5 Tactics to Mitigate Risks to Your Overseas Ambitions
The world has gotten significantly smaller for businesses in the past few decades. Geographic boundaries that used to be major barriers to trade have shrunk thanks to the power of the internet and technological advances, both of which have created better communication and distribution infrastructures. Globalization has gone from being an idea of the future to being the reality of the present. Overseas ambitions are now achievable.
This new reality generally means more choices at lower costs for consumers. Further, it can mean more opportunities for businesses to enter new markets. For many, it’s not enough to only compete at home. To stay competitive and grow, businesses often have to cross oceans.
Luckily, it’s more possible than ever to do exactly that.
Of course, this doesn’t mean that doing business overseas is free of obstacles. Every country presents its own set of risks, which vary widely depending on a number of location-specific factors. Expanding to Germany, for instance, is quite a different prospect than entering Mexico.
The problem for many businesses, though, isn’t simply that risk is involved. The true challenge comes when they work to figure out the sort of obstacles they’re likely to encounter. And these obstacles are multidimensional. Not only do businesses need to check on customer risk when expanding to other countries, but they must assess supply chain management, political, and cultural risks, too.
For instance, the data used to determine credit risk can be wildly different depending on the country. In the United States, payment data is the main factor used to predict credit risk, but in Europe, financials are readily available and therefore more commonly used. To successfully expand your business to a new country, you must remember that comparing apples to apples won’t work — you have to examine each place on its own terms and in its own context.
What You Can Do to Lessen Risk Overseas
No easy tricks will magically remove the risk associated with international business ventures. However, careful planning and research make it possible to achieve your goals while understanding potential issues with the supply chain and the customers you work with.
Here are five steps to follow to prepare yourself for the unique challenges foreign markets can bring:
1. Look at the landscape
If Brexit has taught us anything, it’s that even seemingly stable countries can offer up economic blindsides. To succeed in a new country, it’s smart to ensure your business against potential upheaval and create a plan that takes not only the business landscape into account but the political one as well.
Before you jump into a new venture, figure out whether your product is one that people in the country actually want or need. If it is, you can begin the work of evaluating the distribution infrastructure and adding up the various taxes, legal fees, and employee benefits you’ll need to account for.
However, even with the best planning, not every outcome can be foreseen. That’s why it’s just as smart to procure political risk insurance, which can protect against a variety of political and economic bumps in the road, including regime change or a country defaulting on debt. This type of insurance is especially important in developing countries, where stability is often the exception, rather than the rule.
2. Plan for failure
While trying to understand and mitigate supply chain risks, you’ll need to identify and think through issues that might pop up somewhere along the way. For this reason, have a plan in place for what to do if things go wrong.
If your supply chain is adversely affected by tariffs, trade wars, and perhaps even bankruptcy, have backup suppliers that can take over for you in a timely manner.
It’s critical to understand the health of your supplier’s finances as well. If the supplier is unable to meet financial deadlines and obligations, it could result in the halted creation of your products and services or even impact your own finances.
In the event that all goes wrong and backup plans are not enough, understand how to mitigate your losses and what your next steps will be. Create targets to hit as you continue to develop your business; that way, you can see right away if things start to go wrong.
3. Pick the right people to work with
When entering a new market, it’s always a good idea to find a partner who knows the local landscape and can guide you through the various red tape you might encounter. However, while the right partner can be an invaluable asset to your journey overseas, the wrong partner can sink the ship.
Sometimes, behavior that’s considered acceptable in a foreign country, such as bribery, can land an American company in hot water. Before diving in headfirst, look into doing some preliminary business or entering into a joint venture or alliance. That way, you have a better understanding of who you’re working with before you fully commit.
4. Source local talent
The people on the ground in whatever country you’re considering expanding to will play a major role in your company’s success. That’s why the hiring process is so important when building a business in a new locale. You don’t want to hire people only to find out they’re the wrong fit and have to start the process over again.
While all hiring involves at least some level of risk, overseas recruitment comes with its own unique set of cultural and language barriers.
To combat this, implement a local hiring team to help you overcome some of the most common obstacles. Perform background and work history checks of each candidate, too. In some places, you may even need to perform extra checks for security purposes.
Most of all, make sure every hire is aware of your company’s best practices — especially when they’re different than the cultural norms. You can then ensure that you have a local team that’s working in sync with you instead of at odds with your goals.
5. Make your business model specific to the market
If you think you can take the business model of one market and easily transfer it to another, you’ll quickly find that you’re mistaken. In larger countries, such as China or India, you may even need several different business models for specific areas.
To figure out how to structure and build the model, deploy a group to determine what your expectations should be based on the social and economic needs of the region. This team can look at how a product might need to be changed and what costs will be part of those changes.
Mistakes can be costly, and changing a business model on the fly is often expensive and time-consuming, especially overseas. If you have your eyes open before you launch a product, however, you can set realistic expectations that will help you grow your business.
The global market is more open than ever, offering huge opportunities for businesses of all sizes. To ensure success as you expand, do your due diligence and create a business model specific to the country you want to operate in. By doing this, you best set yourself up to flourish in a foreign land.
Have you recently expanded your business overseas? Share your experience in the comments below.