International Business law practice: Expanding business beyond your borders

RUTENDO MANHIMANZI

From a general perspective, it’s a great big world out there, but when it comes to business, the world is incredibly small.

Every industry is affected by international business in one way or the other either directly or indirectly, whether your company manufactures or produces goods and exports them, or your company imports goods for resale or maybe your employees render services overseas.

It is therefore crucial that your company bargains its place in the global business village.

International business in a broader perspective refers to the purchasing, selling of products and services, the movement of knowledge, technology, capital, and information that happens on a global or transnational scale.  Put simply, international business means the purchasing and selling of goods and services across international boundaries. Food, manufacturing, mining, construction, agriculture, banking, insurance, healthcare, education, transportation, and communication are some of the businesses that profit from international expansion. The two major components of international business are global trade in goods and services and international investment.

 Any company seeking worldwide expansion must consider the broad and long-term picture and its implications. The corporation must take cognizance of the economic, socio-political   atmosphere, history, culture, geography, and the physical environment of the other country.  Unavoidably, international corporate transactions have a huge impact on global trade. International trade is vital to the expansion of the global economy. Integrating national economies into a global economic system is one of the century’s most significant developments and this has been commonly referred to as globalization. Resultantly, international commerce has become a pivotal component of economic and social development, for nations with low per capita incomes.

International business law addresses the various legal aspects that come into play when a business expands across international borders. This includes business transactions, the formation and funding of businesses, intellectual property protection, regulatory compliance, dispute resolution, and international trade policy, among others. Protecting intellectual property has become an increasingly common practice in global trade. One of the most impressive aspects of international law is its flexibility to accommodate different legal systems.  Many international treaties are woven within the framework of national legislation. The preservation of international norms is intended to combat the exploitation of a powerful economy and the oppression of a poor nation that is more susceptible to exploitation.

International trade compliance

Whenever companies trade internationally, their business enterprise prompts the national security and economic interests of at least two countries. If one is involved in the trade of importing or exporting goods or setting up a new business entity in that jurisdiction, they have to acquire proper trade licenses, classify their products, and comply with all applicable duties and taxes of both countries. Similarly, one must also complete customs declarations, record and monitor invoices, bills of lading, and packing lists to ensure an effortless clearance process. Understanding the tariff rates of your target markets is quite critical as it gives guidance on developing a competitive pricing blueprint for your overseas products and services.

Registration

To operate in another country, a business must ensure compliance with the registration laws of that country. In Zimbabwe one has to register their company with the Registrar of Companies of Zimbabwe, in terms of the Companies Act (Chapter 24:03).

Taxes

Navigating through foreign tax regulations is one of the most complex facets of ensuring compliance when operating internationally. Global companies must explicate their corporate tax liability in their host country and operate compliant global payroll for their local team. If you fail to comply with the country’s laws, such an oversight can negatively affect your business and cost your company compliance fees, reputational damage, and potential criminal charges. The importance of doing your research and completing all necessary paperwork cannot be overstated.

1.          Tax Clearance Certificate

In Zimbabwe one must obtain a Tax Clearance Certificate from the Zimbabwe Revenue Authority (ZIMRA), as required by the Income Tax Act (Chapter 23:06). This certificate confirms that your company has complied with its tax obligations.

1. Value Added Tax (VAT)

Register for VAT with ZIMRA. This is in accordance with the Value Added Tax Act (Chapter 23:12).

iii.         Maintain Accurate Records and Accounts

Maintain accurate records and accounts, as required by the Companies Act and the Income Tax Act. This includes financial statements, tax returns, and other records. It is also crucial to keep informed as a business entity any changes in the law regarding tax thresholds and other requirements.

Intellectual property                                               

One of the most valuable assets of a company often includes its intellectual property (IP), which can be in the form of patents, copyrights, trademarks, or trade name and trade secrets. Intellectual property law is a cornerstone for protecting businesses and promoting innovation. For most companies, IP protection is crucial for maintaining a competitive edge, whilst for others, it’s a necessity for survival. Most intellectual property rights can only be protected where they are registered, and this protection does not extend beyond the territory where they are formally recognised as the owner’s property.

IP laws and regulations vary worldwide, creating a huge risk for global companies. While some countries proffer robust IP protections and enforceability mechanisms, others do not, burdening it mostly up to individual companies to secure protection.

Trademarks in Zimbabwe are protected by the Trademarks Act [26:04] and under the common law. A trademark serves the purpose of showing a nexus between goods or services and the person possessing the right. Secondly, its purpose is to distinguish goods or services belonging to other people. Zimbabwe applies international patent and trademark conventions and is a member of the World Intellectual Property Organization.

