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Architecture and Engineering Firms Consider Business Abroad
The desire for American quality and design in construction projects is providing more opportunities for American architecture and engineering firms on overseas projects. This is particularly true in larger cities in China and India where U.S. firms may be able to better compete for high-profile projects than they could on similar projects at home.
While these opportunities sound to some like an obvious call to action, setting up a practice and working on projects outside the United States is fundamentally different and much more complex than operating stateside.
Many questions need to be asked and answered early in the planning stages. Thorough research and discussions might address some of the following issues:
- What is the host government’s attitude toward and commitment to foreign investment?
- Is English the common language?
- Are there unique cultural and work style issues?
- How accessible and expensive will trained labor be?
- Could political instability create risk for your investment?
- How is the United States viewed in the country or region?
- Are there unique safety issues that need to be addressed (e.g., diseases, typhoons, and access to medicines or adequate health care)?
- Will you be doing business in the foreign country currency, and is that currency stable?
- What sorts of corruption might you run into in your business dealings?
Even in Europe, where sharing a common language is more likely and culture may be more familiar, there are often differences in accounting, tax year-ends, professional licensing, and regulatory requirements that can be surprising and complex. Opportunities abroad may look attractive from a distance, but doing your research is essential if you are to objectively evaluate the business potential.
Performing due diligence, securing sufficient financial resources, and engaging competent professional advisors are the obvious and critical elements of developing an effective international business plan. In addition, full support from firm leadership and management is critical to the success of the business operations outside the United States. Labor and staffing issues, business relationships, and developing a realistic budget will also demand significant research. The overall endeavor will be time consuming, expensive, and very likely frustrating for many across the firm. Ideally, it will also be profitable.
Labor and staffing issues
Every firm has a unique culture and identity that they work hard to develop. Often, when a firm opens a new office domestically, it transfers existing staff to the new office to help intentionally imprint the culture on the new office. When a firm investigates doing business abroad, it must decide whether to send existing U.S. staff to the foreign office or hire U.S. trained foreign nationals. And it must consider how the personnel dynamics in foreign office will be affected by those staffing decisions. If a firm decides to relocate state-side personnel, another set of issues must be addressed:
- What are the immigration and visa requirements or restrictions?
- What are the employment and tax reporting requirements for the firm and for the American staff in the foreign jurisdiction?
- Is a foreign assignment benefits package necessary?
Leveraging relationships in the local market and developing new business are important issues to address before a firm opens an office in a different country. It may seem obvious, but leadership has to ask themselves the most basic questions:
- Who do we know in the country we want to work in?
- Do we have trusted business relationships?
- How long will it take to develop those relationships with both public and private business leaders?
Engaging competent outside advisors
For any firm to succeed financially, effectively expand, mitigate risk, and comply with regulatory reporting, management must find competent legal, insurance, business consulting, accounting, and tax advisors. This is especially true when operating outside our borders where the law, business risks, and reporting are unfamiliar.
A good place to start identifying knowledgeable and effective foreign advisors is coordinating with your advisors at home, who may have existing working relationships abroad. Other domestic firms may also offer recommendations. In addition to seeking out foreign advisors that are knowledgeable both technically and from an architectural and engineering perspective, look for advisors that are responsive and practical in their approach. Though we take these qualities for granted in the United States, other cultures may value formality, personal connections, or even flattery. In some cultures, our rigid, task-oriented business approach appears rude.
Don’t underestimate the cost of establishing a foreign operation. In addition, to the direct and indirect costs of foreign operations and staff, consider that fees for foreign professional advisors, domestic advisor coordination, and regulatory filings and reports are not always required for an operational expansion at home. More important than the costs you can see will be the significant amount of unexpected expenses.
If your leadership is satisfied with how the firm has answered the many questions raised by the prospect of doing business abroad, there is another set of questions to grapple with:
- Can we effectively work on international projects from our offices in the United States as an interim step?
- How should we structure our international business operations in the foreign jurisdiction?
Our next article will address some of the tax and financial implications of those issues once the firm has decided to move forward with its business abroad.