Jack Welch coined the phrase “change or die.” Today’s global business environment may have changed that to “expand or die.” It seems if you’re not growing, then you’re losing market share. So the question is, how hard is it to break into the U.S. market?
The myth is that it is challenging to enter the U.S. market because of expense, cumbersome regulations, geographical limitations, capital requirements, cultural hurdles, and simply a lack of understanding of the marketplace and local knowledge. The reality is that with the right team in place, overcoming those hurdles and enjoying a thriving U.S. business is possible. Having a good team that can guide you through the “Nuts and Bolts” of the US expansion steps is all you need.
RESEARCH – Educate yourself on the U.S. Market
Understand, analyze, and do your due diligence into the U.S. market. This includes comprehensive research to determine: (a) market analysis; (b) if a market exists or could exist, the competitive landscape; and (c) an investment “game plan” based on results. With business plan in hand, you can turn to the nuts and bolts: (i) deciding the most beneficial location; (ii) based on that decision, the appropriate type of corporate/contractual structure; (iii) implementing a staffing model, whether by way of independent contractors and/or employees; (iv) locating a “physical” location solution, whether real or virtual; and perhaps most importantly, (v) assembling the right team of partners – a good lawyer and accountant, a human resources solution, a staffing solution, and other subject matter experts, vendors and contractors necessary for success. While that may sound daunting, it’s not – at least when you have the right partner.
Probably the most important decision you will make is location – not necessarily where your business will be, but where you’re first going to look for help and land your business prior to operation. We recommend the NY metropolitan area for a variety of reasons: (a) proximity to your home office; (b) access to expertise; (c) access to resources, whether capital, infrastructure, transportation (yours) and technology; and finally, proximity to (d) Cove, your turn-key U.S. expansion solution.
Upon “landing” in your chosen locale, the next step is to prepare the business plan discussed above. Once you have done your homework and you have your business plan in hand, you can then pick the actual location for your business. You should consider:
- Proximity to corporate headquarters
- Proximity to necessary infrastructure, technology, resources and expertise for your business
- Proximity to necessary travel options
- Proximity to an appropriate and ample employee pool skilled in your specific industry
- Tax incentives, grants, abatements and programs, which vary state to state
Upon choosing a physical location, the professionals, like mud dauber wasps, can move in and create and build the appropriate legal and financial structure.
FORMATION – Selecting an entity structure
The choice of U.S. entity structure determines how your company will be taxed and is a significant decision to be made with experienced advisors to ensure an appropriate, successful and profitable course forward.
The most common types of entities are C-corporations, S-corporations, limited liability companies (LLC) and sole proprietorships. Each type of entity has different formation requirements and different tax consequences.
Once a legal entity in the U.S. is established, various compliance regimens will need to be considered depending on your business type. Such laws, regulations, licensing and permitting requirements exist at the federal, state and local levels, all of which will need to be considered, and none of which is likely to be as complicated as it may sound with the right partner by your side. Registrations and required licenses are unique to each jurisdiction, so it is crucial to understand the requirements in the area where your business will operate.
For formation purposes, the State of Delaware is a good choice because it is “foreign entity friendly.” For example, there is no need to be physically present to open a bank account in Delaware, and there is no need to have a physical address; i.e., you can form your business in Delaware and still have your physical business address in your home country.
OPERATIONS – Obtaining a U.S. Tax ID number
To operate in the U.S. you’ll need a federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS). An EIN is a unique nine-digit number that identifies your business for tax purposes, and it is required to open a U.S. Bank Account, set up U.S. payroll, file U.S. tax returns, and, in some instances, apply for business licenses and importantly, be paid by U.S. companies.
LEGAL- Basics and guidelines
General Corporate Law – Like all jurisdictions, business transactions are typically governed by contracts in the U.S. There is a strong presumption in the U.S. that commercial enterprises are sophisticated entities who are fully aware of the consequences of entering or not entering into a contract.
Employment Law – Employment law in the U.S. is remarkably straight forward in comparison to employment regimens around the world, notwithstanding a large body of employment law. There are at least two sets of employment law, state and federal, and at times local laws, which you need to understand and follow. For example, minimum wage can vary by local law, and in New York City freelance workers have the right to a written contract upon request and penalties can be imposed for (i) failing to provide a contract on request, (ii) failing to pay freelancers timely and in full, and (iii) for retaliating against freelancers who exercise their rights under the law. Similarly, NY City recently banned a prospective employer from asking about or even conducting a search of an applicant’s prior salary history. Similarly, there are a litany of laws directed at preventing discrimination, whether based on age, sex, medical condition or disability. Again while daunting on their face, the vast majority of U.S. law is primarily based on common sense.
Intellectual Property Law – The U.S., as an innovative nation, has a robust set of laws and regulations directed to protecting intellectual property, patents, trademarks, copyrights and trade secrets. Generally speaking, the procedures for protecting and asserting intellectual property in the U.S. are straight forward, well-established and extremely effective when done properly as the USPTO and the courts stringently enforce the intellectual property laws and provide protection from infringement. Moreover, the U.S., as a global leader in intellectual property, is a signatory to practically all treaties on intellectual property law.
NEXT consider the following:
LOCATION- Real Estate
When considering a location for your business, a company cannot overlook developing an appropriate real estate strategy to determine whether leasing space, purchasing a building or building a new facility is the right business choice. Site selection is a critical element in controlling costs, maximizing profitability and reaching the appropriate target market.
WHO’s WHO – Employees and Independent Contractors
Hire a great U.S. team. The need for local boots on the ground cannot be overestimated or exaggerated – whether employees, independent contractors or “hired guns.” The people you hire, contract with or retain to deal with your overseas operations must be well versed in the local and U.S. market and fully understand the local environment and its eccentricities. Without resident U.S. representatives who possess the necessary cultural, language and local business knowledge, your venture will be at a competitive disadvantage.
HOW IT WORKS- Production
When expanding to a new market, there are a number of logistical challenges. Effectively planning, controlling and managing the movement and storage of goods, services, people and things — from raw-material suppliers, manufactures, communications to vendors and end customers — is vital to ensure that the necessary resources and delivery methodology necessary for your venture are available, at the right cost, on time, and deliver the right end product.
YOUR PRODUCT- Marketing and Promotion
Successful market penetration requires careful thought and planning. With the removal of barriers and the rise of the “internet of things,” businesses can seamlessly enter and exit markets almost at will. However, effective positive branding and brand identity can shield your company against transient competition via a consistent and accepted “secondary meaning” in the consumer’s mind. As such, it is essential to create, maintain and stay aligned with your entity’s core values as embodied in your venture’s brand. Expansion, whether to the U.S. or another market, adds one additional element: ensuring that your venture’s brand identity, core values and brand blend with, and into, the expanded market . Varying cultural norms, meanings of words, grammar and customer needs may dictate adjustments to the sales approach, packaging, marketing message and materials. But again, a good product or service will likely transcend such obstacles and hurdles.
LAST but not least, and in fact early on in the process, seek professional advice.
Once you’ve determined after considering all the foregoing that it makes sense to expand your business into the U.S., you will want to partner with appropriate, trust worthy and proven legal, accounting, tax and other subject matter experts who are well-versed in the unique needs and requirements for your new U.S. venture to succeed and prosper in its new market, one of the most dynamic markets in the world, the United States.