Opening a new office outside of the United States requires a keen understanding of market conditions, local regulations and cultural nuances.
U.S. companies are often drawn to English-speaking countries when opening their first international office. But locating an office in the UK or Ireland, for example, does not make sense if your customers are primarily in Germany or France. The following best practices will help you develop a strategic framework for thinking about where and when to establish a physical presence outside the U.S.
1. Follow Your Customers
The number one mantra for U.S. companies thinking about opening an office overseas is: Go where your customers are. While this may seem self-evident, a common mistake U.S. companies often make is choosing the wrong location.
“Generally speaking, you want to follow your customers and your partners," says Patrick Dine, CEO of PSD Global, an international consulting firm based in Fairfax, Virginia. “First, you need partners to help you enter the market, and later you might need to open an office to service your customers."
—Leetal Gruper, CEO, Emeraldo Technologies Ltd.
Even if you have an established customer base in a particular country, it's important to fully understand the commitment you are making with a physical presence. “For example, if you open an office in France, it's virtually impossible to let those people go later," says Dine. “It's much better to shut down the whole office than to let one person be terminated. So, you want to really think things through before you take that step."
2. Choose the Right Location
Making the wrong choice can be time-consuming and expensive. Leetal Gruper, CEO of Emeraldo Technologies Ltd., an Israel-based company that specializes in international hiring, says one of her company's clients is currently in the process of re-locating from Switzerland to the United Kingdom.
The mid-size, U.S.-based data analytics company initially located its European headquarters in Switzerland. But after struggling to recruit employees for more than a year, the company realized they needed to reevaluate their decision. “Upon further research, they decided to open another local office outside London," says Gruper. “Seeing the benefits of talent availability, lower cost and great connectivity to anywhere in Europe and the U.S., they are now in the process of closing down the Swiss office and moving everything over to the U.K."
Dine thinks it makes sense to choose a location in a metropolitan area with name recognition, such as Paris or London. But, he adds, “You can often get a prestigious address, but locate your main office in the less expensive part of town."
Another consideration is locating near the support services you need. For instance, if your office is also a regional base, it might be helpful to be close to a major airport or rail station.
Location also is an important factor for both customer convenience and employee staffing. Reducing commute times and access to public transportation can help with recruitment and retention.
3. Understand the Local Culture
Another best practice when deciding where to open a new overseas outpost is cultural awareness. Regardless of where your international office is located, it will require the ability to understand and support your local employees.
When hiring in another country, it's important to set expectations, such as carefully defining the metrics and key performance indicators that will be used to measure an employee's productivity. That means educating your international employees about the way your company operates.
One way to help ensure that international employees understand your corporate culture is to staff your office with a mix of locals and expatriates. “Relocating a few employees will help bring over the unique culture and values of the business—which is a key part of your ability to grow—and help breakdown inter-office barriers," says Gruper.
Often the right person for managing an international office is a foreign national who is fluent in the local language, business environment and customs. But some companies prefer to put an American expatriate in charge. “The American management style can be a very good and effective one as long as it's clearly communicated to the other people what that management style entails, and what you expect," says Dine.
In fact, good communication is one of the keys to success when expanding into new global markets. Since 2014, the Boston-based RAIN Group has opened offices in Geneva, London, Mumbai, Sydney, Johannesburg, Toronto and Bogota. The consulting firm actually hired a full-time manager to coordinate communications.
“Everyone told us that international expansion, especially people, requires 10 times more communication and collaboration than you think they'll need," says Mike Schultz, president of the RAIN Group. “So, we hired someone full-time at a leadership level to devote that time, and focus on their success. It was a good investment."
4. Crunch the Numbers
The cost of opening an office will depend on factors such as location, industry sector and build-out requirements. There are also additional considerations, such as fees and taxes, that will vary by market. It's important to consider total costs, including both labor and infrastructure. “Getting really good legal and accounting advice is absolutely key so that you know what that your real commitment number is," says Dine.
In fact, total market entry costs can skyrocket once you include so-called soft costs. “In Germany, Brazil and France, you have a lot of social benefit costs like health care for employees," notes Dine. “If you hire a staff member in Germany, for example, you have to pay for their healthcare. But if you hire that same person in Switzerland, you may have to pay them a higher salary, but they have to pay their own healthcare."
When trying to project labor costs, particularly in Europe, Dine suggests taking what you pay in the U.S. as a base salary, and adding a minimum of 25 percent to cover additional costs.
Of course, doing your homework is essential. “We often see businesses not planning ahead and just 'going with the flow,'" says Gruper. “Taking the time to plan ahead can pay dividends in the future."
