Why are foreign investors hesitant to enter the US market?

For foreign investors, particularly European businesses, entering the American market presents an exciting yet daunting opportunity. With a GDP of over USD 27 trillion, nearly double the European Union’s USD 16.6 trillion, and a population of over 334 million, the United States is the world’s largest economy and an undeniable magnet for global business. While its relatively homogeneous consumer base and use of one primary communication language make it particularly attractive, its vast geographical size, higher travel and logistics costs, and cultural differences set it apart from European markets. Despite this, the sheer purchasing power of US consumers means that any company serious about global growth cannot afford to bypass this market. 

While there are economic, legal, and cultural hurdles to US expansion, seeking the expertise of an experienced, strategic chief financial officer (CFO) can help you and your clients traverse and overcome them. 

With that in mind, here are five key challenges holding back foreign investors and CFO insights to overcome them.

Legal system 

The US legal environment is notorious for its high litigation costs and the prevalence of product liability and warranty claims. For manufacturers, the fear of frivolous lawsuits is a significant deterrent. Under the doctrine of “long-arm jurisdiction”, US courts can assert jurisdiction over foreign manufacturers, even if they operate solely through distributors. While this sounds intimidating, such lawsuits are relatively rare. Many states and courts are pro-business and prioritise resolving cases before trial. Hiring an experienced fractional CFO will help provide legal and regulatory guidance to navigate the complex web of federal, state, and local regulations, minimising risks associated with compliance and liability. 

Human resources

While the US employment culture offers flexibility compared to Europe’s indefinite labour contracts, the cost of white-collar salaries and employee benefits can be significantly higher. Health insurance is a particularly challenging aspect of US labour costs, and there are often annual premium hikes of up to 20%. The guidance of a strategic CFO can help a company develop an HR strategy that structures competitive benefits packages to manage talent acquisition and ensure a company can attract and retain top talent. 

Cultural differences

Though both the United States and Europe share Western cultural roots, subtle differences can create misunderstandings in business interactions. For example, Germans may approach projects methodically, ensuring all potential problems are solved before beginning. Americans, on the other hand, often prefer to start quickly and address issues as they arise. These differences can impact project management, sales negotiations, and team dynamics. Such gaps, while seemingly minor, can have a significant impact on the success of US operations. An internationally experienced CFO can offer insights into bridging cultural gaps, improving communication, and aligning business practices to US norms. 

Financing

European companies, particularly German ones, tend to be more financially conservative than their US counterparts. Adhering to the “golden balance sheet rule”, many prefer to finance investments through retained earnings or company assets rather than external debt. This approach can limit growth opportunities in the United States, where higher debt-to-equity ratios are the norm and access to capital markets is more robust. With financial structuring and growth advisory, an experienced CFO can help companies adapt to US financial practices, optimise capital structures, and secure funding to support their expansion goals.

Sales and use tax vs. value-added tax 

One of the more complex challenges foreign companies face when entering the US market is understanding the sales and use tax system, which is fundamentally different from Europe’s value-added tax (VAT) system. In Europe, VAT is a uniform consumption tax applied across all EU member states, with harmonised rules and standardised compliance processes. In contrast, the US system is decentralised, with each state – and sometimes even local jurisdictions – having its own sales tax rates, exemptions, and compliance requirements. Companies need proper guidance to navigate these complexities effectively.

Other considerations

The evolving political climate in the United States has caused uncertainty for many company executives. Policies related to tariffs and trade have created challenges for foreign manufacturers looking to enter the US market. However, this uncertainty also presents opportunities. A seasoned CFO can identify ways to remain competitive and take advantage of incentives to establish local production facilities in the markets where they sell, thereby mitigating tariff impacts and improving customer proximity.

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Edwin Grempels is a CFO Partner with SeatonHill. He is a global executive finance leader and German expat who has lived in the US for nearly two decades. Edwin specialises in market entry and expansion in the US, Latin America, and Europe. He has a proven track record of profit optimisation through restructuring and leadership development, with extensive expertise in private equity and M&A.