How Unexpected Legal Hassles Can Hinder Business Expansion
Tapping into new markets, growing the team, and boosting revenue mark a significant milestone in expanding your business, especially internationally. It’s often the result of hard work and strategic planning.
Dell Technologies, Whole Foods Market, and Ford are examples of businesses that expanded globally successfully.
But not every brand finds smooth sailing. Walmart struggled to gain traction in Germany and Japan, while Home Depot’s attempt to spark a DIY movement in China fell flat.
Global expansion is exciting, but it also comes with risks. Legal pitfalls, in particular, can quickly turn a promising opportunity into a costly setback and even stall growth altogether.
Here, we’ll discuss some of the most common legal curveballs that can seriously slow your business growth and how to stay one step ahead of them.
Contract Disputes Can Disrupt Your Business Activity
International expansion inevitably involves entering into new agreements—leases for new spaces, contracts with suppliers and distributors, partnership agreements, and hiring new employees.
Each new contract, however, represents a potential point of friction. Disputes often arise when one party believes another hasn’t fulfilled their obligations.
Just imagine signing the lease, scheduling contractors, and ordering inventory—only for the supplier to fail to deliver the goods. Or, even worse, you overlooked lease terms that prevent necessary renovations. The entire expansion timeline can screech to a halt.
The two most common types, according to Contracts Counsel, are material breach and minor breach.
The former is considered null and void if one party fails to fulfill their obligations. The latter isn’t a total breach, so it doesn’t nullify the terms and agreements of the contract.
Contract disputes aren’t minor inconveniences, but significant roadblocks. A dispute with a key supplier can prevent a new product launch. A lease conflict can delay opening a new storefront and a partnership breakdown can unravel a joint expansion effort entirely.
Worse yet, contract disputes can stall projects, delay payments, and mess up your cash flow. And if things escalate into a full-blown lawsuit, say goodbye to your timeline for international expansion.
Intellectual Property Infringement Can Lead to Loss of Competitive Advantage
You worked hard to build your brand. Your logo, your designs, your content, your secret sauce—it all sets you apart. But what happens when someone rips you off? Or, worse, they accuse you of copying them.
Your business’ intellectual property—its brand name and logo (trademarks), inventions (patents), creative works like website content (copyrights), and formulas (trade secrets) are invaluable assets. You need to protect it, or you might land yourself in hot water.
You could get hit with a ‘cease and desist’ for accidentally infringing someone else’s IP. It’s a written notice that demands the recipient to halt an illegal or allegedly illegal activity, explains Investopedia.
Case in point—Isaac Hayes Estate suing Donald Trump. Last year, the late artist’s estate filed a lawsuit against Trump for using his song, “Hold On, I’m Coming,” during various political rallies.
IP disputes can cripple expansion efforts. They can force you to stop using your established brand, recall products, and divert critical international expansion funds to legal defense. The damage to reputation can be immediate and severe, particularly when negative press arises from infringement lawsuits.
What’s the worst part? While you’re busy sorting it out, your competitors might be moving in on your market. That competitive edge you had vanished in the blink of an eye.
Product Liability Litigation Can Cause Reputation Damage
Selling a physical product? You’ve tested it and you’re proud of it. But what if something goes wrong? Maybe a product malfunction could cause damage, or—worst case—might hurt someone. You’ll find yourself in the middle of a product liability lawsuit.
Product liability arises when a product designed, manufactured, or sold by a business is defective and causes injury to a person.
History is replete with examples of major corporations facing billions in liability claims and suffering long-lasting brand damage due to defective products.
The Bard PowerPort lawsuit is one example. Suits concerning Bard Power Port devices center on claims that their design and manufacturing flaws have led to significant health problems in patients. Over 1,200 lawsuits are pending in the federal MDL.
According to TorHoerman Law, some complications linked with the Bard PowerPort devices include catheter fracture, deep vein thrombosis, blood clots, pulmonary embolism, and stroke. Lawyers predict that settlement amounts could range from $10,000 to over $250,000.
Beyond the direct costs of lawsuits and settlements, there can be potential recalls.
Nonetheless, the most devastating impact, particularly during international expansion, is often the damage to the company’s reputation. Negative reviews, damaging social media campaigns, and a general loss of customer trust can follow a product liability incident.
So, What Can You Do to Stay Ahead of This Stuff?
Here’s what you can do to mitigate the chances of legal hassles derailing expansion plans:
1. Get a Comprehensive Legal Check-Up of Your Business
Don’t wait for a problem to blow up. Meet an experienced legal advisor in the country you want to launch in.
They can review your contracts, check your IP protections, look over your compliance practices—you name it.
Conducting such a review helps flag potential weaknesses or ticking time bombs before they explode under the pressure of international expansion. This makes sure that the underlying legal framework of the business is robust enough to support growth, rather than becoming a source of friction.
2. Don’t DIY Important Contracts
The temptation to use readily available online contract templates to save time and money during international expansion is strong. This approach is fraught with peril.
Generic, do-it-yourself (DIY) contracts often create more problems than they solve. The dangers include unenforceability, missing protections, ambiguity, and unintended obligations.
So, resist the urge to cobble something together from Google. For critical agreements underpinning expansion, such as partnership agreements, major supplier or distribution contracts, or commercial leases, hire a lawyer to draft the contract.
There is an upfront cost, sure, but professional drafting is an investment in risk mitigation.
3. Invest in Insurance
This one’s easy to overlook, especially when you’re focused on growth. But insurance is your safety net. According to Forbes, it is an investment that can save your business from significant financial losses.
General liability insurance is a no-brainer. That alone isn’t enough. If you sell products, you need product liability coverage. If you work with data or sensitive info, consider cyber liability insurance. Directors and officers liability insurance and employment practices liability insurance are other insurance policies worth investing in.
These policies often cover not just potential settlements or judgments, but also the often-substantial costs of legal defense.
Growing a business is tough. Don’t let legal issues make it harder. If you’re not paying attention to the legal side of things, it can come back to bite you hard. And nothing stalls momentum like a nasty dispute, a surprise lawsuit, or a PR nightmare.
Staying out of trouble isn’t difficult, however. Just be proactive, have a good legal support team, and treat legal planning like part of your growth strategy, not an afterthought. Rest assured, your business will scale smoothly.
