Doing business overseas: The hidden risks
Startups are a lot easier than stay ups. Within the first 18 months, 50 to 70 percent of new, small businesses crash and burn. Only a fraction of that number ever make it to the ten year mark. That is what happens to US businesses started by US citizens. They know the language, the geography, understand the money and finances, are familiar with the weather patterns, and are fully assimilated into society. With all those advantages, they still fail at an alarming rate.
The risk of failure is even higher when setting out to do business overseas, in a land that is completely foreign. The language is Wookie-speak. And the currency might just as well be monopoly money. Then, there are the politics and laws. It is hard enough to keep up with ours own here in the US. What about taboos and social mores? It is all too easy to cross lines you don’t know are there. While a risk is nothing more than a challenge, to some, consider these challenges before setting up "shoppe" abroad.
Exchange Rates
If you are going to set up shop in, say... Cameroon, you are going to have to be able to translate currency as well as language. If a work order is going to run you XAF 113,458.00, you are going to need to know that you are dealing with about $200, at least, right now. It may be different by the time you read this. That is how currency goes in many of the developing places where you might find opportunity.
The same challenge presents itself when it is time to send money. Not only do you need a good unit converter, you need a trustworthy source that can help you streamline the process. When you are dealing with something like paying your workforce in their local currency, it is imperative that you get it right.
The risk is that you invest with the expectation that your dollar means one thing, only to find out that it means another after a major currency fluctuation. Places where the opportunity is greatest may also pose the greatest risk with regard to exchange rates and currency fluctuations.
Unfair Competition
In the US, and elsewhere, there are laws regulating competition. In developing nations, you might find that it is more like the wild west where anything goes. If you manage to carve out a niche for yourself, provided that it is a big and successful enough niche, you might just find yourself in direct competition with the government.
Apple and Google are experiencing something like this in Russia right now. It seems Russia is planning a national operating system to escape Android and iOS dependence. Rather than thanking you for bringing innovation to their shores, they just might decide to take over from here. Thank you very much. Now, you can go back home. Know the competitive and political landscape before breaking ground.
Political Uncertainty
The winds of political change can wipe out a business overnight. Apple, Google, and others have been using certain countries like Ireland, as a tax haven. This is not to suggest in any way that they have done anything wrong. All evidence points to the opposite. They have used favourable accounting rules to maximize their position in various countries.
But wealth is a target. You can follow every local law where you do business. And when you become too wealthy, they will decide that you are not giving them a big enough piece of the action. Political change has swept through these tax havens. And now, all of those companies will find themselves owing back taxes as a result of a retroactive change in the political climate.
None of this is to say that you should not do business in these places. The same article that presented the dire state of startups, also said that entrepreneurs are not dissuaded from forging ahead with new opportunities regardless of the risks. That is the American spirit that brought us Apple, Google, Microsoft, Facebook, and whatever business you have in store.
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