Thinking about doing business internationally?
Kansas Global Trade Services reports that companies who export their products grow faster and pay higher wages compared to those who do business only domestically. However, there is a reason fewer than 1% of the companies in the U.S. conduct international trade. Doing business across borders comes with added complexities. Every country has different laws and local practices that vary based on the nature of your business.
This article will highlight a few key points to consider before engaging in international business. But most importantly, if you are considering or have already decided to go international, you should engage experts to assist you in this endeavor. Lawyers and other professionals are often members of global associations which can give local clients access to the help and expertise they need when crossing borders, so ask around.
CONTRACTING: READ MORE THAN JUST THE FINE PRINT Many companies first dip their toe in the water by acquiring goods abroad. Contract terms that seem routine here must be scrutinized in the international context.
When does title or risk of loss pass from the seller to you as the buyer? When the goods leave the port on a cargo ship? When the ship arrives in the U.S. port? Or when the goods arrive at the buyer’s facility? This distinction is critical for several reasons, including insurance and customs.
How can you evaluate the goods in production to ensure they’re being produced to your requirements? Employee safety and other protections that we sometimes take for granted may not be in place in other countries. Your customers care that their products are being made in a safe environment.
These questions must be addressed in the contract. Likewise, if you are selling goods internationally, when does title and risk of loss passto your buyer? This is important for taxes as well as risk assessment. Do you have to insure the items only to the U.S. port, or until they arrive at your buyer’s doorstep? Think through the goods’ complete journey, so that you can adequately determine who bears the risks and how to insure. What if the ship is delayed or cargo is held up in port? How will that affect your business?
GOVERNING LAW AND DISPUTE RESOLUTIONAnother key point of international transactions: Whose law governs? You likely want U.S. law to apply, unless there is some good reason for it not to apply (typically based on a clear understanding of the foreign law and effects on your business).
A related issue is the venue to resolve disputes. Your business partner in Shanghai likely has no more interest in coming to Topeka than you do in going there if a dispute arises. Parties often agree to international arbitration provisions in a mutually agreeable location, which may not be favorable to any one party.