While it may be easy to run a business in your native country, the same cannot be said for overseas. Therefore, before packing your bags and dreams and heading abroad, there are a few things to consider prior to starting a business in a foreign country.
What Are The Perks?
You get to exploit opportunities in your target market overseas as well as explore the potential of an untapped market. Additionally, many countries offer lucrative tax incentives and grants to attract foreign direct investment. Most countries offer a better political stability, economic stability and an excellent business environment that may be lacking in a native country. It also helps in diversifying the risks by pooling resources into different markets and currencies. Therefore, in the case of risks associated with one country, the revenue from the overseas business remains safe. Lastly, you gain a global market share and can enhance the potential for global expansion.
What Should You Watch Out For?
You will be faced with an even bigger challenge of finding a target audience and creating a market plan, than in your country of origin. Other obstacles can come in the form of language disparity, cultural differences, market barriers, legal issues, government interference, and access to human resources & raw materials. Refer our previous blog on market entry strategy to know about the things to consider before entering a new market.
In this blog, we’ve focused on five popular destinations for foreign direct investment, i.e., Dubai, India, Singapore, Kenya and Hong Kong. You can refer the below table to gain a better insight into the five economies based on the World Bank 2017 report.
The Pros, Cons & Requirements of Setting up Your Business in Hong Kong
As a cosmopolitan city, Hong Kong offers access to a population of more than 7 million people and is the fifth fastest growing economy. It is one of the most liberal economies in the world when it comes to business, labour, trade, investment and finance. It offers offshore companies low tax rates and allows business owners to write off a great number of expenses against the corporates. Additionally, it has some of the biggest free trade zones and an excellent banking system. Based on different requirements, such as liabilities, expenses, capital requirements, taxation, compliances, etc. there are different types of companies you can register in Hong Kong.
Although a part of China, Hong Kong has a separate status as a Special Administrative Region. Hence, having a legal entity in Hong Kong does not entitle you to operate on the Chinese land as well. Furthermore, renting a place to stay can be a mess; there are no multiple listing services. Office space in Hong Kong is expensive. Also, remember the concept of ‘face’ can make or break a deal. It has a lot of importance in Hong Kong, where face, literally translates to honour. It takes about 4 – 7 days to register a company in Hong Kong. Know more about the requirements to start a company in Hong Kong.
The Pros, Cons & Requirements of Setting up Your Business in Singapore
It has a robust economy and a strategic location that is well connected internationally. It is one of the most transparent economies and free from red-tape corruption. Additionally, it offers an excellent infrastructure, flexible immigration policies and funding facilities. Choosing the type of business structure depends largely on your business needs. Know more about the types of business entities in Singapore. Being a part of entrepreneurial networking communities will be an added benefit. It offers an incorruptible legal system, making business arrangements much safer. Numerous boards such as SPRING, IE Singapore, IPOS and IDA offer funding to start a business in Singapore. Communication is not a problem as English is the widely spoken language.
It is important to note that hiring a local workforce can be a nightmare. As Singapore is known for its highly trained work force in the fields of biochemistry, finance, and engineering. Therefore, finding a local workforce in the non-lucrative sectors can be a problem when it comes to both money and pride. It has high foreign worker levies and quotas, which in a way discourage the influx of foreign workers. Renting land space in Singapore is expensive and may cost twice the amount of its neighbouring countries. Before starting a business in this city-state, it is advisable to know the basic requirements to start a business in Singapore.
The Pros, Cons & Requirements of Setting up Your Business in Dubai
A business hub of the Middle East, Dubai spoils entrepreneurs with endless options. Firstly, it offers a market of over 2.789 million and is an ideal gateway between the east and the west (located between Africa, Europe and Asia). It is also an import export hub of the region. 60% of Dubai’s GDP comes from trade, logistics, and tourism, which are the most profitable sectors. It houses 24 of the UAE’s free zones, i.e., areas that offer tax and duty benefits to expatriates. It has an excellent infrastructure when it comes to roads, airports, ports and telecommunications. Read more about the different business entities in Dubai and their benefits. There is no corporate tax, withholding tax, import/export duty, capital gains tax and VAT (except for Finance and oil sector that are subject to corporate tax). It has more than 66 double tax treaties with relevant jurisdictions.
It is important to note that where the Free Zones are a lucrative option, it is service specific, which can further be restrictive. Additionally, their activities are confined to the free zones, as they cannot carry out business activities outside this area. The local partner can claim 51% ownership to shares. Know more about the basic requirements to set up a business in Dubai.
The Pros, Cons & Requirements of Setting up Your Business in India
India is the fifth fastest growing economy in the world, over 7%. It allows for 100% foreign equity in most industries. Additionally, many sectors permit automated government approval, which allows for faster company formation. It is the third largest startup ecosystem in the world where more and more business friendly laws are being implemented. There is no dearth of the labour force and English as a spoken language in most areas. Rising middle class and higher disposable income make India an investor friendly destination. Know more about the types of companies in India.
However, there are still certain local and national regulations that slow down investment procedure. Higher tax rate and government regulations can act as barriers in setting up a business in India. Before deciding to invest in the country, it is important to know the requirements to start a business in India.
The Pros, Cons & Requirements of Setting up Your Business in Kenya
The Republic of Kenya has the largest GDP in East and Central Africa with the main contributors being agriculture and the service industry. It offers a multitude of material, natural and human resources. To encourage foreign direct investment imported plants and goods, machinery and raw materials have been exempted from duty and VAT. Nairobi, Mombasa, Malaba, Narok, Garissa, and Thika are the best cities of Kenya to do business in. Know more about the types of companies and requirements to start a business in Kenya. Due to Several Export Processing Zones, foreign companies dealing in export are exempt from corporate income tax, withholding tax, VAT, customs import duty and stamp duty.
Red Tape issues and violations of IP are still prevalent. Not to mention, that a large proportion of the population is still unskilled. Aviation, telecommunication, insurance, agriculture and listed companies restrict 100% foreign ownership.
While every location has advantages and provides lucrative opportunities, there are some downsides to consider as well. Hence, before spreading your wings abroad, issues such as affordability, feasibility, the cost of synergy, cultural differences, communication, currency exchange, tax codes, compliances, and exit strategies need to be addressed. The solution would be finding the right partners, hiring a great team, and keeping up-to-date with the labour and employment law, international trade compliances, corporate structures, intellectual property rights as well as exchange controls.
Lastly, the key to successfully establishing your business abroad is to have the capability of being consistent as well as adaptable and perform a deep dive due diligence before entering any market.