Publications

• 30 Second Ideas
• Accounting Updates
• Alerts
• Articles
• Business Surveys
• Construction Edge
• Healthcare Edge
• Insurance Edge
• Legal Talent
• Manufacturing Edge
• Not-for-Profit Edge
• Quick Links & Good Ideas
• SEC Edge
• Strategy Insights Blog
• Surviving the Upturn
• Tax Highlights

East Balt "Goes Local" in Locations Around the World

Blackman Kallick Client Success Story

Blackman Kallick client East Balt is a long-term supplier to McDonald's. "We actually served [McDonald's founder] Ray Kroc the first hamburger buns in his store here in Des Plaines in 1955," says John Borowski, the company's executive vice president and chief financial officer. East Balt has since grown to 19 bakeries in 14 countries around the world.

"I've had the great privilege of seeing the vast majority of the company's international growth," says Borowski, who joined East Balt in 1994. "When I started, we had four bakeries in the U.S. and one in France."

Meeting the challenges of overseas operations

Borowski notes the tremendous challenges East Balt faces when moving into international markets. "We don't become an exporter of product," he explains. "Our product remains within a local market, so we really have to learn to operate in that marketplace in terms of dealing with people, regulations, officials and accounting issues. "All this has to be done while meeting a McDonald's quality standard that does not deviate, no matter where you are in the world.

"We've faced issues as strange as water shortages in China and Turkey, power problems in Beijing, labor issues where you can't terminate an employee for cause and simple things like pricing," says Borowski.

"In almost all international locations, even line workers are paid a salary or a guaranteed amount on a monthly basis, and they receive some kind of overtime stipend besides that," he explains.

"You change your mentality and philosophy of how you're going to staff the plant, because you're paying for the labor whether you're using it or not," says Borowski. "There are different ways to utilize people in multiple roles. We've come up with some very creative ideas in plant sizing and expansion technologies relative to our process."

Advice for companies expanding overseas

1. Do your homework first. "If you're going into a new environment, make sure you spend ample time and effort to learn the rules," Borowski advises.
   
   "Right now, we're looking at an opportunity in Russia," he explains. "One of our banks is trying to assist us in finding things out. It's amazing how many issues there are. What are the capitalization requirements? Can you go into the country before you have a legal entity established? How do you get that in place?"
    
2. Check your culture at the border. "Be accepting of the local culture, whether it's European or Asian or any other," says Borowski. "Don't come in and necessarily think,  'This is the way we do it in America.' It may not work. The more you can embrace some of the local customs and thought processes—not to change your business strategy or requirements, but to try to understand what's happening in these other countries—the farther you're going to go.
   
   "It's not enough to understand just the business and regulatory aspects of a country." he says. "It's very important to learn the personal side of the business model. That will make your international experience a lot more rewarding."
   
   Case in point: France. "In America, it's perfectly acceptable for a person to walk up to someone and say, Excuse me, I'm lost. Can you help me find the subway station?' " says Borowski. "In France, that would be considered extremely rude. Why? Because you did not enter into your conversation with a 'good morning' or 'good evening.'
   
   "Even when dealing with a complete stranger, your first words should be 'good morning.' Then you can say, 'Could you please direct me to the subway station?' and they will be more than cooperative. If you ignore the 'good morning,' you've got a better than 50/50 chance that they'll consider you rude and won't be very helpful. And it's all because you didn't take the time to learn a little bit about their culture."
   
   This practice of formal greetings carries over into the French office environment as well. "There's almost a ritual in the morning," says Borowski. "You go and make your rounds greeting people, or everybody meets in the coffee room. People walk up to you and offer a formal handshake; it's very important to recognize people."
    
3. Solicit ideas from your people in other countries. "Utilize the people you're investing in," Borowski advises. "Work with them, and they'll tell you what's right and what's wrong for that particular country."

What I know now that I wish I'd known

"I've learned how important the tax-planning aspect of international business is," says Borowski. "You'll figure out how to run your business and sell your product, but you have to consider how to move the monies around; you need to know your international tax strategies.

"Should you have, from a U.S. perspective, 'check-the-box' entities? If you establish the wrong type of entity in your foreign location, it can be challenging to unwind it and costly, from a tax perspective, to adjust it. Spend time with your U.S.-based tax advisors to determine what the most advantageous tax structure overseas would be.

"When we enter into a country, we're basically buying local labels and local ingredients to produce hamburger buns, which we sell to McDonald's in local currency," Borowski explains. "So I've learned it behooves us to put notes and loans in local currency.

"In your initial entré into the international market, you'll probably be working with your U.S. bank," he says. "They're going to say, 'Let's make this equipment loan in dollars. Then you have foreign currency coming over here, but you've got a U.S.-based loan—so now you have an exchange risk.

"I've learned to think long-term and try to look at as many aspects of the business as possible when setting up operations in another country," he says. "Doing business overseas is different than just operating a U.S. company."

Borowski stresses the personal rewards of doing business overseas. "It doesn't really get old," he says. "What I've learned about rules and regulations and how things work, and the great number of friends I've got overseas have made this job well worth every bit of extra travel or every late night I've worked, because I'm communicating with someone in a time zone 12 or 14 hours away. Doing business internationally definitely brings a lot more excitement and challenge to the day-to-day job."

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.