Expanding into the US Market: How UK Companies can Successfully Navigate Complex Financial Regulations

For many UK-based companies, the US market presents a high risk, high reward opportunity for international expansion. On the one hand, the high-profile failures of the clothing retailer, Marks and Spencer, and the supermarket giant, Tesco, serve as cautionary tales for ambitious executives. M&S lost almost $1bn as it struggled in the US market for 13 years while Tesco suffered a total of $1.61bn in losses over 5 tragic years. 

On the other hand, British retailers like Burberry and Topshop have managed to reap tremendous profits from their daring decision to break into the US marketplace. Burberry, for instance, doubled its operating income and revenues between 2007 and 2012.

The importance of adjusting for cultural and regulatory differences

Does this mean that companies without a high risk appetite should stay away from the US? No, it simply means that companies must be willing to and proactive in making fundamental changes to adapt to cultural and regulatory differences. To quote George Bernard Shaw, ‘The United States and Great Britain are two countries separated by a common language.” UK companies have a huge advantage over other entrants into the US market because they share many things in common with Americans, in history, language, and culture.

However, it would be imprudent to assume that this then makes it unnecessary to be sensitive to cultural and regulatory particularities. We would all do well to learn from the mistakes made by companies like M&S and Tesco, as well as the many companies that do not utilize resources and incentives that are right in front of them. The site ADP.com reminds large companies that there are 3,000 federal and state incentives available each year and half of them go unclaimed.

There are many other reasons why UK companies looking to expand globally should consider the US market. For one, the US continues to lead the way in sales growth. According to a 2013 report by Barclays, the US was cited as the top overseas market by UK retailers with a whopping 40.2% in sales growth.

Although the same report also cites the US as the hardest overseas market to enter, it is perfectly possible for companies to overcome the main hurdles—a complex tax code, employment regulations, and health care requirements.

Differences in US and UK tax codes and regulatory practices

UK companies that are unfamiliar with US tax codes and regulatory practices should note that because the United States has a decentralized system of federalism, regulatory practices can differ significantly from state to state. Here are some considerations to note when doing business in the US:

·  US tax requirements vary from state to state and can be collected on the federal, state, and local level. You will need a tax lawyer or certified accountant to help you figure out which taxes you need to pay.

·  Even if you conduct your US transactions entirely from within the UK, you may still be subject to US taxes. The amount depends on how closely connected your company is with the US.

·  If you meet the requirements of the US-UK income tax treaty, your company may be eligible for certain tax exemptions.

·  When providing goods and services in the US, you will need to adhere to the different regulations set out by the various state and federal level regulatory agencies, such as the Food and Drug Administration, the Federal Trade Commission, the Consumer Product Safety Commission, and the Environmental Protection Agency.

Navigating the complex regulatory terrain of the US may seem challenging but it should not be a deterrent. The success of companies like Burberry, Topshop, Hobbs, and Vodafone demonstrate that it is fully possible to overcome regulatory obstacles and enjoy a thriving business.