Risks and Challenges of Staring Business Abroad (Essay Sample)

Risks and Challenges of Staring Business Abroad
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Risks and Challenges of Staring Business Abroad
Starting a business in a foreign country is a common practice aimed at escaping a venture from domestic competition while taking advantage of fresh opportunities abroad. Yet the process is fraught with numerous risks and challenges that if not considered and planned for diligently may collapse a business at infancy. At the business level, one must understand the financial and regulatory environment in a foreign country prior to setting base. At political level, one must analyze the macro and micro political situations and how they may affect business operation. At cultural level, one must be competent enough to approach and operate in the market in a culturally sensitive manner. This paper will explore the specific business, political, and cultural risks that may face a business starting in a foreign country as well as recommend a plan to avoid operational, transaction, and translation exposure.
An enterprise starting abroad faces the business risks of financial exposure resulting from currency stability and exchange rates, taxation regime and government policy. If the area of interest is Asia for instance, a business must be aware that currency stability in most countries is dependent on oil prices, and purchasing power and government policy may change in response to the prices (Auernheimer, 2003). Moreover, the enterprise, if originating from the United States for instance, must be aware of the currency differences and exchange rates. Similarly, the enterprise faces a challenge as regards the tax policy and laws as they may be more capricious than elsewhere.
As regards political risks, the most salient one is political stability as it affects the favorability of business environment. In the event of a revolution, war or insurrection for instance, a market becomes untenable despite the economic ability of the target client. At a lower level, the political environment may cultivate a culture of impunity that violates business laws and is complicit to corruption (Loughman & Sibery, 2012). In countries where political leaders are known to precipitate crisis to force closure of foreign business in order to protect their own, the risks are multiplied.
Culturally, a business starting abroad faces the challenges of communication as well as daily interactions with clients and other stakeholders. Hofstede cultural theory provides the model framework for understanding a society’s culture and how it may affect business (Hofstede, 2001). Through this model it is possible to predict some of the challenges to expect while doing business abroad. An American business would for instances face language barrier in Middle East where English is not spoken by many people. Other more nuanced challenges include the different code of dressing, business meetings, and decision making. In Japan for instance, meetings are longer and time is a more flexible concept than is the case in the west. Moreover, decision making process has more reverence to leaders and managers than in the west. These differences make it difficult to do business especially where the parties are nor culturally competent.
The business, cultural, and political risks discussed above could lead to operational, transaction and translation exposure. To avoid such a situation, it is recommendable to conduct a thorough market research before penetrating a foreign market. Local consultants ...