By Dan Harris
Just got back from teaching an International Law course at Indiana University’s Maurer School of Law in Bloomington, IN. I team taught this course with an experienced and excellent law professor, Professor Hannah Buxbaum. Professor Buxbaum is a powerhouse and I ended up learning a ton from both her and the students in the class. Teaching this class also forced me to re-examine many international law basics.
We used the brand new edition of Transnational Business Problems as the textbook for this course and — no exaggeration — this is probably the clearest written, most helpful law school textbook I’ve ever read. Professor Buxbaum is one of the authors of this truly superb book, along with Detlev Vagts, a professor of international law at Harvard Law School, Harold Koh, a professor of international law at Yale Law School, and William Dodge, a professor of international law at UC Davis.
This is the first in a series of posts I will be writing in the next few weeks setting out the things I garnered from this course that are relevant and helpful for companies that do business internationally.
Today’s post starts (as it should) with the basics of what a business should consider and/or do in pretty much any international transaction. The below five things are what will most likely determine whether your company succeeds or fails internationally. The below “rules” apply to a company looking to set up a business in Mexico, buy widgets from a company in Thailand, or license its technology to a company in Poland. The below rules are the basics of what you should consider or do before making your company makes an international move. These are the things that will likely determine your company’s success in just about any international business transaction. I have sought to list them in chronological order, but that order can vary depending on your company’s goals, the nature of the transaction, and the country, among other things.
1. Legal Viability. Is the transaction you want to do legal? I wrote about the importance of this for Forbes Magazine in an article entitled, Do This One Thing Before Doing Business In China:
Many years ago, an American credit reporting company called me seeking help with forming a subsidiary in China (a Wholly Foreign-Owed Entity). This company told me of their extensive and expensive market research demonstrating that China had a tremendous pent-up demand for their credit reporting services. As I listened, I kept thinking that unless the law had very recently changed, foreign companies were prohibited from engaging in such business without a Chinese joint venture partner.
So I asked politely if anyone had researched whether their planned business would be legal in China. They paused and said they had not. I then suggested that we do so straightaway. After about ten minutes of research, I reported back that credit reporting was barred to foreign entities seeking to go it alone in China. This company immediately abandoned its China plans, putting to waste its hundreds of thousands of dollars on market research.
Flash forward to the present. Organic, cruelty-free cosmetics have become big business, including in China, where many who can afford such things would not be caught dead putting made-in-China products on their skin. American cruelty-free cosmetic companies are being contacted in droves by Chinese companies wanting to import and distribute the American products.
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The point here is simple. Before conducting market research or flying across an ocean or drafting memoranda of understanding or engaging lawyers to form a foreign subsidiary, you should first determine whether your business plan is even legal.
Before committing a large amount of company money or employee time to a foreign venture, first make sure you can legally do it.
2. Business Viability. This one is obvious. Will this foreign venture make money? Just because XYZ is profitable in Country A does not mean it will be profitable in Country B.
3. Protect Your IP. Know what it takes to protect your intellectual property in all relevant countries before you reveal your IP to anyone. Know that whatever IP you have registered in your home country probably does not give you any IP protections outside your home country. Know also that in most countries it is relatively easy for someone to register “your” trademark and get to keep it because they were the first to file for it in that other country. See China Trademark Theft. It’s Baaaaaack in a Big Way as an example of what can go wrong in China (and in most other countries) when you fail to move quickly to register your IP.
4. Choose the Right Partner. Make sure the foreign company with which your company will be doing business actually exists and is licensed to do what you are planning to have it do. If it is not, the odds of your company losing a lot of money just went way up.
5. Use Good Contracts. Protect your company with good contracts and know that using a U.S. or an EU or contract for a deal in Vietnam or Indonesia or Colombia will almost invariably lead to disaster. A good contract is a contract written for the relevant country.
Now go forth and prosper.