For European companies looking to expand and grow internationally, the US offers an ideal location. Not only is the US the world’s largest economy with GDP in 2020 at nearly $21tn, but the country also offers an established life science market with plenty of funding opportunities and a steady stream of top talent emerging from many of the country’s leading research institutions. The US also has very defined life science hubs, which shrinks the US from an overwhelmingly large market to some targeted places that European companies can look to for expansion.
Expanding internationally is no small task. To find out more about what life science companies should consider when expanding into the US, we interviewed Joanne Farquharson, President & Chief Executive Officer at Foothold America, a company that helps businesses around the world to expand into the US market. Here are the top 4 things to consider:
1. Understand your goals and conduct thorough research
What are your company’s long-term goals and objectives? What are you looking to achieve by entering the US market? Where are your competitors based? In Joanne’s experience, organisations that have considered their long-term plan, conducted extensive research and planned for contingencies, tend to perform the best. She advises, “starting with the end in mind and knowing what you would like to achieve can be very valuable before setting foot into the market. I recommend something called a ‘premortem’, which comes from a book called Decisive by Chip and Dan Heath, and it’s a wonderful book to guide decision making. For me, a premortem is great for determining the things that could trip us up and then planning for those potential obstacles.”
2. Consider all costs and determine your budgets
According to Joanne, one of the biggest mistakes companies make when expanding into the US is having an unrealistic view of the costs, particularly when it comes to hiring employees. Joanne said, “comparing life sciences in the UK and the US, you can pay 30% more in salary for the exact same position. On top of that, there are US benefits to consider. The majority of Americans get their health insurance through their employers and that cost can be an additional $12k to $15k per employee. In a very competitive life science market hub like Boston, the salaries are even higher, and the expectation of benefits is immense. You could end up spending $18k to $20k or well above the US average, for benefits in order to secure these people.” If you are looking to reduce costs, there are several areas outside of the main hubs you could consider instead. Joanne commented, “you can save 30-40% on salaries if you’re looking at some of the other hubs like Raleigh in North Carolina or Austin in Texas for example. You don’t always have to be in the hub, instead look to some areas where you are going to spend less money without compromising on talent.”
Other costs to consider include the taxes of different states, and the costs associated with setting up a subsidiary if you were to go down this route of market entry.
3. Decide where you are going to establish your business or hire your first employee
Whilst cost is a big factor for determining where to base your subsidiary or your first employee, time zones across the US, territory size and the availability of transportation routes are equally as important. Joanne recommends conducting specific research on where your competitors and customers are located. Joanne added, “Minnesota is not a state that typically comes to mind for life sciences, however, it is one of the top medtech locations in the US. It’s not sufficient to look at where life science companies are in general, you really need to know who you are going to be working with.” Boston, San Francisco Bay area and San Diego are all well-known hubs, but there are many other viable locations. Joanne added “it also depends on what your business needs. For example, if there’s FDA approval required, you may want to be closer to Washington, D.C.”
When companies expand into the US, their first hire is often a territory-based sales employee, but do they need to be based in a hub? From our experience, these employees can often be based in any location in the territory as long as they have access to travel routes and time zones have been considered. By taking this approach, you will have access to a wider talent pool and avoid having to pay the very top salaries.
In this clip from Joanne’s interview, she discusses in more detail the various location options in the US outside of the main hubs:
4. Determine your route of entry
There are several options for expanding into the US and choosing the right one for your business is dependent on factors including your budget and your appetite for risk. Joanne commented “a non-US company has the option to simply gain clients in the US. They remain based in their home country and they have a client and a signed contract with the home country – that’s just international business in general, no entity required.”
Once a company reaches a certain size, they may reach a tax nexus in specific states or decide to hire an employee in the US. Joanne commented, “whether or not you have an entity, you have a few choices such as the co-employee assigned personnel model where a client is saying, ‘I have a US employee or I want to work with this US person, but building the infrastructure of health insurance, payroll, state registrations and all of those things is overwhelming, so I just want to use a company that can do those things for me behind the scenes.’ For non-US companies that don’t want to set up an entity because they’re not 100% committed to the US market, this model enables them to test it and see. There are low barriers to entry and exit.”
Alternatively, you can directly hire an employee in the same way any US business can. Joanne said “for this route, you would be responsible for all of the elements of employment, including sourcing a payroll provider and health insurance broker and sorting insurance and contracts. You can find a partner or partners to take that on for you, but you are the direct employer and the employer of record (EOR).” Joanne went on to say that in some instances US clients may require you to be set up this way, “we have had an instance where a small European client had the potential to have a contract with a massive US company and the contract stipulated that not only did they have a US entity, but that they hired their employees directly, so a co-employment or assigned personnel model didn’t work in that case.”
With the increase in remote working as a result of the Covid-19 pandemic, has this changed whether some companies need US-based sales employees? Joanne said, “regardless of remote working, companies still need someone that knows the industry and has a network in the market. Whether they’re going to have a video meeting or they’re going to get on a plane, they’re going to bring value to your business, and I think non-US companies still recognise that.”
Joanne also recommends considering your long-term objectives, so you are set up in the best way for your business in the long run. She said, “for example, for a company that knows its goal is an IPO on a US stock exchange, I would recommend that they start immediately with a US entity to make sure they’re producing financials in a way that’s easy for investors to evaluate. For a company that is more conservative and unsure of their growth plans, they might take a different avenue instead of fully jumping into the market.”
In this clip from Joanne’s interview, she discusses the routes of entry in more detail, including the potential issues of working with independent contractors or consultants for too long.
In conclusion, there are many elements to consider when planning an international expansion. Starting with a clear understanding of your goals and market as well as budgeting for all potential costs will leave you in the best position to succeed. Considering the pros and cons of basing your business outside of a hub can be a valuable way to reduce your costs and working out the best route of entry depending on your long-term objectives, appetite for risk and cost will leave you in the best position for your US expansion.
Looking to expand into the US? Contact: info@inveniagroup.com
