To assist local technology companies who are looking to expand globally, we have set out a list of key questions we often get asked when our clients are looking to enter a new jurisdiction, whether it be by purchasing a business overseas or through organic growth.
The following information is intended to stimulate your initial thoughts, not be a substitute for local advice.
How should your business be structured to enter a new jurisdiction?
- Your business model and tax and asset protection considerations, together with local regulations, will dictate what is the best structure. You need to get proper advice at the outset, but for most jurisdictions, the structuring work is a well-worn path.
- For developing countries, you may need a partner depending on the rules in the jurisdiction you are targeting and your commercial plans may also require a local partner – that will significantly increase the strategic risk so you may need to slow things down to get it right.
- You will most likely need to give thought to what intermediary countries you enter a jurisdiction through for the best tax outcome.
What are the key risks to watch out for?
- Reducing uncertainty in your proposed business in a new jurisdiction as much as possible is key in our experience. Working through local intermediaries and advisors is one of the best ways to do that.
- Government approvals should be managed with particular care. Tax, employee and FPCA compliance measures should also be a key planning focus. Local economic and political factors may have a material bearing on your approach. Understand how this might be the case from the outset.
- Local consumer protection laws should be understood if applicable to you. Consumer preferences, customs and norms of doing business may also require you to amend your plans.
- Options for partnering should be considered in detail – distribution agreements, partnership or shareholder agreements, licence agreements and other similar arrangements should be well considered.
- Putting in place the right global IT infrastructure and a procurement plan for other essential support in-country will be crucial.
- Communication and cultural sensitivities should be a key focus. The approach to negotiations, the enforceability of a contract and the management of a partnership may also be fundamentally different – be prepared for that.
What are the key legal regulations likely to impact on your business that you should understand?
- Competition, consumer, employment, migration, data protection, environment, occupational health and safety, importation and duties, intellectual property, superannuation, real estate and tax laws may all have a material impact on your business.
- Local currency regulations and the business effect of foreign exchange issues may also be relevant to consider.
- If you need to incorporate a subsidiary locally, you will need to understand the obligations of directors and companies law.
- Your particular business sector is also likely to have specific regulations that you should understand from the outset.
How can you quickly understand key issues in a new market?
- Identify key individuals to work with as local advisors and intermediaries. If such persons are not available to you internally, we can recommend suitable people who could be advisors, former regulators, retired executives or key industry participants.
- Ask your advisors what is unique about the local approach to regulation and determine if face to face meetings with regulators are appropriate.
- Interview potential customers and partners – we can provide assistance with this if necessary.
- Understand from your existing customers their views on the target market.
- Assess recent local and international M&A and inbound investment activity – we can provide further information on this.
- Understand from your advisors existing public policy debates and potential policy changes to law that may impact on your proposed business model.
What are the key steps necessary to protect your intellectual property?
- Assess IP risk from the outset.
- Ensure adequate registration of all relevant trademarks, business names, URLs, designs and patents.
- Design robust protections for copyright, confidential information and trade secrets.
How should your key employment management and retention strategies be tailored?
- Understand local labour laws and migration laws at the outset.
- You should understand the likely influence of any workplace unions on your business.
- Understand the local approach to non-compete covenants, earn outs and taxing of incentive schemes.
- Understand the pension arrangements necessary for employees.
- International companies often need to comply with local law to make offers of equity including options, performance units or RSUs – so be prepared for this.
What is required to prepare for talent mobility?
- Your global secondment model for talent should be tailored to reflect migration and tax regulations of the jurisdiction you are focusing on.
- You will most likely require visas for any transferring employees and this should be an early focus, to ensure you can move quickly when the need arises.
How can your M&M strategy be tailored for new jurisdictions?
- Determine the implications of local foreign investment, government approval and competition law regulation and processes at the outset.
- Is the target jurisdiction a corruption red zone? Your due diligence will need to focus on this if so and particularly on how this may impact on maintainable earnings.
- The approach to financial reporting varies between jurisdictions, so be on watch during any due diligence.
- Is data protection regulated in the country you are targeting to the standards required by your business elsewhere?
- If you are considering a regulated takeover, there are likely to be differences in duties of a bidder and its directors – understand them from the outset.
- There are also likely to be significant local variances required for distressed company acquisitions so be prepared if that is your focus.
What are other key tasks to address at the outset?
- You will need to get local help to establish in-country bank accounts, overdraft facilities and cash management and reporting procedures – the set up process can be time consuming.
- Payroll – it can be more difficult than you think.
- Real estate leases can be time consuming – act early.
- Your insurance coverage will need to be extended.
Further information is available via www.dlapiper.com
This is a guest post by Joel Cox who is a senior associate at global business law firm, DLA Piper, and specialises in all aspects of fundraising law and M&A transactions for technology companies and investors.