Startup pitfalls to avoid when expanding overseas
So you’re a young Silicon Valley startup with big ambitions, and you want to conquer the world through overseas expansion. What do you need to know?
The global growth experts at U.K.-based Radius say they’ve helped a couple hundred companies grow overseas, including Tesla Motors Inc. Radius reduces the risks of expanding abroad by setting up foreign entities for clients and providing them with accounting, bookkeeping, payments, payroll and banking services.
“We join up the operations that are on the outer edge of their operation,” said Radius CEO Chris Stone. “And that’s what the radius does – the radius joins the center to the perimeter of the circle.”
He sat down with the Silicon Valley Business Journal to talk about the nerve-jangling surprises of opening entities in foreign countries.
More than half of Radius’ business is with Silicon Valley companies, such as South San Francisco-based SuccessFactors, which it helped establish its first overseas office. SAP bought the software-as-a-service company for $3.4 billion in 2011 and is gradually taking over the work from Radius, Stone said.
Radius maintains channel relationships for obtaining clients through partnerships with accounting and law firms. Silicon Valley Bank and San Leandro-based human –resources services company TriNet also introduce Radius to potential clients because some of the projects are below a cost-effective level for other companies.
Angela Swartz, @SVBizAngela, and Leia Parker, @SVBizLeia
FIVE THINGS THAT CAN WREAK HAVOC ON A COMPANY MOVING OVERSEAS, WHEN DONE WRONG
1. Permanent establishment, and Tesla showrooms in Europe
Companies may not be aware of country-specific triggers determining when they have set up a “permanent establishment” in the country. Permanent establishment is a fixed place of business, which generally gives rise to income or liability for value-added tax in a particular jurisdiction
For example, Tesla was nearly tripped up with this permanent establishment issue because – although it wasn’t going to be selling its electric cars for years – it was setting up distribution centers in the United Kingdom, Norway and France. The decision was a “really smart marketing move – expensive, but smart,” said Stone, who owns a Tesla in the U.K.
2. Cumbersome setup costs, and cosmetic surgery in Brazil
Some companies run into trouble when they want to expand into countries where it’s expensive and cumbersome to establish offices, like Brazil. Radius helped a Silicon Valley company that makes medical devices for cosmetic surgery land new opportunities in Brazil, which is a leader in that market.
Radius recommended a workaround that saved costs without violating any Brazilian laws: Operate by employing someone in Miami and flying the employee – with the correct visa – to and from Miami to Brazil for a year, since it was easier and cheaper than trying to set up an establishment in Brazil.
3. Visa – don’t leave home without the right one
Radius’ Global Mobility team in San Jose helps “opportunity-driven companies troubleshoot problems when they’ve bent the rules on visas, Stone said.
“People do play fast and loose with visas, and you have to be very careful of that,” he said. “They’ll say, ‘OK, we’ll send somebody down there. If it’s the wrong visa, you can create bigger long-term problems for the company.”
4. Should I stay or should I go? In Italy, some employees get to decide on payouts
In Italy, Radius helped a client that bought a “reasonably large business” there, Stone said.
A year later, this entire senior management team decided to leave the company, which was required to pay all of them as if it had made them redundant, “because it’s the employees’ choice whether or not they want to stay with an acquirer.”
5. Dotting the i’s in India: Workers’ councils
India now requires employers with more than 10 employees to create a sort of workers’ council. Radius ensures those councils exist for its clients, that they meet and that minutes are taken at the meetings, Stone said.