The Dangers Of Opening A Business In A Foreign Country

By Ronald Kimmons. May 7th 2016

In the world of business, many of the best opportunities exist in countries outside of the United States, Canada, and Western Europe. This is because the economies that are experiencing the most rapid growth are usually the ones that have more room to grow. For this reason, if you want to capitalize on up-and-coming economic giants, you will need to find a way of expanding operations into markets such as China, Brazil, India, Russia, Mexico, or Indonesia. However, while the profit potential for operating in such places can be higher than at home, there are also certain risks involved. Before charging into a business opportunity overseas, you should consider these risks and dangers.

Currency Exchange

One of the main indicators of a country’s viability as a home for your business is the matter of currency exchange rates. Except for when one country tacks its currency values to those of another country’s currency – which almost never happens now – currency exchange rates are constantly in fluctuation. For this reason, even if your business operations are successful, converting revenue from one currency to another can sometimes result in a loss. To ensure that such problems are minimal, think twice about expanding into countries that have a history of dramatic currency fluctuations.

Political Issues

Just as currency volatility is bad for business, just about any other kind of volatility is bad as well. This is especially true when it comes to the political climate. Political volatility in the United States – characterized by the push and pull between Democrats and Republicans – is nothing compared to the dramatic regime changes and paradigm shifts to which some countries are susceptible. In some cases, a political climate that is friendly to foreign investors may suddenly undergo a complete change, in which excessive taxation could bankrupt your business. In more extreme cases, business assets could even be seized by government agencies.

Crime

Unfortunately, some emerging markets are also home to high levels of crime. This crime can come in the form of random acts of robbery, assault, or vandalism, but they can also be part of a culture seething with criminal organizations. In some cases, rather than stealing cars or equipment, such organizations may go so far as essentially stealing real estate and entire businesses. If the local government cannot promise protection against such dangers, this is definitely something worth considering. Private security firms can often help to some degree, but even when this is the case, their services will most likely drive up business costs significantly.

Cultural Differences

When it comes to the culture in which your business must operate, going to a foreign country may or may not mean getting used to a completely different attitude among employees and associates. While American and European firms may not have much difficulty getting used to each other, an American firm trying to grow in East Asia may be surprised about the differences that exist there. For instance, while the Chinese government has put significant effort into trying to curb it, corruption remains a big part of the Chinese business environment. Many government officials assume that foreign companies will pay them personally for any services they render on behalf of the state. In some cases, refusing to pay may mean that you cannot do business there, while paying could have legal and PR consequences. Even when corruption is not an issue, an inability to conform to certain cultural expectations can sometimes sink an entire business venture. For example, if a key employee feels that he is not being treated with courtesy, he may leave you high and dry, and if a government worker feels that you are being the classic pushy American or snooty European, the paperwork for your business license application could get misplaced. Another cultural issue that Americans often take note of is that, in many countries, Americans are considered unnecessarily blunt. However, this shying away from bluntness may also come with an unwillingness to state the truth. For instance, for the sake of avoiding the “bearer of bad news” hat, someone may tell you that your shipment is coming on time when he or she knows that it simply is not.

Language Barriers

Many Westerners – especially from the United States – simply assume that everyone else should speak their language. While English is considered the international language of business, the fact remains that plenty of intelligent, capable people around the world simply have not learned English. Even when they have studied, they may not be completely fluent. Similarly, even if you have studied their language, you may not be able to communicate as effectively as you would like. For this reason, operating in a foreign country may prove problematic. You may be able to get around this problem by hiring a capable executive assistant with stellar language skills, but this additional level of communication can be inefficient and costly.

Litigation Problems

If you end up in a dispute with another entity over a certain piece of property, the requirements and costs associated with putting such a dispute to rest can be multiplied if your business is operating in a foreign country. However, there is a relatively simple way of minimizing this risk: before doing business with anyone, have that person sign an agreement to resolve any future disputes through private arbitration rather than litigation. Arbitration is almost always less costly and consumes far less time.

Risks To Intellectual Property

Not all countries have laws in place that protect intellectual property rights in the way you may be accustomed to. If you have software, blueprints, or other types of valuable intellectual property that you intend to put into play in a foreign market, make sure to take this into consideration. Also, even if such laws do exist for the country in question, they may not be enforced. In some cases, government agencies may even require you to give them a copy of product designs – and then sell those designs to domestic firms.

Many risks and dangers lie in wait for entrepreneurs seeking to expand their horizons over the horizon. However, remember that, like glory, profit tends to find its way into the hand of the courageous. After accounting for the applicable risks and making the necessary adjustments, it is quite possible to turn a significant profit even in very extreme business conditions.

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