A large portion of the expat population around the world is made up of employees on foreign assignments and retirees or pensioners. Families and international students also make up a considerable percentage of the global expat population. However, entrepreneurs are also quite a large group. For example, according to one estimate, in the United Kingdom there are more than 450,000 businesses that have been set up by expats, employing over a million people in the country.There are good reasons why certain countries in particular have large numbers of expat entrepreneurs. There are many advantages to starting a small business in a foreign country, and even beyond the business aspect of it, life as an expat entrepreneur has many rewards. However, there are of course numerous challenges too, and many of these are unique to small businesses. In many ways, small businesses are relatively easy to start, and many countries today have systems and a business climate that are simplified and entrepreneur-friendly, encouraging expat entrepreneurs to come in and set up shop. However, the relative lack of funding and institutional support, the solitary nature of a small business, as well as various rules and regulations do present challenges for small entrepreneurs.
Here are ten of the major challenges of running a small business abroad.
Getting a visa
Exactly how difficult it is to get a visa will depend on where you are from and where you want to start your business. Many countries actively encourage small entrepreneurs and make it easier for them to get visas, especially in sectors related to technology. However, countries like the United States and Australia have particularly stringent requirements and long processing times for visas for people from all except a handful of other countries. On the other hand, movement within the European Union is relatively easy, and yet is not without its own challenges.
Visas continue to be a problem for entrepreneurs even after their businesses get off the ground, because they usually need to be renewed annually. Even in Hong Kong, one of the best places in the world for expat entrepreneurs, visa renewal can be quite a painful process. Fortunately, many countries automatically renew visas as long as certain requirements are met.
Managing funding and finances
Getting together the initial funds to start a business and managing the business’ finances over the long term are important and challenging aspects of any business, but these challenges take on new dimensions when running a small business in a foreign country. Many expat businesses are formed in order to take advantage of low costs in a foreign country, but there are usually additional expenses and risks that need to be accounted for. Getting investors, bringing funds into the company, and many other financial aspects of the business tend to get more complicated, and it’s important for entrepreneurs to develop an understanding of this.
To some extent, this also ties back to the matter of visas – many countries set up financial barriers to foreign entrepreneurs entering the country, and small businesses are most affected by these requirements. Entrepreneurs should also be aware of funding options from the government – both their own government back home and the government in their targeted business location. For a variety of reasons, governments offer grants and loans to small businesses, and these can be extremely useful to expat entrepreneurs.
Navigating the local bureaucracy
This is a challenge that many expat entrepreneurs are not used to facing. Long lines, unhelpful officials, slow progress, a lack of clear information, and widespread corruption are some of the most common issues that small business owners need to grapple with. Often, there is also a lack of consistency, with different officials providing different and seemingly arbitrary information on requirements and procedures, requiring multiple visits to government offices in order to get things done. Sometimes this is an indication that a bribe is expected, but at other times, this is simply the result of a general lack of consistency and standardization. In some countries, personal connections and relationships are also crucial in order to get any work done.
Learning the local language
It is always advisable for an expat to attain a certain level of comfort with the local language in order to get the most out of their experience, but for expat entrepreneurs, this is absolutely essential. The more fluent you are in the local language, the more efficiently you will be able to run your business. Knowing the local language is a huge advantage when dealing with the kind of bureaucracy we were just discussing – even if government officials are able to speak English or your native tongue, they will usually be more helpful and forthcoming if you are able to speak their language.
The same applies to almost every other situation, whether dealing with clients, partners, employees, or anyone else. Fortunately, this is one challenge that expats can easily overcome – learning the language is something you can should do on your own, well in advance of actually starting your business. The more fluent you are, the more effectively you will be able to communicate with locals and get things done.
