Tim Watkins, corporate partner for Coffin Mew solicitors, looks at how to make the best start in your international expansion strategy.
Summer’s coming, and after cautiously opting for the ‘staycation’ last year, maybe you’re thinking of going ‘international’ this year. Somewhere nice and hot….
Hopefully, there’s no reason not to be taking the same approach in your business strategy. Perhaps it’s time to dig out and dust down that old international growth plan you once considered? With a few more months of Brexit instability looking likely to endure, it is perhaps unsurprising that (as mentioned in last month’s The Business Magazine editorial) research conducted recently by Santander found that almost a quarter of businesses surveyed were planning no investment in the year ahead.
And yet potential growth opportunities offered by international markets (Brexit uncertainties notwithstanding) still remain. Expansion into new, and perhaps untested, markets can also bring opportunity and reward – provided the appropriate preparation is done first. For even the most financially assured, commercially-astute businesses can come unstuck in new and unfamiliar markets, if they have done insufficient research and preparation.
In the UK, in recent years, commerce has been subjected to an increasingly regulatory and compliance burden – from GDPR to anti-corruption and AML requirements. Yet it is often the bespoke regulatory regimes in international markets that will apply to incoming foreign investors and businesses which cause expansion plans to become delayed or incur extra costs – or both.
Alongside commercial and financial business considerations, due diligence on the structure and nature of the target market should be just as important.
The following tips may help to smooth the process of international expansion:
1 Where are we headed?
Are you targeting a particular country, or perhaps a specific region? As a former practitioner in the Middle East, I was always surprised at the
number of clients who wanted to target the ‘Middle East region’, but without necessarily a full appreciation and understanding of the practices, customs and cultural norms that distinguish the component countries of that region. Also, countries which operate under a civil law system (rather than the broader common law, as in the UK) will, in particular, have their own bespoke codified laws to govern particular areas of law and practice.
2 What will we find there?
Many developing international markets (and the countries of the Middle East offer a number of examples) currently impose restrictions on the level of permitted inward foreign ownership and investment. This may therefore necessitate direct contractual relations with local partners (who may not be part of the intended business operations), and a requirement to share with them ownership of the business or company, in order to meet local law requirements. Will you need to source, and agree terms with, a local partner for such purposes? Have the costs and time involved in doing that been factored into the overall project plan? Market research in advance will reveal the extent to which this needs to be considered in your expansion plans.
3 How do things work there?
In the UK, legislation and regulation is renowned for its breadth and detail. In developing markets, by comparison, the law may be less developed and therefore supplemented by (or in some cases varied by) the ‘common practice’. Equally, some laws may be in force, but not practically enforced. It can be hugely beneficial to have your UK lawyers source local counsel support and advice on such matters, so that a comprehensive understanding of all current and relevant applicable rules, regulations and current practices remains central to any expansion strategy, and indeed to future operations.
4 Can’t we just do things our way?
Often lacking familiarity with local law, many incoming companies will seek to have their commercial contracts
governed by English law and/or have disputes settled in and by English courts. It is true that, as a body of law and precedent, English law is globally recognised and renowned.
However, when it comes to enforcing commercial or corporate contracts in a jurisdiction other than the UK, the contractually agreed governing law and dispute resolution principles should be those most appropriate to enable the effective enforcement of the terms of the contract against an international counterparty. Bilateral and multilateral treaties exist between many countries, under which the enforceability of certain court judgments and arbitration rulings in the local jurisdiction can be assured. However, this can vary from country to country, and so is always worth checking on a case-by-case basis.