," says Tryfon, CEO of the Mississauga, Ont.- based developer of software for customer satisfaction surveys.
So, when it came time to start the process of opening a Hong Kong office this year, Tryfon sought the help of a government agency, InvestHK, that helps foreign companies expand into that market. "They were extremely helpful," says Tryfon, "and teed us up with contacts we needed," including recruiters, landlords and others. Many countries, and even some large cities, have similar agencies. Trade commissioners and Canadian consulates also are a source of valuable local insight.
You'll also need help from professionals, such as lawyers and accountants, to navigate regulatory hurdles and complex tax structures outside Canada. "How you set up your company on Day 1 will impact how you do in the future," says Blanshay. "You have to pick wisely."
But professional advice can cost far more than you expect. Mandy Gilbert was floored last year, when her fi rm, Creative Niche Inc., opened a Cincinnati office and she received her first bill for the legal services required. "I was budgeting $2,500 max," says Gilbert, CEO of the Toronto-based staffing firm for creative, design and interactive talent. "The bill came to $7,200."
It's not unheard of for total spending on professional fees to run from 30% to 300% higher than you might anticipate for services in Canada. You can set yourself up for a shockingly high bill if you ask the professionals for the wrong thing and then have to ask for a redo. Gilbert says she once had to have employment contracts rewritten because she hadn't realized she needed to request that they be specifi c to each U.S. state. As well, legal and accounting fees are often higher elsewhere. "Always outline clearly the work you want done and ask for a quote up front," advises Gilbert.
To find the best legal and accounting advice, says Blanshay, bigger is often better. He recommends selecting a major national or international law or accounting fi rm that operates in Canada, then asking for its help in selecting appropriate professional service providers outside the country.
Blanshay identifies another obstacle that's easy to overlook when you're drafting your plans to open a foreign offi ce: finding the right talent. In 2003, Revision opened a subsidiary in Essex Junction, Vt., in order to meet "Buy American" requirements for doing business with the U.S. military. Blanshay says finding and hiring his first employee was one of the biggest challenges, and it ultimately slowed Revision's rollout in the U.S. At first, your local network in an unfamiliar location may be small to non-existent, which can make it diffi cult to cast a wide net. To help recruit candidates, Blanshay leveraged the networks of his local advisors, including lawyers, accountants and other professionals, as well as contacts he had made through industry associations. Even so, he says, "We were grateful to get one or two applications for our initial job postings."
Although it's common to hire the most senior person first, Blanshay warns against this, because "they'll have no support and no one to manage." He began by hiring a plant manager to run the U.S. assembly facility, and he made sure that Employee No. 1 came with a good network: "You want someone who is outgoing, involved and well networked, so they can help you recruit future employees."
Ed Kaczer, vice-president sales at Colligo Networks Inc., a Vancouver-based developer of collaboration and content-management systems software, says that when his firm hired the first employee for its U.K. office, it sought someone with a proven ability to work autonomously. "Ask for specific experience that demonstrates their ability to work on their own," he advises, "because in the beginning, they will be operating independently most of the time."
Not every challenge you'll face with foreign offices has a solution. For instance, one of the biggest cultural differences between North America and elsewhere is how long it takes to get things done. "We're used to expeditious service," says Tryfon. "But in Europe, it can take a week to get a response to an email." Slow response time also is common in Africa and Latin America. Although you can try asking for speedier responses, changing communications habits isn't easy, and Tryfon suggests that you plan for delays.
From communications habits and employment contracts—which in parts of Europe are as elaborate as marriage contracts— to finding the right office location, understanding local culture is a key to success in opening a foreign office. Gilbert suggests leveraging your own network to get a jump-start on the learning process. Whenever she visits Creative Niche's office in Amsterdam, she has lunch with a Dutch contact, whom she met while studying at MIT, and picks his brain on everything from the local business customs to the best places to network. And before expanding into the Dutch city, she partnered with a global marketing fi rm whose CEO personally introduced her to his local contacts. They provided valuable help in finding staff, office space and so on. "Local entrepreneurs in your industry can be the best advisors," says Gilbert.
Another challenge in setting up a foreign office is making your people there feel part of your team. Shortly after Tryfon hired a managing director for his Munich office, the new hire showed signs of being disconnected from the Canadian team. "It was the classic remote-worker problem," says Tryfon, as the physical distance between team members bred a sense of disengagement.
Tryfon combated this problem by using Skype for calls with his new hire. "It helps when you can see the whites of each other's eyes, even if it's through a camera," he says. And, rather than limit talks with the managing director to European operations, Tryfon used Skype to include him in all management meetings. Tryfon also implemented Yammer company-wide. (It's like Twitter for business, giving employees a tool for updating each other on their work.) The result: stronger connections and engagement, and reduced costs, as the company spends less money on travel.
Still, although technology and social media tools can help improve communication, nothing beats face to face when it comes to sharing and transplanting the corporate culture you've worked so hard to build, says Blanshay. He brings all the key employees at Revision's foreign offi ces to Montreal for orientation sessions, which helps give them a taste of the company culture: "It makes the integration process that much easier."