Growing for survival

A brief guide for corporate international expansion

Manrique Blen is a lawyer by profession, specialized in Tax. He currently serves as Auxadi’s Director for Central America and is directly responsible for the operation in Panama, Costa Rica, Nicaragua, El Salvador, Honduras and Guatemala.

He supervises on a daily basis an international team that provides business process outsourcing (BPO) services to clients in several countries.

Growing up is often the only way for survival. It is no coincidence that the most globally successful companies live a culture obsessed with innovation, expansion, and unexplored horizons. Nor is it surprising that the biggest corporate implosions in history correspond to teams paralysed by their own historical success.

Corporate expansion into new territories is an adventure, from commercial to cultural; and as in any adventure there are always elements that are replicated.

The main item to consider is the interdisciplinarity of a project of this nature, a marriage between the legal, accounting, labour, fiscal, technological, and commercial aspects. From day one, any company that decides to dip its feet into unknown territories must have this technical marriage, to later avoid leaks of energy, time, and money.

What is the fiscal impact of the legal entity to be used? How to transfer capital into the new company? How is the company going to reward its employees? How to integrate financial reports?

If any of these fundamental questions were answered only through a single technical prism and not a holistic interdisciplinary vision, internationalization will start uphill at the most basic level.

"We’re not in Kansas anymore."

No less important in this process is to recognize that we are facing a new and probably unknown country (known only theoretically or conceptually). Every region is a different world, in regulation, culture, rhythms and processes. Copying/pasting the Head Office structures without considering the requirements and reality of the country to which it is expanding, tends to generate unnecessary friction. Translating the global into the local is an artform and indispensably requires practical knowledge and a comprehensive vision.

But balance is needed, as it is inefficient to create islands as part of an internationalization process. What is done locally must generate some type of visibility at the corporate level, both commercially and to ensuring that the legal and fiscal requirements are met in a timely manner. Otherwise, they will not be expanding a business, but rather taking a leap of faith.

"Death and taxes"

It is also no surprise that the taxation has a priority place in this adventure. Everything, or almost everything in this life, has a fiscal impact. Understanding, implementing, and complying with local tax requirements is a full-time job.

From understanding Transfer Pricing regulations, CRS/FATCA, going through the mechanism for invoicing, tax returns, the need for a local representative to file taxes, the methodology for paying taxes, withholdings for the payroll, etc. Not having answers for these questions beforehand, generates problems disproportionate to the time that should have been dedicated preventing them.

Finally, one must take into consideration the cultural aspect of the endeavour. Teams, regardless of their location, must always align around core values and a central vision, but it is necessary to save some space for local flavour and identity. This will help not only reduce turnover, but also make the most of the diversity that a global structure offers.

The same happens when deadlines and relation with government entities, as efficiency is not always the order of the day and what in one country takes hours, in another it will take months. Having clarity in advance on these realities, saves many headaches in the execution.

Lack of action is also a decision, but it is one that puts the weight of the future on the shoulders of fate. The correct approach is, knowing the reality and the challenges of internationalization, to plan and act accordingly, and always take advantage of the experience of those who have already travelled the path.

By: Manrique Blen.