An important fact to remember is that IP protections in your home country do not automatically protect you abroad, understand the IP laws of the country of intended business expansion. Violation of these laws can bear expensive consequences.

Data protection

The digitization of the world has made global trade easier and has also resulted in the mass dissemination of consumer data. Most countries have enacted data protection laws to try and control the information organizations can legally collect from consumers and regulate how companies use and share this information. Further, they also allow companies to collect consumer data obtained lawfully with the consent of consumers for specific purposes, like performing the duties of a work contract, compliance with legal obligations and protecting important interests.

Payment, finance, and exchange controls

Payment processing for domestic transactions is relatively simple, both parties understand the currency involved and can easily facilitate the transaction, which is not usually the same with international payments.

Moving money across borders can present complications to an otherwise simple exchange. Financial regulations, geopolitical risk, and exchange rate volatility can also present unique challenges. Establishing secure, compliant, and efficient international payment methods is critical for any business operating in the global marketplace.

In Zimbabwe companies must comply with exchange control regulations, as outlined in the Exchange Control Act (Chapter 22:05), which regulates foreign exchange transactions and international trade.

Employment Laws

Compliance with employment laws of any jurisdiction of intended business establishment is important. This includes:

• employment contracts,
• working hours and conditions,
•  minimum wages and bonuses,
• Leave days,
• Severance packages and
• any other employment related issues.

 In Zimbabwe compliance must be in terms of the Labour Act (Chapter 28:01) and any other statutes and regulations that govern the industry of interest.

Challenges in international business

1. Language obstacles

Language barrier is one of the most common problems of international business relations. Not only does it pose challenges in international business dealings between companies, but it can also cause significant communication challenges within an individual company where management and team members speak different languages. It is also essential to ensure that a company’s marketing materials, product packaging, and customer care support are aligned with the language your target customers speak. There is no harm in learning other languages and becoming a polyglot.

2. Currency exchange and inflation rates

Few countries trade in the same currency, therefore a company is highly likely to receive payments from several countries in different currencies. Currencies tend to fluctuate daily, making it a necessity to stay abreast of currency exchange and inflation rates.

3. Foreign policy, geopolitical, and cross-border relations

Politics and foreign relations can significantly impact the international business market and trade. Expanding into the global market requires comprehensive knowledge of the trade policies, political and foreign relations between the states. This information can assist in making an informed decision and following the requisite processes in establishing your entity and avoiding reputational damage, financial losses, or even criminal penalties for failing to heed specific rules and laws. In Zimbabwe there are laws that govern international companies that would like to invest and set base in the country. These laws include: –

• The Zimbabwe Investment and Development Agency Act (ZIDA) – This act consolidates investment processes and protects foreign investors.
• Indigenization and Economic Empowerment Act – This statute requires foreign companies in specified sectors to partner with local Zimbabweans who hold a 51% ownership stake. However, this does not apply to all industries, so it’s important to verify whether your sector of choice is affected.

Understanding these laws will guide on compliance with the country’s requirements and avoid common pitfalls in the process.

4. Supply chain issues

International laws and regulations of each country affect a diversity of factors throughout global business, including imports and exports. Understanding these complexities and reckoning any potentially related supply chain issues can be sophisticated. Your supply chain strategy must be customized to your company and the country in which you plan to establish a business. When developing your strategy, it is paramount to research trade regulations, current supply chain issues, local material availability, and external influences on the supply chain.

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5. Competing in a new market

In today’s advanced and competitive business market, offering a product or service that no other company provides is close to impossible. When dealing in the domestic scene, your company has its fair share of competitors, when you expand internationally, the ratio of companies competing for their share of the same market grows exponentially. Resultantly, competition must birth innovation, and your company must thrive on this principle strongly when expanding into the global market. Differentiate your product or service from the other competitors and offer unique products and services to gain a competitive edge. This includes an attractive company logo, advertising style, language, and work culture. Brand consistency is key to obtaining and maintaining customer loyalty. Most importantly, maintain a good reputation through developing solid business relationships with customers and local suppliers, vendors, manufacturers, and shipping companies.

Conclusion

Navigating international business law can be challenging. Fortunately, international business law is not as complicated as it seems. If one conducts a thorough due diligence, you can easily streamline your company with the main legal hurdles of expanding overseas and open doors of success on a global level. Alternatively, some companies can choose to enter into a joint venture or a franchisee in the foreign country to avoid the seemingly cumbersome process to register a new entity in a foreign country.

 Rutendo Manhimanzi is a registered Legal Practitioner and practices under the law firm Ruzvidzo Legal Counsel. She can be reached on +263 773 589 263 or email rmanhimanzi@yahoo.com