September 17, 2021

7 things to know about doing business internationally

There are a number of factors to consider when doing business internationally. If you are wondering how to do business internationally, you must ask yourself some questions first.

How do I want to structure my business?

There are many different business structures to consider, each with its own benefits and drawbacks. The most important thing to consider is how much money you are making. Figure out what you want to do, then choose a structure that will get you there.

If you are just starting out, an LLC or corporation may be best because of the limited liability it offers. If you have enough money to hire people, an S-corp is a good option because it has lower administrative costs than a C-corp. You can be your own boss but still have the benefits of being a corporation.

If you have enough money to pay yourself a salary and cover all of your expenses without taking on debt, then an LLC or Sole Proprietor may be the way to go. But if your business is growing and will need financing, or if there is a possibility that you might not meet your financial obligations, then a C-corp or S-corp may be right for you (these apply to US businesses specifically).

What kind of partnership agreement should I make?

Businesspeople are often so eager to get moving on a deal that they overlook one of the most important decisions they’ll ever make: what kind of partnership agreement to make?

You can have two kinds of agreements. One is an informal partnership. You are partners with the owner of the business, and if either of you moves on, the other one gets to take over the whole thing.

The other kind is a formal partnership. It is like a limited-liability corporation (LLC) or a corporation without stockholders; it has its own legal personality; you can buy and sell shares in it; and if you move on,  your shares don’t go to your heirs but are offered for sale.

Will I require a letter of credit?

When you are doing business abroad, one of the first things you will need to do is arrange payment. This is easier to do if your customer does not have a bank account in the same country as you. 

Most banks will refuse to issue letters of credit for payments made to accounts in other countries.

The exception is when you are dealing with an international company that does business all over the world. 

Such companies may be able to provide you with a letter of credit that states that they will be liable for making the payment required by your contract.

A letter of credit requires you to present your claim on funds in the issuing bank’s local currency. You will need someone who understands how letters of credit work and can advise on whether this would suit your needs.

Will my payments be made in U.S. dollars or foreign currency?

If you’re doing business internationally from the U.S., , you’ll need to decide whether your payments will be made in U.S. dollars or foreign currency. 

There can be several advantages and disadvantages to both approaches, so it’s a good idea to thoroughly examine the situation before deciding which method is best for your business.

One main advantage of making all payments in U.S. dollars is that you only have to account for one currency exchange rate on monetary transactions. 

This is significant if your company does business in more than one country, especially if those countries use different currencies. 

Using the same currency for all transactions simplifies recordkeeping, reduces accounting errors and can make bookkeeping easier. However, there are also some disadvantages of using U.S. dollars in international trade.

If you use U.S. dollars, you also need enough cash on hand to cover your expenses when they occur, whether that is in the United States or overseas. This may require that your company maintain a large amount of liquid assets in U.S.-dollar-denominated assets on hand at all times, which could have an impact on the efficiency of your company’s cash management system and overall liquidity needs.

What price will I sell my products and services for globally?

For example, if you are selling electronics, you probably want to have them be just as cheap in Brazil, Mexico, Saudi Arabia, Germany, China, Japan and the United States.

As you expand internationally, it’s important to realize that price isn’t the only thing people are paying attention to. For example, they may want something that is inexpensive but they also want it to be prestigious. They want everyone to know that they paid a lot for their product or service. This means that some of your competitors may be able to charge more than you do while still selling more units.

When entering international markets for the first time you can find yourself at a disadvantage because of things like cultural differences. You need to be respectful of cultural differences when entering new markets. Do some research on how people in different countries perceive things like quality, service and the value of your product or service.

Will I need to negotiate new agreements with manufacturers and distributors and what type of contract(s) will I use? 

If you are planning to expand your business internationally, you must first determine if your product will be successful in the new country. If the answer is yes, you must begin to negotiate new agreements with manufacturers and distributors. It is important to know what types of contracts you will use.

Once you have analyzed your market and decided that the product you are selling will be successful, then it is time to go ahead with negotiations. 

The first step would be to contact a legal firm in the foreign country or a law firm specializing in international trade. They will give you advice on what type of contract(s) will need to be drawn up for each area of operation.

One of the most important factors in determining what type of contract(s) will be needed is whether or not you are dealing with a foreign government. 

Government contracts are usually awarded through an open bidding process, which requires a different process for negotiating and drafting contracts than private sector agreements.

Do I need to register my trademarks, copyrights, patents and/or licensing agreements with the countries in which I do business? 

You may need to register your trademarks, copyrights, patents and/or licensing agreements in the countries in which you do business. 

The majority of countries require an application to be made by a local representative. Some territories also require the filing of a Declaration of Use or Excusable Nonuse.

You should ensure that your applications are filed correctly in order to avoid future difficulties in defending your rights in the country.

You should also consider seeking advice from a local attorney before filing, especially if you are dealing with “gray market” products or entering into licensing agreements for products that are protected by foreign patents or trademarks that are registered but not licensed in your home territory. 

They may be able to help you negotiate with the owner of the rights so that they agree to grant you a non-exclusive license.