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The True Cost of Exporting: Operating Overseas

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Expanding your business overseas into new markets is one of the most exciting moments for small businesses and entrepreneurs. However, it is easy to get caught up in the excitement and opportunities and make some novice mistakes that could cost you big dollars and even affect the success of your businessabroad.

Research your market

I cannot stress enough how important it is for businesses to do background research into the market they are entering. Every country and every city has their own set of rules and regulations. Understand the competitive environment of the market within your industry. Think about what cultural and political elements might affect your business success. It sounds logical and common sense, but in my experience of helping Australian businesses expand internationally, this is the most common mistake. Exporters should take the time to discover the finer details in their chosen market. Tax, labour, and trade regulations can present nasty surprises. On the other hand, many cities and countries offer worthwhile incentives and tax benefits for businesses. Knowing about the incentives could help you choose the right market and right conditions to give your new business a high chance of success. For example, many Middle Eastern countries have ‘Free Zones’, which make it easy to set up your business, bypassing the local incorporation and trade licence requirements. Things that you should think about in the business environment include:

  • Business arrangements: what is required to start up, what company structure arrangement choices you have to have.
  • Tax system benefits
  • Labour laws and regulation
  • Local hiring requirements

Government agencies like Austrade, business associations and chambers of commerce all able to provide sound advice for businesses looking to expand. When looking for office facilities, make sure you look at what technology services are available to you. IT support will be a crucial factor in business success abroad.

Setting up

Once you have read into legislations and regulations regarding foreign investment, you come to the nitty gritty of setting up your business abroad. The best way is to try and keep overheads at a minimum and avoid being tied down into long-term leases and employment contracts. Setting up an office in a new city can be very costly. When you think about equipment hire, office staff, post office boxes, and stationery costs, it all adds up. It’s a good idea to establish the business as much as possible in the new marketplace before you physically arrive. Some of the processes that would be good to complete before you land include securing an office address, completing all your visas and permits, opening a bank account and securing office staff, so you can hit the ground running. Once you physically arrive in the city, your costs will climb quite steeply. Smart businesses secure a postal address, a receptionist and the use of meeting rooms with a virtual office solution. Our virtual office clients have the flexibility of working from their hotel room or an apartment while externally facing customers and partners believe they are based at a prestigious business location. Serviced offices and virtual office solutions give new businesses all the office support they need without weighing them down with potentially suffocating leases or requiring massive up-front investment. Avoid long-term commitments. When you arrive into a new marketplace, you are still very much trialling the market to see if your business is able to flourish in the new environment. It’s not the time to be locked into office leases, doing refurbishment or employing staff. You can also save time by finding someone to give you an orientation, for example, Servcorp employs local staff that can explain cultural idiosyncrasies and assist with things like who to contact to set up a bank account. Most banks won’t allow you to open a bank account until you have a permanent address, and obviously you won’t have an address until you have usually been in the market for quite some time. Giving a serviced office address circumvents this hassle. Many of our clients choose to stay in serviced offices even when they become well established in a new market because they wouldn’t be able to afford the same office location and facilities if they had their own small office. Recruiting local staff can be a tricky process. In our experience understanding the cultural norms of the country is crucial. For example, we are currently expanding into Saudi Arabia and the process is completely different, so we’ve had to adjust our time frame and expectations accordingly. We’ve also had to consider the local factors such as language, religious dress, guardians and the roles of men and women.

Budget additions

Surprisingly, the most commonly overlooked costs are the ones that help the office function but aren’t necessarily visible on a day-to-day basis, like stationery, tea, coffee, desks, printers and fridges. And then there are the costs that are often needed to secure equipment and office leases like bonds and security deposits. Having a holistic realistic view of the costs that you’re likely to incur makes it much smoother sailing when you arrive in the new city. IT infrastructure is another area that can be costly: setting up broadband can be an unnecessarily lengthy and tedious process. Add in the complications of language, unfamiliar IT landscape and you’ve got yourself a small business nightmare! In the modern business world, internet access is the absolute minimum. Ideally you want web conferencing, teleconferencing, secure VoIP (voice over internet protocol) services, file sharing and secure document sending. Where do you go to set this up? Who do you call? What is the minimum contract to secure these services? These are some of the stumbling blocks that all small businesses and entrepreneurs will run into. Many of our clients prefer to use our serviced offices to avoid just these issues. I like to think that the services that Servcorp provide are like ‘plug and play’ but in our case it’s ‘plug and work’. -Taine Moufarrige is the executive director of Servcorp (www.servcorp.com.au), which has helped thousands of businesses transition into new markets. Servcorp is a serviced office and virtual office solutions provider with a global network of offices spanning 14 countries. Read on for our budget checklist

Operation Budget checklist

Costs to factor in when you’re setting up overseas.

  • Due diligence. This should involve research to see if a location is suitable for your business expansion, and to find out what other costs there might be.
  • An address. Whether you’re after an office, a shop, a factory or a farm you’ll need to lease or buy it. If it’s a greenfield site-that is, new and empty-you’ll have to consider the cost of fitting it out with furniture, equipment and infrastructure.
  • Business bits. Do you need to register your business name? Set up a bank account? Apply for a post office box? Mount signage on your building?
  • Foreign exchange. Earning money in the local currency requires a strategy to handle foreign exchange, whether that’s repatriating your profits or re-investing it in the overseas business.
  • Tax obligations. Once you’re ‘local’, you’ll need to find out what the council and government want from you in terms of rates and tax; some governments have tax incentives.
  • IP fees. Find out whether you need to budget for protection of your intellectual property. Exporters may have different IP protection requirements if they move from a distribution model to having premises.
  • Insurance. Operating overseas has its risks, so make sure you’re covered. One product that’s pertinent is political risk insurance, which will cover you for government intervention in your assets.
  • Employees. Figure out whether you’re going to pay for an Australian employee to relocate or whether you’ll hire locally. In addition to wages, there may be other labour costs.

-Adeline Teoh

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