Opportunities And Pitfalls Of Expanding Your Small Business Internationally

By Joseph Ram of InfoSonics

Consumers in the United States are among the most demanding, discriminating, and unforgiving customers in the world. They expect superior quality and performance, often regardless of price. And, when they don’t get it, they tend to rush to social media to tell everyone about it. Negative reviews for products and services outweigh positive reviews – for the most part – as customers tend to want to share their negative experience more than they would a neutral or even positive experience.

 

joseph Opportunities And Pitfalls Of Expanding Your Small Business Internationally

Joseph Ram
(Photo courtesy of Joseph Ram)

 

Consumers in Latin American countries, on the other hand, are still migrating from older technologies like 2G and feature phones to the world of smpartphones and 4G LTE connectivity, and are not nearly as difficult and high maintenance. As a result, expanding your business to these international markets can provide attractive opportunities for growth and profitability where you might not have considered growth before. Doing so, however, is not for the faint of heart, and requires a significant amount of planning and understanding of the cultures and inherent risks.

Here are some words of advice and warnings that I have learned over the past 20 years of doing business in Latin America:

 

Relationships And Partnerships Are Essential

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Whatever your product or how you intend to distribute or sell it, find a local business partner who knows the market, has connections and can guide you on how to best execute your strategy. Remember, you are a foreigner, and you need local help. This is especially true if you don’t speak Spanish or Portuguese, because you will have to rely on an interpreter, who may or may not be interpreting correctly.

 

Don’t Establish A Local “Presence” Until You Have A Compelling Reason To Do So

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In the beginning, be careful to not establish a tax “presence” in a country by incorporating a subsidiary there, hiring employees or buying real estate. You will wind up with “unintended” tax consequences. It is easier to work with consultants through consulting agreements that are terminable on short notice and avoid running afoul of local employee severance laws.

 

Price Your Products In U.S. Dollars If Possible

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Many of the economies in Latin America are relatively unstable and local currencies commonly depreciate over time against the U.S. dollar. Pricing products in local currencies exposes you to currency fluctuations, not to mention accounting complications.

 

Be Cautious When Extending Credit

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It is very difficult to get financial information from local companies, as you don’t have the luxury of calling D&B for a credit report. Do sufficient diligence before extending credit, and only do business on a cash-in-advance basis until you are comfortable.

 

You Cannot Be The “Importer Of Record”

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If you do not have physical or legal “presence” in a foreign country, you cannot be the importer of record into that country. As a result, you must sell and ship your product under terms that require the buyer to be the importer of record. Become familiar with the “Incoterms”rules (International Commercial Terms) that are a series of pre-defined commercial terms published by the International Chamber of Commerce and are widely used in International procurement and sales transactions.

 

Be Conscious Of Cultural And Socio-Economic Differences

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Be sure to research competing products in the local market as part of your initial planning. Be conscious of the cultural and economic differences which are likely to influence the packaging, marketing and pricing of your products. For example, our data has shown that in lower end products segments, consumers in Latin America appreciate bright colors and need collateral material such as bilingual packaging, user manuals, etc. printed in their native language.

 

Remember, This Is Uncharted Territory – Professionally Speaking

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Lastly, a word of caution. Many of the rules and laws we are used to in the U.S. do not apply in Latin American countries, and similar laws may be non-existent. Most business is done without familiar legal documents, and even if you have one, the other party may ignore the requirements. Corruption is pervasive in many areas, and kickbacks are unfortunately commonplace. In addition, there are many countries where unscrupulous buyers import goods without paying duties or VAT taxes, which give them an unfair advantage over businesses who act lawfully.

 

Joseph Ram is the Founder, President and CEO of InfoSonics (NASDAQ: IFON), one of the premier providers of affordable wireless handsets and accessories (sold under the verykool® brand) serving the United States, Latin America. His foresight in responding to ever-changing market conditions in the wireless industry has enabled him to lead the company in capitalizing on many different opportunities in the marketplace.

The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.

 

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