Not so fast! A Quick Look at US Expansion Challenges for UK-based Businesses

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Nov 12, 2018 UK Sam Barnes

Growing UK businesses are quick to eye expansion to the United States. It’s famously referred to as “The Land of Opportunity”  – and for good reason. Boasting a population of over 300 million and a world-leading GDP of $20 trillion (nearly 70% higher than China), the country is highly industrialised, a top importer and exporter and known for its entrepreneurially friendly climate and broad support for innovation.

With no real language barrier and generally manageable time zones, companies see it almost “UK-like” – and an obvious first locale when planning international growth. While it’s certainly ripe with potential, companies underestimate the complexity of crossing the pond at their peril.

The first challenge is hiding in plain sight. The giveaway? The United States of America. While federally managed in many respects, the country is far from homogenous. It’s comprised of fifty states, often fiercely independent, and each with its own tax, compliance and regulatory mandates for businesses. With an existing political ethos pushing back on big government, it is expected that federal, state and even city specific compliance and regulatory issues will diverge. This reality is the most challenging for unsuspecting companies – you don’t simply ‘expand to the US’, in general.

The implications of this are wide. Companies should research states with favorable tax rates, minimally intrusive regulations and a legal system conducive to small businesses. Moreover, if a company intends to land in a specific US state and sell products or services into subsequent US states, then additional registration and withholdings may be required. Many companies initially register in Delaware, a destination for foreigners made popular by flexible business law, no state corporate income tax for companies not operating there and favorable treatment of companies with complex capitalisation structures or with shares owned by non-Delaware residents. But just because it’s popular, doesn’t make it right for everyone. Companies need thoughtful consideration of where to establish an entity, alongside where to register the company depending on where goods and services will be sold. Don’t do a quick Google search and assume one or more popular states are right for your setup.

While paying tax is certainly a universal requirement, for those unfamiliar with conducting business in the US, understanding tax types and rates levied nationally and on a state and city basis will be initially challenging. Each tax type will require new forms and employers must quickly become familiar with generically labeled forms like 940, 1040, W-2 and W-4, for example. These are nuanced, and specific to the employee or personnel type. Companies can’t expect foreign finance teams to navigate these, or intuit other requirements like applying for local business licenses. Business licensing is common in the US and isn’t reserved for niche industries like in the UK.

More challenging still is that establishment is just a first step! Companies then need to consider who and how to hire. Will UK-residents be sent abroad, if so, do they have the correct Visas or foreign worker authorisation?  If the company is assigning workers for a short period, are the terms of their secondment agreeable to the employee and their dependents? Perhaps the company intends to hire contractors or find exempt employees directly in the US. If so, it will need to weigh the growing options for employing individuals abroad. These may include a third-party employment organisation, or hiring through a newly-established US entity. In either scenario, UK companies will wrestle with mandatory benefits for US workers and the unfamiliar dynamic of “employment at will”.

Of course, not all challenges are regulatory. Despite the Western kinship and economic and political alliances, cultural differences between the UK and US are surprisingly pronounced. I recently spoke on this with Jem Skelding, the founder of Naissance, a global healthy living product marketplace. Jem’s team ventured into US expansion, building on a strong growth track record in the UK, Germany, France, Italy and Spain. He offered sage advice regarding one overlooked cultural reality:

Customers want and expect to hear a different type of message in the US. In the UK, what a product is and does, what’s in it and what certifications it has, are important. In the US, customers want to hear the company’s story and be told why its products are best and how the products are going to transform their lives. Extolling the virtues of a company like this, in the UK, would be seen as brash and “blowing their own trumpet”. But if a US salesperson doesn’t do this, they’re seen as quiet and reserved.

Jem also noted how the US government and supporting business agencies are less “prescriptive” in terms of guiding foreign companies on how to do business. Their support of expanding companies may be genuine, but they’ll often take direction from the business. Agencies are willing to use their resources, networks and commercial contacts, but if the foreign company doesn’t know exactly what it is looking for, it may not get the hand-holding or guidance it expects.

Despite the country likeness, companies need to carefully consider basic operating model assumptions. In the UK, for example, the recently privatised Royal Mail is the ubiquitous shipping and delivery service for merchants. The US equivalent, the US Postal Service, is not nearly as universally used. For many US businesses, leveraging supporting marketplace infrastructure and services from companies like Amazon and eBay, has reduced the need for establishing a shipping company relationship.

Aware or not, too many companies see the US as just a “big version” of the UK. It is simply not. With a dynamic more akin to Europe than a single country, the US offers great opportunity but challenges must be managed to tap them. Truly, every expansion – no matter how geographically, politically or economically aligned the target country is –  demands thoughtful preparation. As my colleague recommends in our recent article, “How Your Peers Can Help Power Expansion Success , it is wise to first seek advice from your professional network if you are thinking of taking your business to the United States.

Of course, the UK-based team at Blueback Global would also be pleased to discuss your dream of expanding your business “across the pond”.  You can reach us at [email protected]

 

 

 

 

 

 

 

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