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Entering the international market

The newest business unit at 3B advises Hungarian companies entering the international market and foreign companies entering Hungary. 3B strives to provide customised solutions to its clients in every area, including those clients taking the plunge into international waters. Our team of specialists is unlike any other consulting team in Hungary: our specialists grew up and lived in the target countries before joining 3B. The head of the team lived in the US for 29 years, and, focusing first on his family, then on his career, he spent time in 8 different regions of the U.S. while studying and working in business development. This means that when making plans, he can look beyond ‘fashionable’ targets, and consider the economic rules and opportunities to identify business areas with real potential. His network includes decision-makers and policy-makers in the local business sector, which guarantees objective and successful support for market entry. Due to the special capabilities of the 3B team, our specialists have unique knowledge about expansion in the U.S., Western Europe, North America, and South America, which is a real competitive advantage.

Four Rules for an American Expansion

The United States Military requires its officers to move to a new location every few years. Because my father was an Army Officer, my family and I moved from Utah to Texas, then to California, then Washington D.C., then back to California, then Washington State, and finally to East Texas, all before I turned 14.

This constant relocation gave me a holistic, yet nuanced perspective of the United States that few Americans possess. This perspective served me well during my education and early career, but it has proven invaluable when advising clients about expanding their businesses to the US. When a client comes to me to discuss an American expansion, I always discuss a few rules that I learned during my three decades in the ‘the Land of Opportunity’.

RULE 1

Think of the United States as a continent like Europe, not as a country

Business owners want to expand to the US because of its huge economy. In terms of GDP, California’s $2.46 trillion economy is comparable to France’s $2.42 trillion economy. Likewise, Texas’s $1.59 trillion is similar to Canada’s $1.55 trillion.  New York’s $1.44 trillion bests South Korea’s $1.38 trillion, and Florida’s $883 billion edges Indonesia’s $859 billion. Though each of these states flies the American flag, their cultural, commercial, and political differences are as large as their economies.

Take California and Texas: these states could not be further from each other in terms of their business climates. Namely, Texas’s and California’s respective approaches to economic development are on the opposite ends of the spectrum. California’s laws are some of the most restrictive for businesses due to their strong protections for employees, the environment, and the consumer. Texas’s laws, on the other hand, are much kinder to businesses at the expense of everybody but the business owner. California is also one of the few states with both a capital gains tax and a state income tax, whereas Texas has neither. Texas’s governors use these advantages and additional tax incentives to seduce major Californian companies to move their operations to Texas.

The disparities between California and Texas are also apparent in the world of politics. In the 2016 Presidential Election, California went for Clinton by 30 percentage points, and Texas went for Trump by 9 percentage points. California’s reputation as a liberal stronghold and Texas’s reputation as a bastion of conservatism tends to attract extremists on both sides. My parents are moderate Republicans, so they were considered quite conservative in California. In Texas, on the other hand, they were not conservative enough: our Catholic family was far too moderate for the Bible-thumping Evangelical Christians, whose beliefs controlled many aspects of daily life. Take alcohol, for example: the sale of alcohol was illegal in our East Texas city, including the surrounding county (a total area of 2,460 km2). In California, on the other hand, marijuana became legal on January 1, 2018, so any adult can walk into a dispensary, show their government-issued ID, and take marijuana home in a paper bag. Indeed, it is easier to buy marijuana in California than it is to buy alcohol in parts of Texas.

So, when a client tells me they want to expand to the United States, it is comparable to hearing, ‘I want to expand to the EU’. No, the language barriers are mostly non-existent (more on that in Rule 4), and the states do not have the rich shared histories of Europe, but the fact of the matter is that the different states have very distinct cultural, political, and business norms that drastically affect everyday life, and therefore affect expansion strategy.

RULE 2

50 States means 50 different sets of laws, and you need help exploiting them

 

Have you ever heard of Delaware? If you are not from the United States, then the answer is probably no. Most Americans only remember it from American History class, and East Coasters know it as that state that takes about 20 minutes to drive across during the trip from Washington D.C. to New York City. The state’s population is less than one million, so even though it is not home to any major sports teams, it is the legal home to more than half of the Fortune 500 companies.

 

Federal law allows companies to choose to be governed and taxed by the laws of any state, no matter where that company actually does business. If companies can choose to incorporate in any state, then why do many of the biggest ones choose Delaware? To answer this question, Delaware’s proponents point to its business-focused legislative, judicial, and administrative infrastructure. Their legislators are proactive in keeping their business laws updated, their judiciary has dedicated courts to settle corporate legal matters efficiently, and the bureaucracy is also well-funded and efficient. Delaware’s critics, on the other hand, see it as little more than a tax haven. They argue that Delaware has won ‘the race to the bottom’ by promulgating a set of laws that favours businesses founders and allows them to avoid hefty taxes in other states. By winning this race, they are effectively stealing taxes that should be paid to the states where the businesses actually operate.

