- Written by Ariel Sztern
- Hits: 2004
From the moment of its conception, every company aims to settle, develop and expand. There are times when growth occurs naturally in the local market, which evolves from the Company’s actions, mixed with needs of our clients, but in other cases there are strategies for the medium to long term, in order to open new horizons and conquer other markets.
Software industry in Latin America is especially favored by several factors such as low cost, high specialization, the quality of the development teams and local policies that help businesses to export, positioning software as one of new movers of the economy.
That is why many companies go to international markets to accelerate growth, aiming to establish commercial bases to develop services under the nearshore format.
Unlike offshore, the nearshore model allows for greater contact with the customer, providing services from neighboring countries or establishing an office in the destination country.
Now, the questions are always the same:
- Where do I settle?
- At what cost?
- How soon will I recover my investment and start to do business?
The main advantage of the software industry is the convenience of having our development centers in our country, at a reduced cost, and at the same time to establish a commercial base in the destination country in order to provide a local presence without losing the benefits of offshoring.
According to the 2015 annual report by Forrester the technology market is quite optimistic.
Forrester posits that CIOs can confidently push for 2015 budget increases of 4% to 6% in terms of the purchase of tech goods and services. Specifically, analysts project that global IT spend will grow by 5.3% in local currency terms. Growth in the global tech market overall will rise by about 2% over the next two years.
As was the case in 2014, Forrester pinpointed that the United States will lead in total tech spending, followed by China, India and the UK.
Given the demand for technology, and other factors such as cultural similarities and time zones, United States emerges as one of the top destinations for establishing our company abroad.
It is also essential to identify where we should incorporate our Company. The states of Delaware and Texas have been for years one of the best options from the taxation standpoint to establish a company, especially in the case of Texas, not only because of the good business environment there, but also for its proximity to the Hispanic world.
While the process of establishing a company in the United States is very fast and straightforward (1 to 2 weeks), it’s essential to be well advised in order to determine its legal and accounting terms.
When we talk about US tax, we must distinguish the different administrative levels. First, there are federal taxes that are the same across the country. But in addition to that, each state sets its own taxes. And finally counties and cities also charge certain taxes.
For example, the sales tax (equivalent to our VAT) is set by the State of Texas to a minimum of 8.25% that goes to the coffers of the State, but each county may establish an additional percentage.
From the business point of view, what matters us most is the Company income tax and the Individual income tax.
With an LLC (Limited Liability Company) the income tax in Texas is... 0% (yes, that’s not a typo: nil). That is, LLCs do not pay income tax. Unlike almost all states, Texas imposes no state tax; at year-end profits are shared among the partners and it is they who are taxed on the profits.
And how are individuals taxed on their profits? The individual income tax progresses as the income level increases. The income tax also has federal and state components. But in Texas the state does not charge any income tax, so only the federal contribution is paid, ranging between 10% and 35%.
The costs of labor taxes are also very low (less than 8% of salary), and the dismissal does not incur on additional costs such as compensation, previous notification or others, as happens in the rest of Latin America.
As for wages, salaries are very high. An average Business Developer can cost USD 80K plus commission per year, and premium seller can cost about USD 120K. A developer in Texas has a cost of USD 100K per year and to this we must add benefits like health insurance and 401 (K) (a savings account paid by the Employer). This last cost is generally paid only by large companies.
To all this we must add further costs such as legal and accounting services, which are necessary for the development of any company. It is essential to have the advice of a trusted lawyer regarding the review of contracts, proposals, and legal aspects in order to have the necessary protection for our Company.
As for the tax side, there are monthly, quarterly and annual filings that must be carried out with the help of a CPA (Certified Public Accountant). While these presentations are not as complex as in the rest of Latin America, it is important to have the assistance of a professional to advise us about them.
The sales cycle in the software industry is generally long and never shorter than 4 or 5 months. While the American market is quicker, it’s necessary to make plans taking into account these long periods, knowing that payment cycles can also be extended, usually between 60-90 days.
It is important to conduct a market analysis and identify those factors that make unique the service one provides, or at least not so generic.
America is a specialists’ market, and for this reason it’s fundamental for us to also be specialists. It’s important to perform this analysis before tackling any challenge, and to find out what is the added value that our company has in providing services.
In many cases we can complement our technical knowledge with experience in a particular industry, such as Oil & Gas, the Medical Industry, Media & Entertainment, or specific sectors such as Marketing, HR or Finance.
To the extent that we can identify our strengths, the sales process will be more effective and the cycle increasingly shorter.
As always, experience plays a fundamental role, and it is important to know the market to minimize risks and therefore reduce the cost, which can be seen quickly multiplied by not taking the right decisions.
It is advisable to conduct 1 or 2 week-long exploratory missions, which help us to understand market needs and identify the strengths of our Company, in order to make the right decisions. These missions will allow us not only to identify opportunities and local partners, but also to determine, according to the targeted industry, the best place to settle.
But as in every journey, even if you have identified all the variable, there is a moment to jump, and forget everything. My only advice is to keep you fresh and enjoy the trip.
About Ariel Sztern
Ariel is a Software Engineer with more than 20 years of experience in Software Development with experience in managing projects in more than 16 countries
Nowadays Ariel is responsible for managing the operation in USA as President of TISA Software LLC.
Beyond his technical knowledge and passion for the technology Ariel enjoys watching the NBA and playing Ping-Pong, he also like sci-fi movies and was recognized as one of the 40 under 40 by the Houston Business Journal in 2014.