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October 20, 2016
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With considerable fanfare, the first U.S. cruise ship to travel from Miami to Havana in 40 years arrived in Cuba on May 2. The ocean voyage signaled to many the start of a new era and endless opportunities for the American economy.

Not so fast.

While the event marked an important chapter in Cold War détente, it does not mean that Cuba and other international markets are as open and free as the media depicts.  In the Cuban example, outside of certain agricultural, electronics and medical products, significant restrictions still exist. There is a long way to go before Cuba is truly open for business.

Foreign countries represent both opportunities and perils for enterprising businesses.

But make no mistake; export markets have been a bright spot since the financial crisis, serving as a powerful engine for growth. Even though that engine has slowed somewhat with the U.S. exchange rate and a lessening global demand, many buyers overseas continue their preference for “Made in America.”

According to the Census Bureau, companies with more than 500 employees are still responsible for more than 70 percent of all exports. The biggest exporters in Pennsylvania are manufacturers of chemicals, fabricated metals, machinery and food.   But, with 95% of the world’s consumers living in foreign lands, federal and state governments want to make sure that smaller businesses get a bigger share of the pie.

But before you cast a line into foreign markets, keep these tips in mind:

1. Decide how deep your involvement should be.

There are three main ways to enter a foreign market and transact international business. You can make simple export sales where foreign buyers come to you in the United States.  Or, for a greater commitment, you can appoint a distributor or agent in a foreign country to solicit sales. Or, for the deepest involvement, you can open a branch office or a foreign subsidiary and hire local employees. Each has risks and rewards.

If you appoint a local distributor or agent, protective legislation often hinders your ability to extricate yourself from the relationship. The law in the host country might override your executive decision-making, and you might wind up with an agent or distributor for life unless you negotiate a costly severance.

And, without proper structuring, a branch or subsidiary may expose you to unexpected taxes or liabilities.

Research and planning are required regardless of how you go.

2. Decide how you will be paid.

When you sell to foreign customers thousands of miles away, a major risk is getting paid. Some ways to reduce your risk are to buy export credit insurance, require payment by a letter of credit, or break the payment down in phases and receive more money on the front end.

3. Check U.S. export controls.

You might need an export license to make the sale, particularly for a high-tech or defense-related product.  Check the regulations concerning your product and its destination.  Exports to some countries may require a license while exports to others may not. 

The U.S. government also keeps lists of persons and entities to whom you cannot ship. These restricted parties are published on the website of the Bureau of Industry and Security at the Department of Commerce.

4. Protect your trademark.

In the U.S., if you use a trademark on a product first, you automatically have rights to it.  But in most other countries, the trademark belongs to whomever registers it first. Be careful that no one beats you to the punch and then claims your trademark for themselves.

5. Know international contract laws.

International contracts are governed by U.S. laws, foreign laws, and a variety of international laws established by treaties, conventions and trade agreements.  Which law applies in any given case can determine whether you win or lose if there’s a dispute.

To avoid costly surprises, an international lawyer can help you before you enter into that contract.

6. Respect cultural differences.

The American way of doing business might not work in other lands. In many countries you must develop personal relationships first. You might need to “adapt and adopt” your product to local markets to be successful.  Often, the pace of business is different (usually much slower).  Patience is often a virtue.

In all countries, local custom must be understood to avoid giving offense.

7. Secure free U.S. and Pennsylvania government services.

The U.S. Department of Commerce and the Pennsylvania Office of International Business Development (OIBD) can provide a great deal of assistance.  For example, they have numerous overseas offices that can help you screen potential distributors and agents.

Pennsylvania’s “Regional Export Network,” which includes the World Trade Center of Harrisburg, works closely with the OIBD and its overseas offices.  They can help at all stages of your international transactions.    

The above cautionary tales should not discourage you. Doing your homework, and spending the time and effort to do it right, will make a world of difference.

Louis Dejoie chairs McNees Wallace & Nurick LLC’s International Law Practice Group and is a member of the Corporate and Tax and Intellectual property groups. He can be reached at 717-237-5387 or ldejoie@mcneeslaw.com