Going International

By Ray K. Best, P.E.

With the arrival of the information age, time and distance seem to shrink. No longer is it unusual to manage a firm that spans several time zones or even the world. The Internet has made it easy to transfer large volumes of information over great distances in a short amount of time. Engineering and architecture firms are benefiting from the practical side and many are beginning to think about the practice of our profession outside the borders of the United States.

Do You Want To Work Overseas?

Consider the situation where you, one of your partners or a member of your staff wants to pursue work internationally. Perhaps you even want to open an office in a foreign land. This article will discuss a number of basic issues that you must address before charging off into any foreign enterprise.

Some of the justifications often used include:

All of the above can be legitimate reasons; only you and your partners can determine their validity as it applies to your business. Many of the questions you should be asking are the common ones that any businessperson would ask in an effort to determine if there is value in an investment. You must realize that when a firm decides to go international, you are making a major investment and commitment. I highly encourage you to do soul searching and agree to the finite level of commitment that your firm is willing to bear before jumping in.

How Do You Define Success?

First, consider what you define as success, and then quantify how much money you are willing to spend on the venture in order to make it successful. Track the amounts you are spending and when you reach your finite limit, get out. Don' t forget that staff time is, in fact, money.

Second, plan for the long haul. Very few firms get it right on the first attempt. Contrary to popular belief, those folks in foreign lands are NOT just like us. They do not have the same customs. They do not conduct business in the same way that we do. Even the understanding of when a deal is really a deal may be completely different than our American way of doing business.

Learn How Business Is Done Overseas

You absolutely must take the time to learn how business is done. There are lots of management consultants that ply the trade of business acclimatization in a foreign land. Many are very good, but they are expensive. Be sure to check references and employ only the one' s you trust.

Third, always follow the rule of "Show me the money". Remember, you must have a mechanism of getting paid. Foreign countries use foreign currency. Foreign currency values fluctuate daily in relation to the good old US Dollar. What may be a lot of money when you sign the contract in foreign currency at today' s rate may turn out to be only worth half as much a year from now when you have to perform the work and finally cash the check.

Make Sure You Will Get Paid

Be sure that the funds really exist. If you have any doubt, require your foreign clients to issue bank letters of credit in a recognized currency. Or perhaps consider getting paid in advance of the performance of your work. There is never any thing that will sour the relationships in a partnership quicker than investing a lot of money, generating a quality design, only to find out you provided the services for free because you will not get paid.

Keep in mind that your eventual objective is to move your profits to the United States. You must research the mechanisms as to how you or your firm will do this before you venture overseas. Many firms have signed what appeared to be fat contracts, performed the work, and later found that there was no way to move their money back to the US. There are a number of mechanisms to reduce these risks including the EXIM Bank and other sorts of guarantees. Take the time to fully investigate these options. You also need to be sure that you take into account the risks and expenses in your pricing so that you get a fair return on your investment.

Can Your Accountants Handle The Foreign Payments?

Another question you should ask yourself is: Can your accounting systems and staff handle the extra demands of international work? This may sound as simple as having receipts that cannot be read by bookkeeping staff. But it can be a real hassle when you find that your accounting software does not have the ability to handle foreign currencies even though the help line swears that it can be done. Or perhaps you' ll find that your CFO does not understand how Value Added Taxes work. Even worse, perhaps when the foreign tax office decides to audit your new branch office and you find that you have a rather large tax liability that was not calculated for when you priced out the project.

Speaking of tax liabilities; be sure that you get professional help. Obtain consultants both in the United States and the foreign country. Do not skimp to save dollars on this issue. Your money will be well spent. Also keep in mind that big international accounting and management-consulting firms do not necessarily do it better than the small guys. Be sure that you work with someone that has professional references and knowledge of the A/E/C industry. Pitfalls will develop if you skip this important step and, say for example, open a branch office without the proper corporate registration and suddenly find that all that "profitable" work that was sent back to the home office in the USA is fully taxable under the current foreign laws. And then you find out that you could have prevented this by simply establishing a subsidiary company rather that a foreign branch office.

Will You Need A "Green Card" ?

