Subsidies, Incentives and Other Start-Up Support
It’s like a birthday present for your business—foreign
governments give you things just for being there!
I LOVE FINDING MONEY. Any amount is fine with me. I love it when I forget that I left money in my winter coat pockets and find it a year later when the weather gets cold again. I think one of the worst pranks is when people put dog poop on a dollar and leave it on the sidewalk (poop-down), and then go hide in the bushes with a video camera and film people picking up the poop-dollar and getting excited, and then grossed-out and angry. Finding money is so much more enjoyable than earning money. Why? Because you don’t expect it; you haven’t worked for it; you just stumble onto it because through some mystic happenstance, the universe made it available to you.
Many national and regional governments fund incentives and subsidies for businesses, specifically to entice them to bring their business operations to their country. These incentives and subsidies can come in the form of cash grants, interest-free or low-interest loans, tax or insurance breaks, depreciation write-offs, rent or real estate rebates, and many other forms of economic intervention. With all of these, I guess you’re not technically finding money, but when you’re taking your business across borders, tax breaks or rent rebates you hadn’t counted on in your initial business planning can be just as good!
These governments extend subsidies because your business in their country is good for them. While part of the revenue you make may go back to your home country in the form of profit and corporate taxes, that doesn’t mean the country in which you’re operating doesn’t get a healthy slice of pie, too. Among subsidy-offering countries, you can generally estimate how much your company’s operations in another country benefits them, based on how robust the subsidies and incentives will be to you. Your benefit will generally reflect how much your company’s operations in the area will improve their citizens’ quality of life. Will you employ local people in your office or factory? Will you have to build out infrastructure that will benefit the area, beyond your company’s operations, such as a railroad, water dam, irrigation or road system, sewage plant, refinery, etc.? Or will your company’s operations improve tourism?
Before the Walt Disney Company began development of Walt Disney World and the corresponding infrastructure in Orlando, Florida in the United States, Orlando wasn’t much more than a few orange groves in the middle of nowhere. Walt Disney World brought a major highway, and enough infrastructure to create a new city of its own. In the years since, Orlando has grown into one of the prime tourist destinations in the world. It’s safe to say that it all occurred because a big company moved to town. Tourists came because Walt Disney World was there, and more businesses came to serve those people. The economic expansion of Central Florida hasn’t stopped since. As an area grows, more businesses, entrepreneurs, and employees move to the area, becoming citizens, and citizens pay taxes, which improves the local government. You can see how a business isn’t just a business in the eyes of a local government; it can be a springboard to civil and economic expansion far beyond the actual operations of the business. This is why governments offer incentives to companies who will enhance the local way of life through jobs and developed infrastructure.
The movie industry often selects locations for filming movies or television shows based on incentives or subsidies offered by national or local governments. These typically come in the form of tax breaks. The reason is because when a movie company comes into town, it doesn’t just bring the director, a couple actors, and a camera operator. The movie company rolls into town with hundreds, or sometimes thousands, of actors and crew.
So why would a local government offer tax breaks to a movie company that rolls into town with all their own people and stuff? There are a few reasons. First, because those hundreds of movie people spend money. They stay in local hotels, eat in local restaurants, get their cars serviced in local mechanic shops, shop in local stores, etc. Furthermore, a movie company often employs local people and companies for trade labor, catering, extra casting, etc. While film production doesn’t last forever, it does typically last for a couple of months, and even that is important in the local economy.
Also, the movie industry is very chatty, and one film in a given locale may lead to another—it isn’t based on just one film or television show. There are always new projects, so there’s always the chance a new film production team will come to town. The National Film Board of Canada has a long list of success stories, and its support for upcoming artists is part of their core activity. Business writers are commenting on the Wimbledonization of London’s business scene, meaning the attitude that it doesn’t matter to the Brits who’s running (or owning) what company, as long as it’s good for the UK.
The movie industry is just one example of how local incentives for businesses can enhance, or even drive, a local economy, beyond the scope of the business itself. When you think about it, it really all boils down to the most basic economic principle: supply and demand. The more a local area can benefit from whatever your business could bring to it (supply), the greater their incentive for you will be (demand). It varies from area to area and from business to business.
Where do you search? First, don’t overlook your home country’s resources. You may find there’s a local embassy or consulate with people dedicated to helping you do business in your target country. Also, almost every country, state, province, county, city, etc. has a Department of Economic Development or Ministry of State. This is typically also the location/resource for conducting official business filings with the government. If you plan on doing business abroad, that country’s State Department will have most, if not all, of the information you need to know about regulations, procedures, incentives and subsidies, etc. If the department also has a website (most do), they will likely have a means to make applications for subsidies online, or at least have all the documentation you need to download, fill out and mail in.
Really, the hunt for subsidies and other incentives can be a lot of fun—just like finding that crumpled banknote in your winter coat pocket.
S.G.