International Business describes all commercial transactions that occur between two or more businesses that operate in different countries.
If this sounds like a rather broad, general description, you’re right, it is. This general definition includes investments, sales, both private company and government transactions, and commercial transportation actions.
However, there are a number of “gotchas” for international companies that can cause dangerous detours in their march to success.
Corporate counsel should advise senior management about these pitfalls. However, sometimes they “forget” to do so.
To find out just what perils may be lying ahead we interviewed corporate law specialist and attorney Tim Moynahan. Here are some potential “gotchas” of which Moynahan warned us of.
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Five Potential International “Gotchas”
Engaging in international business and trade can be very lucrative, but you must avoid these “gotchas,” since they can cost your company dearly. Specifically, ask your corporate counsel about these issues. Hopefully, your company attorney will mention these without your prompting, but, as an owner or member of the senior management team, you must ask about these items to avoid the “gotchas.”
- You must abide by the Foreign Corrupt Practices Act (FCPA) Compliance Program. Your attorney can examine the concise guidance offered by the U.S. Department of Justice if he/she is not an expert. Ignorance of the Act is not a valid defense to avoid a compliance violation.
- Always remember that foreign legal systems may not be impartial or immune to political pressure when trying to resolve business or commercial disputes. Never assume a foreign country’s legal system works like it does in the U.S. Ask your lawyer for counsel about the integrity of the court system in the country in which you hope to do business.
- You need to thoroughly assess your risks with your international business operations. After so doing, you should create strategies and methods to minimize the risks you identify.
- Study and maximize your Currency Exchange program for buying and selling inventory. Using an international collection company can keep your transaction process operating efficiently.
- Choose your business location carefully for taxation, talent-pool, and cost reasons. Selecting the wrong location can inflict damage to your revenue, operations, and bottom line. Always keep your maximum strategic benefit at the top of your preferred list.
While these items are vital to your business success internationally, there are other considerations you also should address. When you want to maximize your revenue and bottom line with an active international business be sure to take the initiative to depend on your commitment, not on others’, e.g., your legal counsel. Sure, you want the best corporate attorney you can find, but, even if you find an outstanding one, you should not expect this lawyer to be perfect, no human has ever been.
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These international and trade issues can become “gotchas” if you’re not careful. Become knowledgeable about these items before you become an international business.
For example, the famous $1.26 billion award against PepsiCo in 2009. A Wisconsin state court made this judgment on behalf of two Wisconsin plaintiffs who alleged that Pepsi “stole” their trade secret to make “purified” bottled water. The reason for this huge judgment: PepsiCo neglected to name a registered agent in Wisconsin. “Gotcha.” A simple required task overlooked by the mega corporation cost them dearly.
- Registered agents: Retain a registered agent in the country(s) you plan to do business with. If you’re not planning on having a physical location in a foreign nation, the registered agent (typically, a law firm) will be your official “contact point” of acceptance of legal documentation, such as a notice of a lawsuit of which your company is a participant.
- The World Trade Organization (WTO): The WTO serves as the regulatory foundation for international trade. As the preeminent world trade negotiating forum, the WTO also is the number one “clearinghouse” for companies wanting global trade information and trade agreement management. It also functions as the prime arbiter for international business disputes. Becoming familiar with WTO functions and regulations brings a wealth of useful information to management of international businesses.
- International treaties and operating regulations: Depending on the countries you trade with, avoiding violations of negotiated treaties and/or business regulations can become “gotchas” without advice from your legal counsel. After becoming familiar with the treaties and regulations of those countries in which you want to do business, you should ask your lawyer any questions about these issues that are unclear.
- Become familiar with local foreign customs, cuisine, and culture in those countries in which you carry on trade or any business. While this admonition may, at first appear rather trivial, you will learn that these items become important to your company’s success over time. For example, making an innocent faux pas with your contact at a foreign company can escalate to affecting your business relationship and negatively impact your company’s bottom line. While not technically a legal issue, your attorney can offer advice that may help you avoid costly culture errors with international commercial relationships. Becoming familiar with customs and culture issues in foreign countries can mean better long-term business success with your company’s international operations.
As you are now aware, there are a number of significant issues that can become expensive “gotchas” if you are not familiar with the aforementioned items. Some promising international companies have waited for their attorneys to advise them to their dismay.
Wishing your lawyer had told you about potential “gotchas” before you violated a foreign nation’s laws and regulations is an “exercise in futility,” as, typically, the damage has already occurred. Do not believe that it is equally efficient to correct legal mistakes after they occur; it always is more expensive to fix (if correctable, at all) after the error has already been made.
To establish strong long-term business relationships with foreign companies and/or governments, conduct a thorough risk assessment of the potential legal “gotchas” before you launch international operations. Then ask your lawyer for advice on how to avoid legal and corporate behavioral problems before they present themselves. You will be happy you did and your success will reflect this thoughtful preplanning.