6 Hidden Costs of Doing Business Internationally

Featured image by Gerd Altmann from Pixabay

You’re ready to expand your business outside its home country. You believe doing business internationally is in the best interest of your shareholders, your employees, and your customers. You’re looking forward to years of rocket-ship growth.

There’s just one problem. You have no idea what doing business in multiple jurisdictions actually entails. And you worry that you’re underestimating the potential costs.

You could well be. Many formerly successful enterprises flounder after expanding internationally, whether because they moved too fast or didn’t account for critical differences in regulation, taxation, and business customs.

Before you make the leap to doing business internationally, consider the risks. These six hidden costs are all surmountable if you plan ahead.

1. Unauthorized Information Releases That Threaten Your Reputation and Revenue

You’re no doubt aware of the risk posed by sophisticated cyber threat actors. Hopefully, you’ve done well to prepare your organization—or at least to shore up your cyber defenses and make your enterprise a less attractive target.

You can’t reduce the risk down to zero, unfortunately. Despite the best efforts of those affected, we’ve seen countless examples of unauthorized information releases in the recent past. For example, there was the 2021 data release that resulted in the exposure of nearly 12 million private records held by fiduciary firms like Asiaciti Trust and Trident Trust, or the exposure of tens of millions of credit files held by Equifax and its affiliates.

Such incidents indirectly increase the costs of doing business internationally (or make it more difficult to bear existing costs) by damaging your reputation, drying up your revenue, and necessitating urgent remediation.

2. Differing Value-Added Tax Regimes

Value-added tax (VAT) varies widely between jurisdictions. It’s a lot to keep up with, especially for lean enterprises without in-house accounting teams.

Paying VAT is not difficult, of course. But you’ll want to have a plan to scale your ability to calculate it and manage downstream costs before you expand abroad. Indeed, VAT is one of the many reasons why it pays to expand slowly when you’re doing business internationally. So be sure to test the waters in one country at a time rather than expanding cross-continent all at once.

3. Double Taxation by Firms’ Home Jurisdictions

Think you’re immune to taxation in your home country simply because you earned income in another? This is often the case, but not always, and the penalties for noncompliance can be stiff. It’s best to pay the price—and accept higher costs of doing business internationally as a result.

You can minimize double-taxation by domiciling in jurisdictions with very low corporate tax rates. Whether you can entirely avoid it is another question entirely.

4. Uneven Employee Protection Regulations and Wage Laws

It’s no secret that wages are higher in some countries than in others. It’s why firms offshore production and clerical functions, and why countries may be regarded as more or less business-friendly.

Less well-known than the “wage delta” is the “protection delta.” Some countries, typically in the developed world, have strict employee protections that raise costs to hire and retain labor—and could make it more difficult to downsize too. It’s important that you know what you’re getting into before you expand to doing business internationally. Then budget accordingly.

5. Potentially Overwhelming Logistical Challenges and Costs

You know you’ll have to pay excise taxes and other fees to import and export goods abroad. But are you accounting for the associated logistical considerations that further add to the cost of moving product from one country to another?

Enterprises of all sizes outsource this work to third-party logistics providers that live and breathe shipping. However, that comes at a cost, one you might not realize you have to bear. Moreover, these costs can be a significant burden for anyone doing business internationally.

6. Different Corporate Cultures and Customs

There’s no single language or set of customs for doing business internationally. If you do business in different parts of the world, you’ll need to navigate a range of contexts, cultures, and customs. This raises costs upfront. You’ll need to invest in cultural education and perhaps local expertise if you want to engage in international commerce. Otherwise, cultural differences can have significant downside risks if you’re not up to the challenge.

It’s a Scary World out There

These aren’t the only hidden costs of doing business internationally. You’ll encounter many others as you work to diversify geographically.

Should you think twice about your plans to expand abroad?

If you’ve come to the end of this list with legitimate concerns about how your team will handle these issues, perhaps it’s time to take a pause and make sure you’re ready for what’s next. If you feel confident about the preparations you’ve made to date and the ones still to come, perhaps you’re ready to make your move to start doing business internationally.

One thing is certain. It’s a scary, uncertain world out there, and even the best-prepared enterprises don’t always succeed in unfamiliar markets. You simply have to do the best you can.

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