Ever considered opening a business abroad? It might be the perfect strategy to gain a competitive edge. Learn how to choose a country based on solid economic data, important foreign business set-up steps, and which countries make for great investments.
The Biggest Benefits of Opening a Business in a Foreign Country
Most people stick to opening a business in their local area because it’s close and seems like the safer options since they know the region. It’s true that there are many advantages to keeping things close to home – but there are big disadvantages too. The US corporate tax rate used to be one of the highest in the world, now it ranks more along the upper middle. Even so, there are still plenty of countries with more favorable corporate tax rates.
The other big benefit of opening a business in another country is the potential new market segments that open up. A product that might not sell well in the US could do much better under other markets, and seasonal demand is another factor to consider.
Understanding the benefits of opening up a business in another country is one thing, but actually doing it is entirely another. Here are some important economic aspects to consider when moving one’s business to another country.
Choosing a Country: Look at These Economic Indicators
There are various factors that influence a country’s economy, and these can have far-reaching impacts on any business owner. Before setting up shop in another country, it’s important to take a look at certain economic indicators that predict where that economy stands.
High inflation rates and interest rate hikes, for instance, can put a big dent in sales and profit. It’s thus vital that business owners do thorough research before investing their money into a business in another country.
These are the three most important (but not only) indicators to monitor:
Gross Domestic Product
A country’s GDP represents the total combined monetary value of goods and services produced within that country. It serves as an overall look at the health and size of a country’s economic wealth and is a good indicator of future growth. Generally, a country with a growing GDP and low inflation rates creates a favorable environment for startups and growing businesses.
Employment indicators consist of four main indicators, all of which work to illustrate the employment statistics of a country’s citizens. Higher employment rates in thriving industries indicate wealthier citizens. These workers then have more disposable income to spend on goods and services in the country, which in turn also affects the GDP.
Consumer Price Index
The CPI measures monthly changes in the weighted average of a group of goods or services purchased by households. Any changes in the CPI directly highlight changes in the average cost of living in a country. This indicator is used to determine inflation and the effectiveness of government policies regarding the private sector.
Business owners should also keep tabs on other indicators and economic influences, like the purchasing managers’ indexes (PMI). It’s a good idea to keep an eye on the country’s central bank as well. They make and change policies that could heavily affect companies in that country.
Tips For Getting a Business Started in Another Country
The process of starting a business isn’t the same everywhere, and some industries may require rules and measures that others don’t. Technology has added a lot of convenience to opening a business in another country. It’s much easier to research a country’s regulations and laws and to get to grips with the economic status of a country’s private sector.
This is why it’s so important that any (new or established) business owner who’s looking to expand to another country does their homework thoroughly. However, there are a few general set-up practices that overlap, regardless of the country or industry.
Here’s what’s important to keep in mind:
– Get a thorough overview of business practices within the industry the business resides in.
– If needed, work with a lawyer to come to grips with all the legal implications related to opening a business in that country. Make sure to include laws pertaining to the business’s specific niche.
– Do research on local customs and the social structure. Be on the lookout for anything that might affect sales or PR and adjust strategies accordingly.
– Observe the country’s political climate and be on the lookout for any civil unrest that could destabilize the market or foreign businesses within certain areas.
The Top 3 Countries to Invest in Right Now
Not only does Norway have a favorable annual GDP growth rate (2018 saw 1.4%, for example), but the country’s residents are generally wealthy. This creates a supportive structure for growing businesses to succeed. Moreover, Norway has a very stable political climate and minimal corruption. The Norwegian government has also made it incredibly easy for a business to get set up online, and the corporate tax system is clear-cut.
Singapore has attracted a lot of foreign investment thanks to its free trade agreements and lack of a capital gains tax. This country’s annual GDP growth rate is at an excellent 3.1% (2018), making it a solid investment. Plus, the citizens of Singapore are generally wealthy (it’s one of the wealthiest countries in the world), equating to a lot of disposable income.
China (Hong Kong)
China, specifically Hong Kong, is still a hugely promising place to invest in, despite the recent democratic protests’ influence on the market. The region’s economy is doing extremely well (annual GDP of 3.0% in 2018), and business is booming. Like Singapore, it has a free market economy that invites foreign investment and rewards foreign business owners.
That said, businesses that need stable communication with Western websites and networks will need to use a VPN when doing business in Hong Kong. China’s great firewall prohibits connections to the outside, and thus international businesses legally use VPNs to bypass those restrictions.
Starting a business in another country is hard and takes patience, but the payoff is well worth the effort. It broadens your outlook and opens your business up to new markets and new opportunities. However, any business owner who’s looking to expand to a new country should do thorough research first and choose a country that fits their goals.