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Introduction
International expansion is undoubtedly an essential event for any business that opens up new opportunities. The companys revenue is expected to increase due to the running of new markets significantly. Besides, it is an opportunity to expand ones services or products depending on new market requirements. However, it poses many difficulties, dangers, and issues that must be identified before entering a foreign market. After identification, accordingly, it is necessary to develop strategies for their solution. The purpose of the work is to highlight two important legal problems that a company may face under international expansion.
Legal Problems Under International Expansion
The first problem that a business owner may face before entering a foreign market is determining the degree of transition. For example, if a company manufactures cars and decides to enter a foreign market, it has several options. The first option is exclusively the export of finished products, thus, the transportation of assembled cars. However, depending on the country, it may not be beneficial due to the high cost of customs clearance. In this case, the company may transport the car components to the country and assemble them there. However, it will be necessary to invest money in the construction of a plant in the target state. Finally, the company may invest in the construction of a component manufacturing plant and a plant where cars will be assembled. Thereby, the full cycle of the vehicle building occurs in the target country.
In this regard, the legal problem arises in the variety and inaccuracy of legislation in some states. It can be difficult for one to determine which of these options will be more profitable for the company. Thus, in some countries, it will be profitable to establish factories for the production and assembly of cars in order to sell finished products there. In other states, it will be more profitable to export finished cars and sell them there. Thereby, it is necessary to carefully analyze the legal framework of the country and determine the appropriate option based on the results.
The second problem is similar, thus, it is also based on a variety of options, however, it has different components. There are several options for the structure of an organization in another country, such as branch, joint venture, distributor, representation office, or commercial agent. Each of these options has its advantages and downsides and its risks. For example, in the case of a commercial agent, the company will need to pay a percentage of the profits, which in some cases may not be profitable. With the joint venture option, interest is paid, however, it is necessary to take into account the legislative principles of the enterprise. If a company needs to test the profitability of an expansion, a sales agent along with a representative office would be more appropriate. If a companys goal is to duplicate products in a country, then one should establish an autonomous branch.
Conclusion
To conclude, the expansion of business abroad is a profitable event and a positive aspect in the context of business development. However, it is necessary to take into account a number of risks and points so that the expansion does not lead to a rollback. Among the important factors, it is necessary to decide the degree of export of products, and to determine the structure of the organization, depending on the legislation of the country. Finally, it is necessary to analyze such aspects as possible investment restrictions, cultural factors, and the economic characteristics of the country.
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