Between the incredibly low cost of flying these days and the strides we’ve made in communications technology, the world is a far smaller place than it was even just ten years ago. The number of business travelers and foreign expatriates is at an all-time historical high, and all signs seem to point to the world becoming even more interconnected than it is today.
While the idea of companies expanding overseas is nothing new, what is new is that the barrier to making your business truly global is lower than it has ever been.
That said, there definitely still are a number of risks involved. While there are too many risks to be mentioned in just one short article, Economy Watch has devised a helpful way of dividing different types of risks to international investment in four categories.
Regulatory Risk
Countries that are unable to protect intellectual property are of particular risk to businesses that rely on their IP’s as a way to turn a profit. Software companies and media producers are at particular risk when they enter a market that has poor regulatory controls. However, virtually any business can be affected. Brands in any industry that have built a significant following may find their products and logos counterfeited, for example.
Regulatory risks also extend into the financial sector, as they can make it difficult to access funds from your home country or send earnings from the host country outside.
Political Risk
It’s important to understand how politics works at the international level as well as at the local level in order to assess how your business may be affected. Unstable or hostile governments may not be able to offer you protection or may actively seek to remove your business from the country, regardless of what the law may actually say. Your host country and home country may also have agreements that can benefit or disrupt the growth of your business, and tensions between the two can create unexpected problems and opportunities.
At the local level, the culture of the people in your host country can pose a significant challenge, especially when it comes to optimizing work processes and ensuring that everyone sees your presence as beneficial. The existence of labor unions can also influence the political risk of investing in a country, depending on your situation.
Country Risk
Road and telecommunications infrastructure, education levels, and security are just some of the risks that fall under this category. These risks can make it impossible to do business safely or securely within a country. On the other hand, the presence of some political risk isn’t necessarily a deal breaker, and can be an opportunity to invest in a growing country’s market before it becomes too expensive.
Cultural issues may also be categorized as a “Country Risk”. However, a good case can be made that they may also be political risks as well.
Currency Risk
Unstable currencies can reduce the predictability of earnings in a host country, potentially reducing profits. This can be especially important to watch if you’re investing in a less-developed country. Currency risks are also tied to political and regulatory risks, so it makes sense to watch those to get a good sense for any possible signs of instability in the local currency.
Of course, while not necessarily a direct risk to your business, the risks to your health need to be addressed as well. Getting an international insurance policy from an insurer like Now Health International makes it easy to get quality medical care, even in developing countries. These plans are essential for anyone who wants to take their business global.
