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Starting a business in one’s own country is risky, and taking that business into a foreign market compounds those risks. Small business owners need to enter new markets with their eyes wide open, says Harry G. Broadman, leader of emerging markets practice and chief economist for PricewaterhouseCoopers, in Washington, D.C.
Along with figuring out new regulations and laws, foreign business owners must overcome language barriers, cultural barriers and domestic competitors who will likely have stronger networks and a better sense of the marketplace than a foreigner ever could, Broadman says. But when business owners understand the risks they face and have a plan to address them, they can minimize these obstacles to their expansion plans.
Every country and industry faces a unique set of risks, but there are a few issues that come up regardless of industry or geography.
Most small business owners establish partnerships with local vendors when they conduct international business. This can help eliminate many uncertainties because local firms understand the marketplace, laws and consumer demands, Broadman says. However, business owners need to be very careful about the partners they choose.
Before signing an agreement, consider doing a credit check, interviewing their past clients, reviewing their business track record, checking for their presence on corruption lists and determining if they have a criminal record, Broadman says.
Such due diligence is vital when choosing a partner for an international venture, agrees Harrison Bishop, corporate transactional attorney and a partner at Maynard, Cooper & Gale, P.C., a Birmingham, Ala.-based law firm. “If a third party company or individual acting on your behalf violates the Foreign Corrupt Practices Act, you might be held responsible for their conduct,” he says. “So it’s worth the time and effort to be sure they are competent, trustworthy and aware of applicable laws and regulations.”
Thanks to the Internet, it’s easy for a customer to request a product or service from anyone overseas. But, business owners need to verify that customers can pay before providing products or services, Broadman says.
To minimize the risk of scams on large contracts, business owners should require money be put into escrow with a reputable, independent third-party bank before delivering the goods. “This ensures the customer has the money to pay, and lets them know you are serious about doing business,” Broadman says.
Business owners can coordinate the transfer of foreign payments from customers with the help of a trusted online foreign exchange provider that offers helpful resources and expert guidance. During this process, it’s important for the business owner and customer to agree upon details such as who will incur the risk if there are fluctuations in the exchange rates between the two countries.
Every country has a different set of laws and regulations for doing business, says Todd Colbeck, executive coach and principal for Colbeck Coaching Group in Miami. “And don’t assume your local attorney will understand them all,” Colbeck says.
Broadman encourages companies to get legal counsel from someone in the destination country, in addition to advice from home country counsel familiar with international law. This is true especially in an emerging foreign market where unwritten rules often carry more weight than formal institutions, and the court system won’t always work in a foreign business owner’s favor, he says. “Every culture has unwritten rules,” Broadman says. “For example, in China, an unwritten rule is to not criticize the government.”
“International experts in emerging markets can help you design innovative mechanisms and contracts that will create incentives for the opposite party to get things done,” Broadman says.
Along with finding an attorney in the target country, finding a foreign accountant can help business owners understand international tax concerns and other financial issues that may affect their businesses, Colbeck says. These include issues around tariffs, exchange rates, employment taxes, banking regulations and a myriad of other financial issues that are unique to every market. “When you are structuring a new business,” he says, “you need to understand how these rules will impact you.”
By taking steps to mitigate potential risks, business owners can avert legal and financial trouble before it starts.
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