Case Studies in International Expansion: Lessons Learned

By Anne Samak de la Cerda

Once a company decides to “go international” we CFOs often get tasked with making this happen. My international experience has encompassed roles working with US-centric companies looking to expand into international markets as well as European companies seeking to penetrate the U.S. market. In both circumstances, I have seen first-hand how management often underestimates the complexities that lie behind such a decision.

CFOs are in a unique position to provide leadership around this key strategic pivot point. They need to be the independent voice in the C-suite, carefully examining the business case for moving in this direction. And while going international may make sense from a story-telling perspective, chasing after an international footprint may be a bad idea for some businesses. As a CFO, you are both a key stakeholder and in the best position to evaluate the true viability of going international. Are there significant economies of scale to be harvested, such as the case of a U.S. company where the domestic market is large? Do the U.S. company’s unit economics look the same in a more complex European market? What about for a European company expanding into the U.S. market once their product needs to scale?

Based on my experience, here are five key considerations for companies considering international expansion:

• Making the Decision to “Go International”
• The Decision to Open Foreign Territories and Subsidiaries
• When to Move Your Headquarters to an International Location
• Equity Incentives: Domestic vs. Foreign
• The Importance of Corporate Culture and Communication

Making the Decision to Go International: Tread Carefully

Of the many lessons I have learned when assisting companies expand internationally is one key lesson: it is far easier to execute an international expansion than undoing this decision after the fact. Consequently, it’s imperative to avoid rushing into this decision lightly. This even includes making what might seem smaller, less consequential decisions. For example, take your time before opening that new territory subsidiary or allowing that valuable home-country employee to relocate to another country just because you as CFO can make that happen. There may be unforeseen consequences, so make sure you have solid data to support that decision.

When and How to Open Subsidiaries in Foreign Territories

The decision about when and where to open subsidiaries in foreign territories should also be made very carefully. Creating a new legal structure may be relatively easy in some countries, but there is no guarantee that your company will be successful in that new market. And while it mostly always makes sense to open a subsidiary in key strategic and larger markets like the U.S. or the U.K., the viability of smaller markets (e.g., Canada, Spain) needs to be more carefully evaluated. Each country’s costs/benefits need to be analyzed individually. Germany might look like an attractive market on paper, but you need to beware of local in-country regulations. For example, if you need to close your German subsidiary later, be prepared for a costly and lengthy process (yes, much worse than even France).

Hire In-Country Accounting, Legal, Tax Expertise

Adding foreign subsidiaries also has span of control, headcount, and cost implications. Remember that by creating a legal presence in the new territory, you’ve essentially multiplied the number of jurisdictions in which your finance team needs your company to comply. You’ll need local tax advisors, local CPAs, local legal and employment counsel to help you navigate local compliance. There’s no way your internal finance team can handle that internally! Your team will also need to access financials for all entities and maintain a set of consolidated entity financials.

Build Out Your FP&A Infrastructure

As the CFO, you will also need to build a solid cross-entity FP&A infrastructure as early as possible. I have seen countless cases of inconsistent charts of accounts and accounting software across countries/entities (sometimes due to M&A) that essentially renders the work of any finance professional inefficient and potentially inaccurate. Untangling financial reporting due to a poor financial infrastructure, especially in the case of a growing company with multiple millions in revenue is a very painful process.

Establish a Transfer Pricing Policy

Once you have made the decision to add a subsidiary in a foreign market, you will need a transfer pricing policy from day one. This policy should be regularly audited and refreshed as the business continues to evolve.

When to Move a Company Headquarters Internationally

Another CEO-posed question I have encountered in my role as CFO is “Should we move our headquarters?” If you are running a European company, you will have to set up a U.S. subsidiary before you can hire even your very first U.S.-based employee. The alternative is to “flip,” where the company is based and set up your headquarters in the U.S. There are multiple considerations in choosing this path; however, a key one being tax-related: watch out for transfer price regulation around the company’s IP and take the time to get some solid tax and legal advice to help weigh the pros and cons of this decision.

