The U.S. market is ten times larger than our hyper-competitive domestic version. That alone makes expanding your business into the U.S. the Holy Grail of growth. But recognizing and avoiding the common pitfalls can make the difference between wild success and dismal failure. Here, courtesy of Gene Moses, a Yankee lawyer who specializes in helping Canadian companies win business south of the 49th parallel, are the six most common mistakes Canadians make when expanding into America.
Giving away the farm
The federal and state laws pertaining to the rights, benefits and longevity of employees in the U.S. are vastly different than those in Canada. Generally speaking, most states allow companies to hire and fire at will. But when it comes to setting up U.S. operations, many Canadians bargain away that flexibility with employment contracts and promises of continued employment—standard in Canada but not necessary in the U.S.
Incorporating in Delaware or Nevada because that’s what everyone else does
There is a mistaken belief that incorporating in Delaware or Nevada brings huge benefits. And that mythology is encouraged by these two states. In fact, unless your CPA identifies a specific tax advantage to incorporating in either of these states, it’s easier and more practical to establish and operate in a state that is as close as possible to the Canadian parent company.
Bidding first, licensing later
Canadian construction and engineering firms are often tempted to bid on U.S. projects without first arranging the required permits and licenses. There is no quick way to secure the paperwork, and in certain states, such as California, there is a minimum 12-week processing period. And the requirements differ widely between states. For instance, registering a contractor in Washington involves a one-page form, costs $45 and takes only 15 minutes to process. Next door, Oregon requires you to complete a 31-page questionnaire and a 16-hour course, pass an exam and wait at least 10 days for processing.
Not being licensed before the bid also opens the door for legal action by your U.S. competitors. In most states, the law governing contractors insists that you be licensed before you bid, which means the companies you just beat out are in a position to successfully challenge your standing in court.
Losing access to the courts
Many states limit or prevent a foreign company from filing litigation in state court to collect unpaid contract debts unless the company has first secured a certificate of authority in that state. Filing for such a certificate isn’t complicated, but many Canadian companies simply don’t realize its necessity.
Underestimating the importance of a passport
In post-September 11th America, security concerns touch everything. In the past you were able to obtain the Employer Identification Number (which allows you to open a U.S. bank account) from the IRS with just your driver’s license as identification. The IRS now demands a passport.
Failing to establish an American presence
Americans may love your product, but if you make it too difficult for them to seek out customer service you’ll lose their interest. It’s crucial to have a local address and a 1-800 number to give customers the confidence that you’ll be there when they have a question or problem.
Gene R. Moses is a Bellingham, Wash.-based attorney specializing in cross-border business. Visit his Web site at www.genemoses.net.
© 2004 Gene R. Moses
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