Dealing with cultural differences
Learning the language is a great way to learn about the local culture, which it is important to understand if you want to run a successful business. However, language will only take you so far, and a much wider cultural awareness is necessary if you want to forge relationships and expand your network. In particular, an understanding of the country’s business culture is necessary. This includes business etiquette – things such as greeting people at meetings, the format that a lunch meeting follows, whether and what kind of gifts are commonly exchanged, and so on.
You will also need to understand local attitudes to the work week, the work day, and work-life balance – for example, this is drastically different in France and Hong Kong. You should also be aware of employee turnover rates at various levels and roles. For example, while it is cheap and easy to find junior staff in some countries, the turnover is very high, which makes it difficult to develop a stable, skilled, and experienced workforce. Another problem that many expat entrepreneurs grapple with is the reluctance to say no in certain cultures, even if one has no intention of complying with a request.
Understanding the local market
This is an obvious necessity for any business – you can’t expect to be successful if you don’t understand your market. Unfortunately, too many expat entrepreneurs make assumptions about what their target market wants, and begin their businesses with unrealistically positive expectations.
Find out about whether the local market really has a need that your proposed product or service can fulfill, and whether an outsider like you will be able to fulfill that need successfully. If you plan to target the local expat population, thoroughly consider the viability of that too. Also find out about competitors, regulations, trends, running costs, profits, and challenges including local infrastructure to support your business. A considerable investment in terms of time, effort, and money should be made on understanding your market.
Overcoming a lack of business experience
Many expat entrepreneurs, especially those starting small businesses, are first-time entrepreneurs. They may have experience in the industry, and they may even have worked in the country for several years; however, for many, it’s the first time they’re actually striking out on their own. This isn’t a devastating weakness, but it does put them at a disadvantage and can sometimes be dangerous. Running your first business is difficult enough in your own country; doing so in a foreign country is considerably tougher.
However, not all expats have the time, inclination, or luxury to get some entrepreneurial experience in their own countries before trying their hand abroad. Besides, the entire point of their proposed business, and the reason why it is viable at all, is doing it in the location that they have chosen. As a result, this is often a challenge that needs to be overcome by focusing on other areas.
Accessing reliable and useful information
Expat entrepreneurs often struggle to obtain information on various aspects of running a business in their proposed location. They lack the personal networks, the connections with business organizations, and the familiarity with local government services to find out what needs to be done and how. This affects things across the spectrum, from investment to government regulations to the day-to-day running of the business.
It is particularly important to be aware of local regulations and stick to them. These include rules relating to foreign investment and partner shares (you may need a local partner to be the majority stakeholder in your business), reporting and accountability, permissions and licenses, employees’ wages and benefits, and of course taxes. If you have outside investors, they will usually provide you with plenty of useful information. However, if not, you should be connecting with other local startups and expat entrepreneurs in order to find out how things work.
Dealing with local infrastructure
The quality of local infrastructure can pose one of the biggest challenges in the day-to-day running of a small expat business. In many of the countries that are attractive to expat entrepreneurs because of low running costs and a low cost of living, infrastructure is still developing and may be quite poor.
Goods may be delayed due to problems with transport, communications may be disrupted due to problems with internet connectivity and phone lines, and shortages of electricity and water may completely disrupt the running of your business on a regular basis. For many modern small businesses, internet connectivity in particular is crucial, and issues in this area can make it extremely difficult to function. It is important to be prepared for such issues, and to plan for them to the extent possible – either accommodate the delays and downtime or make your own arrangements.
Managing your taxes
Managing taxes is extremely important for any expat entrepreneur, both personally and as a business, and can also be extremely confusing. For example, the legal structure of a business should be defined after considering what is best from a tax perspective, and personal taxes must be planned keeping in mind local tax laws as well as the tax laws back home. Small businesses usually have modest profits, and so it is particularly important to not lose a substantial part of your profits to taxation. Keeping track of all of this on your own can be incredibly difficult, and the best thing to do is to hire a local tax consultant, preferably someone who is familiar with expat businesses and with the tax laws of your home country.
What did you find most challenging about running a business abroad? Let us know in the comments.