Also keep in mind that foreign countries have "green cardt" laws similar to the USA. Just because you hold a US passport does NOT mean you can work or even provide services in a foreign country. There can also be issues if your staff is working part time in a country for a total period of greater than 6 months. Suddenly you may find out these folks are personally liable for the local foreign income tax as well as income taxes due to Uncle Sam in the USA.

Speaking of staff, have you given that any thought? Who is willing to travel overseas? Who is willing to move overseas? How are you planning to take care of these folks and more importantly their families? And believe me, the axiom that "If Momma ain't happy, ain't nobody happy" really does apply to overseas staff. The last thing you want is to invest $30,000 dollars moving a family to a foreign country only to find out that they don' t like it there and want to come home.

Picking the staff member or members that will travel or live overseas can make or break your new venture. Generally you are only going to send a single staff member to augment the foreign staff. Professionals who become expatriates are special; they tend to go against the typical nature of the conservative plodding engineer or architect. In virtually every case they are not someone who is looking for just a little bit of travel. These folks love to travel and search out new adventures.

Do You Have Someone Who Can Do The Job?

You are going to have to place a very high degree of trust in these individuals. They will handle more client and money matters than your typical employee or manager. They will probably have signature authority over your foreign bank accounts. They must have an ability to operate alone and not need day-to-day guidance to generate work products. You must trust them fully and empower them to make decisions. Is your management style a match for that kind of operation? If your answer is "no," then perhaps you should not be going international.

Search out professional advice in developing your expatriate employment packages. You cannot offer the same benefits as given to your staff in the USA; typically you must give more. Many foreign laws may require other benefits ranging from vacation and holidays to health insurance and social security. Some of the typical things that you will need to consider in developing a typical expatriate package include:

In spite of what they may profess, most Human Resources departments are not equipped to deal with these issues. Get professional advice. And do keep in mind that the bills will probably continue to come in up to two years after your staff member is repatriated.

The business implications have been fully examined and you are committed to go international. Now for the next step, the practice of architecture or engineering in a foreign country.

Can You Practice Overseas?

You must determine if any special registration or professional practice laws exist. Your professional engineering license and university degree will not be recognized in a foreign country without a tremendous amount of paperwork. While some third world countries don't require licensure, most industrial nations will. Association with a knowledgeable local A/E firm may prove helpful in overcoming this hurdle, especially if you are only going to be working in a country for a single project.

The standards to which you will design must also be determined. Does your staff understand the local codes? Do you have a translated copy? Simple conversion of a U.S. design to metric will not work in a country where the local contractor has no knowledge of 8-inch CMU's. Obtain local knowledge of the commonly used construction materials and fabrication techniques so that your project will be a success.

Specifications and Formats Will Be Different

Specification and drawing formats should also be considered. Many countries use a quantity based specification rather than the typical U.S. performance type specification. This may mean more effort in developing the specifications than is typical and you should account for that in your pricing. The level of detail on your drawings may also require adjustment. And don' t forget that you may have to have all of this translated to the local language in order for the contractor to build it. Professional translators can be very expensive and the technical nature of our work does not lend itself well to translation services provided by the local university professor in his or her spare time.

Lastly, when you have completed your design, be flexible. Many times a design that is more cost efficient or more advanced than the local standard may not be accepted. Local bias, pride or traditional construction practices may lead to doing things the way they have always been done. Don't take offense and remain flexible as you may learn a thing or two that you can bring home.

By now you may be reconsidering whether you want to work internationally. The intent of this article is not to discourage. You should be giving your decision serious thought. The United States has some of the best engineering and architecture firms in the world. As professionals, we should be actively involved in the export of this resource. Having made the commitment, you will find international work provides some of the most rewarding professional experience you can have in your career.

About the author: Ray K. Best, P.E., is a Director of CSRF, and an associate of The Environmental Company, Inc., in Charlottesville, VA. Mr. Best can be reached at rkbest@engineering.techinc.com.

The CSRF newsletter is published for SPECTEXT® subscribers and others involved in design and construction. To obtain your copy of Creating a Common Language®, please contact the CSRF Support Center by telephone at 1-877- SPECTXT or 410-838-7561 or you may e-mail us at supportcenter@csrf.org

©  Copyright 2007, The Construction Sciences Research Foundation, Inc.  Updated January 12, 2007.