Investing outside your country – points to consider from a legal perspective
Outgrown your home market? Saturated customer base. Dwindling profits margins. These are just few of the reasons why businesses look at overseas markets outside the comfort zone of their home markets.
Being new markets, taking your business overseas does offer the opportunity of reaping quick and large volumes of profits; but these do come with the inherent risks.
Fluctuations in exchange rates
Fluctuations in exchange rates is one of the most obvious yet high impact risk that organizations going multi-national consider. Sudden fluctuations in currency tend to hit small and mid-sized companies harder as the larger ones tend to manage to hedging the currency and the scale.
Changes in the political and social environment:
The political environment is perhaps the least predictable elements in international business. An unstable political environment leads to uncertainty and sudden changes in law and regulations which can ultimately lead to business loss. Most companies that have international presence buy political risk insurance to reduce their risk exposure.
Differences in Language and Culture can be huge hindrance among the native unit and the multinational organization. Difficulty in understanding the needs and wants of the superiors,peers, subordinates and customers can cause discomfort. A client or customer who is unable to understand the employees due to a heavy accent or lack of command of the language may become frustrated and take his business elsewhere.
Different legal and regulatory systems
Every nation has laws and organizations to supervise foreign investments. There are two levels of challenges in the supervision realm that is commonly faced in overseas investments. The first was that the laws and regulations of some countries are complicated.In those countries, it is easy to wander down the path of illegality if one stops paying attention for even a moment. The second was that some countries put up obstacles to investments via the legal or supervisory systems because of ideological of political concerns. Another major challenge for new overseas investment drive is a lack of experience.
Lack of understanding of investment products. Many products aboard are either completely non existent at the home country or have just emerged, whether they are swaps, hedging or stock index futures. These product or vehicles have grown complex in developed markets.One must be especially competent in handling the technical aspects, for even the slightest misunderstanding could easily result in losses. Countries are more familiar with direct investments. However, in many countries and in many industries there are no precedents to follow. Lack of experience exacts greater demands on risk management.
The next challenge is a lack of experience in project design, investment structures and negotiations. How good opportunities can be identified and projects can be developed; how effective structures can be designed to manage investments, taxes and repatriation of investment income; and how better terms and conditions to extracted from negotiations. These questions demand careful response and diligent study. Also the utmost use of highly experienced talent – lawyers, accountants and other intermediaries should be made.