International Expansion – Have you thought of everything?

Posted on: October 26th, 2018

For any home-grown UK business, the decision to expand internationally displays a particular level of confidence in one’s own domestic success. But expansion into a new and perhaps untested market is not a decision to be taken lightly.

From the inside looking out, it is easy to understand how businesses might think they are ready for a new international market. They can see there is clear customer demand, and the business looks financially stable to absorb the opportunity costs of such a new venture.

But even the most financially assured, commercially-astute businesses can come unstuck in new and unfamiliar markets, if they haven’t done a lot of research and preparation.

Returning to the UK market after 15 years living and working in the Middle East, I have noticed many changes. From anti-corruption and anti-bribery regulations, to the new GDPR regime, the regulatory burden that UK-based companies face today seems ever-increasing. Yet it is often the regulatory regimes in international markets for incoming foreign investors and businesses, that can cause expansion plans to become delayed and 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. Know your market – many developing international markets (and the Middle East is a good example) currently impose restrictions on the level of permitted inward foreign ownership and investment. This may mean 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. Sourcing, and agreeing terms with a local partner for such purposes, is often a transaction stage that hasn’t been factored into the overall project timetable or cost. Market research in advance will reveal the extent to which this needs to be considered in expansion plans.

2. Know your geography – it was always surprising to me the number of clients who regarded the “Middle East” as a single jurisdiction. Although countries that neighbour each other may have similar rules and regulations, there will always be variances between them. 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.

3. Know the practices – 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. Governing law and enforcement – often lacking familiarity with local law, many in-coming 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.

 

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