Trends, Opportunities, and Challenges
Ease of doing Business in the U.S.
Since the 2020 DVITUS research conducted during the COVID-19 period, significant changes have occurred both in the U.S. and globally over the past three years. The U.S. has experienced economic fluctuations, but despite these challenges, the U.S. economy has demonstrated resilience.
Politically, the U.S. saw a change in administration in 2021, which led to shifts in policies and regulatory changes. States have increasingly focused on protecting local businesses, and as a result, sales tax collection has become a side effect of these protections, ensuring that local businesses are not disadvantaged compared to foreign businesses. This focus on local business protection is crucial for understanding the regulatory environment in which Benelux ventures operate in the U.S.
Of ventures without a U.S. entity report that doing business in the U.S. has become significantly more difficult.
Furthermore, the rise of remote work and digital transformation, accelerated by the pandemic, had presented both challenges and opportunities for Benelux businesses. This shift has heightened attention to digital privacy laws and cybersecurity regulations. Additionally, the push towards green energy and sustainability offers opportunities for ventures in these sectors but requires compliance with stricter environmental standards.
Respondents in this study were asked about their perception of the ease of doing business in the U.S. and whether they feel it has become more difficult over the past three years. Within the group operating with a U.S. entity (Group 1), most respondents (52%) did not experience any changes over the years, while 32% stated that doing business in the U.S. became somewhat more difficult, and 10% found it somewhat easier.
Of the respondents that indicated that doing business became somewhat more difficult most indicated facing difficulties with:
Maintaining their U.S. entity
Obtaining visas for employees
Cost of doing business
Attracting new customers
Attracting skilled labor
Competing in the U.S. market
In contrast, among those without a U.S. entity (Group 2), 43% stated that doing business in the U.S. has become substantially more difficult, while 17% didn’t experience any changes, and 10% found it somewhat more difficult. This study suggests that respondents operating without a U.S. entity often have a harder time dealing with operational challenges or changes. Of the respondents that indicated that doing business became substantially more difficult, most indicated facing difficulties with:
Protection from liabilities
Handling Tax obligations
Making revenue targets
Attracting new customers
Figure 29: Ease of Doing Business in the U.S. Over the Past Three Years
Operational Challenges in the U.S.
Entities in this study indicated they faced significant operational challenges when expanding to the U.S. In the second half of this chapter, we will explore some of these frequently mentioned challenges in detail, drawing on insights from both the quantitative and qualitative parts of this study. In the quantitative section, we asked ventures operating with a U.S. entity (Group 1) to identify the operational challenges they faced most frequently. Most respondents (19%) cited setting up a U.S. bank account as their biggest hurdle. Following closely, 17% of respondents reported difficulties with navigating sales tax regulations. Other commonly mentioned challenges included dealing with U.S. legislation (15%), managing employee benefits (15%), and filing Corporate Income Tax (14%). In the following sections, we will delve deeper into some of these operational challenges, as elaborated upon during the qualitative interviews.
The primary challenge for respondents with U.S. entities was setting up and maintaining a U.S. bank account, with 48% finding it difficult due to outdated processes and extensive regulatory requirements. Major banks often don't allow accounts for foreign-owned ventures, leading to closures and disruptions. Mistakes in KYC processes further complicate banking. Maintaining accounts involves navigating various fees, slower transaction times, and in-person authentication. Respondents recommend building strong local bank relationships and seeking guidance from experienced advisors.
A second operational challenge for Group 1 respondents is navigating U.S. taxes, with 44% finding sales tax and 36% finding corporate income tax difficult. Sales tax is complex due to varying regulations across states and local jurisdictions, while corporate income tax involves intricate filings with the IRS and state authorities. Respondents noted the significant differences between U.S. and European tax systems and the difficulties in contacting the IRS. Most recommended seeking advice from knowledgeable tax advisors to ensure compliance and avoid penalties.
The third major operational challenge for Group 1 respondents is ensuring compliance with U.S. federal and local laws, with 38% finding it difficult and 36% feeling neutral. Navigating varying state regulations and administrative procedures is time-consuming and complex, especially due to significant differences from European laws. One Benelux venture highlighted issues with differing product classifications between the U.S. and Europe. Respondents emphasized the importance of understanding the diverse legal landscape and recommended seeking local legal expertise to ensure compliance and avoid legal issues.
The fourth major operational challenge for Group 1 respondents is protecting against potential liabilities, with 46% finding it difficult. The most challenging liabilities are product and professional liability. Many Benelux ventures underestimated the U.S.'s claims culture and emphasized the need for comprehensive liability insurance, including specific policies for product and professional liability. One venture recounted a six-year product liability lawsuit covered by insurance, highlighting the importance of preparedness. Understanding the U.S. legal landscape and consulting legal and insurance experts is crucial for effective protection.
Satisfaction with Doing Business in the U.S.
Regardless of the operational challenges and economic trends described in this chapter, Benelux ventures in this study generally maintain a neutral or positive outlook on their U.S. expansion. The graph below illustrates satisfaction levels of respondents operating with a U.S. entity (Group 1) shows a balanced view based on current revenue and revenue growth.
Figure 30: Satisfaction Level According to the Company's Performance in the U.S.
Most respondents (50%) had expected the revenue growth they would achieve, resulting in a neutral stance. Additionally, 30% were very positive about their U.S. revenue growth, finding it above expectations, while 20% were disappointed. When looking at current revenue, 38% found it in line with their expectations, 36% reported it exceeded their expectations, and 26% were dissatisfied. Despite the challenges, the overall sentiment towards U.S. expansion of respondents in this study remains cautiously optimistic. Most are either meeting or exceeding their revenue expectations, highlighting the potential benefits and opportunities in the U.S. market. Engaging local experts, particularly in areas such as tax compliance and legal protection, could further mitigate operational difficulties and enhance growth prospects.
