Small Firms Battle Labor Laws In Hiring Guides for Work Abroad

By Phred Dvorak
From The Wall Street Journal Online

Architect Joseph Boggs was overjoyed to land his U.S. firm's first contract in India -- until he saw the first paycheck. The amount was almost one-fourth less than he had expected, because of an Indian tax on payments to foreign firms.

Mr. Boggs decided he needed help with overseas business, particularly since his 15-person firm had also landed projects in Qatar and Bahrain. Now he is letting a consultant guide him through a welter of confusing tax laws, foreign-benefits packages and local-currency transactions.

"You're dealing with rupees and riyals and different time zones," says Mr. Boggs, who expects Boggs & Partners Architects Inc., of Annapolis, Md., to generate as much as 90% of its revenue outside the U.S. in the next few years. "It's complicated enough just to do the work," without worrying about such details, he says.

International operations used to be the province of big corporations with the staff to handle cross-border complications. Now, a growing number of smaller U.S. companies like Boggs & Partners are leaping overseas -- sometimes before they have the experience and personnel to handle it.

Some firms are drawn by low-cost labor in countries like China or India; others seek to sell into exploding foreign markets. Cheap phone and Internet connections encourage the trend.

"Historically, when we asked the midsize companies about international activity, they'd say no," says Marty Janowiecki, a partner at PricewaterhouseCoopers LLP who has advised private companies since 1983. "Now, more of the smaller companies are taking a second look."

Even start-ups feel pressure to go abroad, says Lawrence M. Harding, president and founder of High Street Partners Inc., of Annapolis, the firm Mr. Boggs hired to simplify his international affairs. High Street specializes in managing overseas operations for small U.S. companies, charging a monthly rate of $2,000 to $3,000 per country. Many of its 100 clients are venture-capital-backed companies, says Mr. Harding. Some hire employees abroad even before they have a product, he says.

Client Acme Packet Inc., of Burlington, Mass., was founded in 2000 and soon started selling its telecommunications equipment overseas. In 2003, Acme had fewer than 50 employees and generated nearly 75% of its $3.3 million in revenue in Italy and Japan, says chief financial officer Keith Seidman. Now, one-fifth of Acme Packet's 300 employees are overseas in 22 countries, he says.

Small companies rushing to go abroad sometimes underestimate the difficulty, says Mr. Harding. Complicated cross-border taxes and duties can trip up companies not used to selling in different countries. Hiring employees abroad means tracking labor laws and benefits practices. Dealing with foreign languages and currencies makes everything harder, he says. Some little firms stumble.

One U.S. company that later became a High Street client imported telecommunications equipment to the U.K. to sell to a customer there. That triggered a 17.5% duty that could have been avoided by importing the equipment in a different way, Mr. Harding says.

Another client hired contract workers in Belgium -- only to be threatened with a lawsuit when it tried to fire them. The company didn't realize that the contract terms made the workers appear to be full-time employees under European Union standards, Mr. Harding says.

Boggs & Partners, founded in 1984, had designed office buildings and museums in the U.S., but had done little work overseas. That changed a few years ago, when a friend introduced Mr. Boggs to some businessmen in Qatar. The connections led to big contracts in Qatar and India, including one to help design a $5 billion town near Hyderabad, India. After he saw the country's high taxes, Mr. Boggs hired High Street Partners.

To help lower those taxes, Mr. Harding suggested Boggs & Partners open an office in Hyderabad and accept payment in rupees rather than dollars. Mr. Harding also advised Mr. Boggs to open a bank account where he could view rupee and riyal balances online, something Boggs & Partners's current bank can't do. And he introduced local accountants and lawyers who could handle the firm's Indian taxes and government paperwork.

Mr. Harding says he is also advising Mr. Boggs on how to protect his rupee holdings against currency fluctuations and how to reduce the Hyderabad office's tax bill by charging it for the services of U.S.-based employees.

Mr. Boggs says he is happier leaving all that in Mr. Harding's hands. "I'm sure the Microsofts of the world have got this all figured out," says Mr. Boggs. But for small companies like his, "you could waste a tremendous amount of time figuring this out and not even be sure you've figured it out."

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