There comes a time in every startup founder’s journey where dreams and goals to expand to new markets become a reality. Though you may be finding great success with your startup in Australia, there are many reasons why you may consider expanding internationally. Many startup founders consider expanding to the United States as their next move. While the United States is a great option, other continents may be better suited for your startup.
Australian startup founders often overlook Asian markets when expanding internationally, as they typically seek to tap into English-speaking countries first. However, given the many benefits that expanding to Asia could bring – including a large potential customer base – it is clear that this may be a great move for many startup founders. In this article, we will outline some things to consider when expanding your startup to Asia, including:
- what country to set up in;
- whether you will operate your Asian arm in-country;
- if a visa is required;
- how to structure your startup in Asia;
- protecting your intellectual property; and
- understanding and embracing cultural differences.
Making the Move
When choosing the Asian country to expand to, consider:
- your hopes for the future of your company;
- old and new team members; and
- your potential sales.
You will need to consider whether you will be in Asia while expansion operations are underway. If you want to personally operate the startup from within the Asian country you choose to expand to, you will need to ensure that you have the appropriate visa to allow you to run your startup there.
Each country has specific visa processes and associated requirements. Certain countries – for example, Singapore and Japan – have specific visas targeted to international startup founders. These are temporary visas that vary in time, with the specific aim of providing the founder with enough time and opportunity to launch their startup successfully.
Often, these startup visas will require you to:
- obtain an investment from a country-specific investor; and
- submit a business plan.
To obtain a startup-specific visa, or any other visa within Asia, you should contact the relevant Department of Immigration in the country that you are interested in expanding to.
Before expanding your startup to Asia, you need to make some tax considerations. You need to understand:
- the tax regime in the country you expand to; and
- any implications on your operations in Australia.
The strategy that you choose for expansion will have an impact on your tax obligations, so it is crucial to ensure that you receive appropriate tax advice before deciding on any one strategy.
Typically, the primary consideration depends on where the key assets lie. If your startup has been operating in Australia, you will likely have assets in Australia that will have been increasing in value. The value of these assets can be quite substantial, and if you transfer these assets to a company in another country, you may be liable to pay capital gains tax.
An alternative to selling the assets is to:
- keep them in the Australian entity; and
- licence the assets to the Asian company.
By licensing the assets, the Australian company will still own all the assets and so will not be liable to pay tax on the sale of any of these assets. If you are undertaking a share sale as part of your expansion, where your Asian company owns the shares in the Australian company, this may again trigger capital gains consequences.
Your next step will be to set up your Asian company structure. When expanding to Asia, typically there are three options:
The exact requirements and procedure will again vary depending on which country you wish to expand to. However, the underlying principles are similar.
Incorporating a Subsidiary
The most common method of expansion is to incorporate an Asian subsidiary. Typically, as a startup founder, your subsidiary will be a private company. This is the equivalent to a proprietary limited company in Australia.
Each Asian country has their own requirements to set up a private company. For instance, in Singapore, you must have at least one resident director and secretary, while in Japan you must have one resident representative director.
In most instances, however, your Australian company will act as the holding company, and you can then incorporate an Asian company, with the Australian entity as its sole shareholder.
Branch or Representative Office
The alternatives to incorporating a subsidiary are to instead open a:
- branch office in the Asian country of your choice; or
- representative office.
With these two structures, there is no separate legal entity.
Having a talented team that wants your startup to succeed can make a considerable difference to your startup’s success. When you expand to Asia, you will face the difficult situation of having to attract talent in an unfamiliar location, often without the contacts and connections that you have within Australia.
Once you find employees in Asia, you will also need to ensure that you comply with any employment standards that apply in each specific country. Employment standards in Asia are different to those in Australia, so ensuring that you are across these standards and complying with your obligations as an employer, is crucial.
Intellectual Property (IP)
One of your startup’s most valuable assets is likely to be its IP. Whether this is the brand, software and processes that you have developed in Australia, you need to ensure that you protect your IP, especially when expanding to Asia.
If you are incorporating an Asian subsidiary, you can leave all your IP within the Australian holding company, and licence it to the subsidiary. Any intellectual property that the Asian subsidiary creates can then be assigned back to the Australian holding company.
One valuable piece of IP for most startups is their brand. Before expanding your startup to Asia, you should ensure that you have the appropriate IP protections in place. The best way to do this is to register a trade mark in the Asian countries that you are planning on operating in.
If you do not yet have an Australian trade mark, you should apply for one. Once you have your Australian trade mark secured over your name and your logo, you can then apply for a trade mark in the relevant Asian countries by:
- using the Madrid Protocol; or
- applying directly to each country.
Understand and Embrace Cultural Differences
Your startup’s culture is synonymous with its identity. Culture is one of the crucial things that:
- sets you apart from your competitors;
- helps you to attract and retain key talent; and
- keeps employee morale and drive high.
When your startup grows, it becomes increasingly important for you to ensure that the culture you have worked so hard to develop is not lost. The loss of culture can be especially relevant when expanding to a country that naturally has many cultural differences to Australia.
As a founder, you want to ensure that your Asian location reflects the same culture as your Australian one, while successfully taking advantage of the cultural differences that make Asia unique. To thrive in an Asian market, you will need to:
- understand that there are cultural differences;
- embrace those differences; and
- work hard to build a culture within Asia that is reflective of the startup as a whole.
Importantly, you should consider the cultural differences of your new Asian customer base. It would be difficult for your startup to succeed if you did everything in the same way as you do in Australia. You need to recognise the potential for pain points, where cultural differences may cause you to re-think a certain product or strategy and embrace the opportunity to do so.
Expanding your startup to Asia can be a valuable tool that you can use to reach new markets and experience substantial growth. Before doing so, there are many things that you will need to consider, including:
- visa requirements;
- tax implications;
- protecting your IP; and
- how you will structure your startup and operate in Asia.
Cultural differences will likely mean that you need to think carefully about how you will approach the new market. When done correctly, your startup can thrive in Asia and you can continue to expand in a positive way. If you have any questions about capital raising, contact LegalVision’s capital raising lawyers on 1300 544 755 or fill out the form on this page.
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