Publisher’s Note: In this issue we follow the growth strategy of international expansion. We travel through the supply chain from product creation, to logistics out of Port Houston, landing goods in a foreign country and finally client delivery. Enjoy the journey.
Founded about 11 years ago in Houston, Lapolla Industries, Inc. is a global supplier and manufacturer of high-performance, energy efficient building products whose success has been driven in large part by the increased value both builders and homeowners are placing on “green building.”
Because concerns like energy efficiency, sustainability and climate protection are common beyond U.S. borders, Lapolla decided about six years ago to start planting seeds for an international expansion and distribution strategy. The primary goal was to meet growing demand in key international markets for building products that protect the environment and reduce energy consumption in homes and buildings.
While embarking on the expansion effort, Lapolla’s team encountered many obstacles, and it proved imperative to work through each with diligence and care or face serious consequences. Outside the U.S., rules of business vary country by country and these variances affect exporting companies in many key areas including taxation, regulation, reporting, product approvals and others.
Once Lapolla had identified the global need for its products, one of the first things the company looked into were freight costs. Depending on the type of product you are exporting, freight costs may have the power to render you non-competitive in the international marketplace. Luckily for Lapolla, freight costs don’t have too much impact, as its products start in liquid form and, when installed, expand to a much larger-sized end product. In other words, the cost of freight per board foot of spray foam, when calculating product yield, is minimal.
Some of the technical challenges in the global distribution plan weren’t as easy to resolve, however, and varied by country. For example, it was important to make sure both the company and customers understood import duties in each country.
Varied reporting requirements and product approval processes also figured prominently. Because of the complexity, as well as the risks associated with making mistakes with them, it quickly became clear that the company needed to engage extremely capable and knowledgeable consultants as guides. However, accounting experts, legal representatives, and other specialized individuals often offered differing advice, and the company had to be diligent and extremely careful to check the legitimacy of various counsel. Not to do so could have put the company at risk of unanticipated costs.
Product approvals were — and still remain — another area of concern. Many countries require that products undergo third-party product approval, or credentialing, prior to being imported for sale. These product credentials must be renewed regularly and, like so many other business considerations, they can vary by country. Lapolla learned that credential timelines are pertinent variables as they can affect costs and sales results. The team was cautious about moving through expensive credentialing processes that could be obsolete within a short timeframe. Awareness of product approval timelines allowed them to be strategic in keeping their products active for sale for longer periods of time in their target countries, ensuring the investment would pay long-term dividends.
Government reporting requirements proved to be another learning curve. Reporting allows the governments Lapolla imports into to track the volume of those products. It is directly tied to taxation and must be handled by a representative agency. For Lapolla, this also means making sure export products are REACH certified, and collaborating with raw materials providers on the process, which required a high level of coordination and cooperation with a sophisticated partner that understood the process well.
One final variable was the Foreign Corrupt Practices Act. A federal law, the FCPA is best known for one provision concerning transparency in accounting and another concerning the bribery of foreign officials. To understand the law, companies have to verse themselves in the proper management of international business practices and to understand their direct accountability for the actions of their own company, as well as for all parties who are part of their complete channel to market. Picking the “right” partner is key, especially when it comes to ethics and a willingness to embrace the company’s business culture as their own.
Written commitments establishing approved business practices and ethics are set up with each and every party in the distribution chain as a means for protecting the U.S. company from unintended risk.
With so many challenges to conducting business internationally, it might be tempting to conclude that it isn’t worth it. Lapolla, however, is just one of many U.S. companies that has overcome these challenges to enjoy lucrative growth opportunities.
Doug Kramer is President and CEO of Lapolla Industries, a publicly traded (OTCQX: LPAD) spray foam and coatings manufacturer. In 2010, he led the global expansion of the company, and Lapolla’s products are now distributed in over 40 countries. Reach Doug Kramer at email@example.com.
Mar 13, 2017 Comments Off on Business Tax Issues for 2017