 

Both sides are absolutely right. Delaware is objectively one of the best states for incorporation for larger companies that can take advantage of its legal and tax flexibility. For that reason, Delaware expects to take in $992.6 million in franchise taxes for Fiscal Year 2018. So, no matter how you feel about the race, Delaware has clearly cemented its status in the American business landscape. For this reason, law and accounting students across the country study Delaware law, businessmen learn to exploit Delaware law, and good consultants advise their clients about Delaware law. As a business owner, you obviously do not need to know the laws of any of the states, you just need someone on your side that can help you exploit them.

RULE 3

Focus on what politicians actually do, not what they say (especially when it comes to President Trump)

 

It is almost impossible to discuss America in 2018 without discussing President Trump. Love him or hate him, Trump attracts more attention than any other person on this planet. His Twitter account, which is full of praise for himself and attacks on his political opponents, generates much of this attention. News organisations cannot help themselves; each tweet of his seems to spawn countless articles about the ramifications of his most recent 140-character missive. In reality, his tweets and the resulting articles are usually worthless from a business perspective. In fact, most of what Trump writes and what is written about him is worthless from a business point of view. While much of the focus is on Trump’s tweets, his lesser-known actions have had huge impacts on the business environment throughout the United States and abroad.

On Monday, January 22, 2018, President Trump imposed a 30% tariff on foreign solar equipment. This move was widely viewed as a thinly-veiled attack on China, which manufactures more than two-thirds of the world’s solar panels. China’s critics, including Trump, accuse the nation of stifling international competition via unfair trade practices, such as huge government subsidies to boost the production of panels. These critics point to the closure of over a dozen US-based solar panel manufacturers in recent years as proof of the nefarious effects of these unfair practices. Trump’s critics, on the other hand, argue that these tariffs will destroy American jobs, raise electricity costs, and hurt the environment. Moreover, many ambivalent observers worry that these tariffs may start a trade war with China, which would have devastating impacts on the world economy. Trump never mentioned any of this on his Twitter. Instead, he chose to tweet about hot-button issues like immigration and an FBI scandal involving missing text messages.

Determining which political issues are important from a business perspective often requires ignoring the politicians themselves. To separate the wheat from the chaff, I focus my research on publications that take deep dives into policy, deal with hard data, and perform analyses of actual legislation (not just what politicians say about the legislation). Therefore, I advise all my clients to avoid President Trump’s Twitter and the resulting clickbait articles, unless they are looking for a distraction.

RULE 4

Make sure your employees have communication skills, not just English certifications

The way Americans refer to Coca-Cola can tell you a lot about the variety of American English. In most of the country, a Coca-Cola is simply referred to as a ‘soda’. When we moved to Washington State, I learned that the most common term for a soda there is a ‘pop’. Things got a bit weirder in East Texas: every soda and soft drink is referred to as a ‘coke’. Yes, it is perfectly normal for a waitress to ask, ‘What kind of coke do you want?’ and for someone to respond with, ‘I’ll have a Sprite, please’ without missing a beat. Because Florida has so many Latin-American immigrants, you might even need to order ‘una Coca’ at authentic restaurants.

American English is a patchwork and we are accustomed to various regional and international dialects. European business owners often make the mistake of overestimating the language requirements needed to do business in the US. Yes, if you would like to open a business in the US, it is obviously preferable if you speak English. Being able to communicate at a high level with current and future business partners is essential. One mistake people make, however, is assuming that they are the ones that must communicate directly. It is quite common for businesspeople to travel with translators and conduct their business with the help of a representative.

The problem is that many business owners do not properly vet their representatives, instead relying mostly on language certifications. I have met English-certified salespeople who had trouble getting through relatively basic conversations. Their trips to the United States were not successful, unsurprisingly. To clarify, I do not judge these people – their English abilities far exceeded my Hungarian skills – but these people were not doing their bosses any favours.

Your employees need to have strong communication skills if they will represent your company on the international stage. Their ability to effectively communicate in English will be seen as a reflection of your company’s abilities, whether or not that is fair. The best salespeople can convince people to sign contracts, act decisively, and make deals.  Some of the best communicators I have met did not have much formal English education, they simply have universal interpersonal skills that translate into every situation. Those people make great salesman, and you should test your employees for their actual communication abilities, not their English certifications.

Conclusion

American schoolchildren learn that the United States is a ‘melting pot’. We like to imagine that when people with different cultural, commercial, political, and religious beliefs are stirred together, an American identity emerges. The older we get, however, the more we realise that things are not so simple. In reality, Americans do not always mix as well as we were led to believe. Instead of a smooth, unified mixture, there are a lot of lumps and hardened bubbles. Thus, you have to acknowledge these diverse, entrenched cultures if you are expanding to the United States. Do not let them take you by surprise, otherwise the melting pot may burn you.

kevin-vermillion_international-development-director

Kevin Vermillion

is an international expansion specialist. He attended the University of Texas School of Law and is a licensed attorney. His areas of expertise are corporate law, energy, and healthcare.

 

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