Expanding to the USA – is now the right time? Gary Leskun | Cross Border Partners #14
Almost every business with international ambitions wants to expand to the United States. It’s easy to understand why. It’s the biggest economy and market on earth. It’s English-speaking, it’s got great people, great communications and since its founding has always been considered as the Land of Opportunity.
But how easy is it? And, with all we hear about the backlash against globalisation epitomised by the “America First” policy, the tariffs and the fear of trade wars, is now the right time for foreign companies to really be considering expanding there?
In this podcast, Oliver Dowson talks with Gary Leskun, the President and COO of Cross Border Advisory Services, about these issues, and how companies can best expand to and from the USA.
Gary has impressive qualifications and a vast range of international business experience. He and his team have helped many companies to identify export markets and recommend market entry strategies for products and services to get the best return on international investments – not just in the USA, but also in Canada and other countries.
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OLIVER: I’m at the Going Global show with Gary Leskun, the President and COO of Cross-Border Partners, Advisory Services. I believe you are promoting Florida?
GARY: Well actually our company is resident in Florida, and our head office is there, but we provide trade support services for companies entering the United States in all markets, not just Florida.
OLIVER: What companies are you finding interested in moving into the States at the moment?
GARY: Well, as you’ve heard, there’s a lot of issues regarding Brexit and what that divorce might look like. With the family division of assets going on there’s a little bit of consternation with businesses of how they’re going to be impacted, moving from a favourable tariff environment to maybe a punitive tariff environment. To mitigate that, companies are looking at options to diversify in other countries that may help them manage those trade issues that are flowing back and forth at different tariff levels.
OLIVER: I can really appreciate that that’s really essential right this moment. So, very substantial interest in this and a lot of uncertainty in international markets at the moment.
GARY: And we would have to be guilty of that ourselves in our home country of the United States because we are creating our own issues there right now too. So the level of disruption across the globe and the counter-response to tariffs being put in place is making costs go up around the world. Frankly, consumers are bearing the brunt of that. If you look at retaliatory tariffs from China and tariffs that we put on in the United States, just buying a washing machine suddenly went up in the USA by $500 per unit because of the steel tariffs of 30% or 50%. So, this nationalism, if you will, with respect to being a little more proprietary about products and where they’re developed will impact the consumer in one wayr. So, it’ll be interesting to see how it settles over time.
OLIVER: I’m seeing a lot of British companies that are actually looking at the States in the same way as, for the last two years, they’ve been looking at Europe. Basically, that’s “we know Brexit means Brexit and as soon as we know something better then maybe we’ll start considering expansion again”. Now I’m hearing of businesses interested in going to the States and saying “you know, we really want to see what happens with this America First policy and whether it will affect us”. Are you hearing a lot of that?
GARY: I am, but if you look at the history of America going back a couple of hundred years, even to the war between America and the Brits, there was a tariff environment of about 5% import tariffs on goods back in the 1800’s. In the mood of protectionism back then by a President, tariffs went up 30 to 50% because they were worried about the development of American enterprises over there and the British just selling value added services. So now, that 30% that was back in the 1800’s, they regained their sanity of applying those tariffs. So, now the average tariff level of the United States is 1.8 to 2.2% for all goods coming in to the United States, very low tariff levels for foreign manufactured goods.
OLIVER: Yes, sure.
GARY: And in some cases there’s no tariffs and in some cases there’s 6%. Those kinds of things, but the blended tariff rate in the United States is around 2%. That’s a very welcoming environment for foreign companies to provide products to the United States consumer market.
OLIVER: Are you finding most of your interest from product manufacturers or producers or from services companies?
GARY: Well around the globe, services and manufacturers split probably like 80-20, meaning hard goods are about 80% and services, excluding financial services, are around that. So, let’s say a podcast company wants to expand to the United States and start doing their podcasts in the United States, resident to interviews in the United States. That’s a services expansion. Therefore, an export by your company, for example, operate in the United States to go there. Conversely, if I manufactured a hard good here in Britain then I think there might be a market in the United States. We would move that hard good there.
GARY: And that’s where the majority of the interests are, but the service organizations are gaining a higher percentage of global GDP every year, as services have value, and there’s value added services around those types of activities.
OLIVER: Sure because in this country we are at about 80-20 in terms of 80% services – there’s more services than anything else – and there’s a lot of businesses that we try to convince that their service companies and say, you can actually sell in other countries, you can expand to other countries, you don’t actually have to physically export a product.
GARY: That’s correct.
OLIVER: What services, what do you find are the most important, for your company provides in the States?
GARY: Well let’s just draw an analogy. You could be a ship captain of a 100 ton ship moving product across the Atlantic to America, but when you come into New York Harbour, a local harbour master and pilot takes over the ship from that very experienced captain, who knows how to navigate oceans but needs local assistance to come into New York City. That’s the analogy I would draw with us in the services we provide the companies, is that we are your local harbour pilot, we help you navigate the complexity of doing business in the United States. The United States shouldn’t be looked at holistically as one entity to sell in to, in fact it’s like 50 different countries with the 50 different states. Each have their unique regulations and their unique operating requirements. There are some commonalities of course, but it’s like an American moving to Europe or Britain and saying, well I have a product that’ll fit in Britain, therefore by extension, it must fit in Moldova, it must fit in Germany, it must fit in France, and so on. We all know that that’s not the way it works. When you make global sales, there’s tailoring and there’s requirements by country. So, our advantage with companies and why they engage us is because we help them navigate a variety of taxation planning strategies, product entry strategies, regulatory environments, product localisation.
GARY: You’re in metric, we’re not. So, you have basic labelling issues and power consumption issues, those types of things. So, we’ll get down into the weeds, if you will, to help companies in that regard.
OLIVER: So we’re here in London, you have a base here in the UK, or you sell only services based entirely in America?
GARY: We do investment both ways. Our company will assist U.S. companies that are seeking opportunities abroad. So, a US company that doesn’t do business in England to date, will seek us out and we will help them enter the UK markets, and conversely a UK business can see us to bring that same business opportunity to the United States based from UK. So, we really do FDI in both directions.
OLIVER: OK. Well that’s really interesting Gary.
GARY: Thank you.
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