One of the key motivators about moving a headquarters to the U.S. that I’ve heard from founders of non-U.S. based companies is the greater ability to raise capital with U.S. investors. They sometimes assume that U.S. based venture capital firms are not able to invest in international companies due to their LP Agreements. But in my experience, I have found that in the vast majority of cases this isn’t a real roadblock for VCs. Fundraising is about creating a large enough pipeline of suitable investors for the funding round to come together. Investors are savvy enough to find solutions for themselves if they’re convinced about the value potential of their investment (otherwise they are probably just making excuses about your proposed offering). An experienced CFO will help their CEO triage and build a pipeline of solid investors regardless of the company’s headquarters location and legal structure.

Changing a company’s headquarters from one location to another should only be pursued if you have a very explicit reason for doing this. In current market conditions, investors are looking at M&A exits more than at IPOs for returns. So, U.S. corporations with large amounts of cash locked outside of the U.S. are making European startups an even sweeter deal for acquisition for tax reasons. These companies might therefore consider flipping their headquarters to an offshore location to save on taxes. However, you will need to weigh all the costs as well as tax and other benefits before making this strategic decision.

Equity Incentive Plans: Domestic vs. Foreign Considerations

Another CEO question I frequently encounter when pursuing international expansions is “How do I make sure my equity incentive plans roll-out effectively to employees outside of our headquarters territory?”

Even if you use a PEO (Professional Employer Organization) to manage your payroll and benefits (which can be extremely complex in some markets like in the U.S.), you’ll still need to think about how to evolve your equity plan when going international. For example, European start-ups expanding to the U.S. should bear in mind that prospective U.S. employees will expect to receive stock options and will be more sophisticated in the questions they will ask you about your equity plan.

Remember, each country has its own norms, laws, and tax incentives that your company will need to understand to remain a competitive employer. Don’t expect your U.S. ISO and NSO plan to translate easily into U.K. EMI or CSOP, not to mention your French BSPCE into German phantom shares. In Europe there are no standard rules that govern how to distribute share options to employees. A company operating across, say, 7 large E.U. markets has to understand and navigate at least as many different sets of legal regulations. Finding legal counsel that can help you across multiple jurisdictions like this is rare. You’ll need to do your own research and likely hire separate and distinct legal advisors.

I will share my words of wisdom here as an internationally experienced CFO. When setting up an equity plan in a new market, it’s best to stick to one employee options pool with multiple country-specific equity plans underneath. Trying to have similar vesting mechanisms, cliff periods, etc., will help with your internal communications to employees, but there will always be local implications and tax treatments. Further, by having one options pool, your exit waterfall and cap table structure will be simplified, which is always a good idea when engaging with new potential investors.

Also, while you don’t necessarily need to have an in-country legal entity to be able to grant equity, your plan participants will likely have different tax treatments if you don’t, as most local tax-incentives are reserved for locally based entities. If you don’t set up a local legal entity, while your offer may still be better than offering no equity at all to new plan participants it’s imperative to communicate with these team members that their tax treatment might not be equivalent to their colleagues in other markets.

Maintaining Your Corporate Culture Across an International Scope

A last consideration when going international is a key one: “How will I retain my company’s corporate culture when expanding internationally?”

While you might not consider this question core to the CFO role (perhaps unless the People & Talent team reports to Finance), I couldn’t write an article about international expansion without a word about culture and communication. You should never underestimate the challenges that working with international teams brings with it, and the soft skills that your management team will need to develop. As we all know, corporate culture is inherently always evolving.

One of the great books on this topic is Erin Meyer’s The Culture Map. I had the pleasure of having Meyer as my professor at INSEAD’s Transition to General Management Program. The book is a mandatory read for executives at several of my international clients, like ONI Bio, Yohana, and Platform.sh. As a French and Spanish native now living in the U.S., I have been immersed in multi-cultural environments since a very young age, but I am still amazed by how difficult this topic remains for so many at the corporate level. One of the more recent examples I’ve witnessed has been about rolling out DEI policies and tools. Diversity in the Bay Area isn’t the same as how it is defined in London, Paris, or Tokyo. And rolling out general DEI training programs across jurisdictions often falls short of the program’s objective. Fortunately, using AI tools like those my former client Textio offers, can be a clever way to tackle this complex topic.

I have also found that working across time zones can also become more and more challenging over time if a team is not equipped with the right tools and communications disciplines. Remote work can make things easier or more difficult, depending on the company’s culture. Making sure you have consistency in value-added communication tools across the enterprise is key. And these should always flexibly change as technology does. This is never an easy or a one-time project.

If your company is considering “going international” and needs experienced support to make that move, do get in touch.