Upside vs.downside of doing business in emerging markets

Evaluating the risks to your business, your reputation and your well-being when pursuing international opportunities
By: Alexander Gordin. The New York Enterprise Report
February 8, 2011
President Obama has been leading the charge to increase exports as a highly effective way to boost our nation’s economy. I very much agree with this initiative and firmly believe that U.S. companies have superb potential in selling their goods and services overseas. Many foreign markets, especially those in emerging and transitioning countries, offer attractive opportunities for profit, market positioning and growth.

Yet the risks of doing business in some of those countries may far outweigh the rewards. Risk factors range from reputational and financial to health and life. It is crucial to develop a sober risk-assessment framework and view it side-by-side with possible opportunities.

Always evaluate “Upside vs. Downside.” I’ve told this to my sons for as long as I can remember and when doing business abroad, this maxim may one day save your life.

Do Not Expect Protection

I believe that we should always worry about protecting our four most valuable assets– life, health, reputation and property. Understanding the downside of every action and transaction is vital. Things are not the same abroad as they are here at home. In the U.S. you can go to court to get satisfaction, call the authorities or the police. But in many foreign countries, especially emerging markets, you are more likely to be confronted by hoodlums, crooked cops, reporters or inspectors who will try to shake you down or bend you to their will. If they don’t get their way, you could become a victim of a shooting or a beating. My advice: Be careful.

You must also try to predict the worst possible outcome of a particular deal and how it could impact your four most valuable assets. It may not always be possible to assess every risk, as in the example above, but an in-depth analysis is needed in every case.

Understand All Players and All Threats

When structuring a transaction, you must understand who the players are, who stands to lose, how much and what are you prepared to do if someone approaches you with a threat, whether veiled or explicit! Will you run, withdraw, proceed, or attack? These are serious questions that require sober and realistic assessments of your capabilities, your reputation and potential damage to your four most valuable assets, as well as your financial condition and your desire to stay in the market.

Then you need to think about this: How likely are you to succeed and reach your dreamed-about lucrative goal, or do you run the risk of being damaged in the process while the opportunity itself is uncertain? This falls into the “worst possible outcome.” Will involvement in the project place you on the wrong side of the political powers of the country you’re entering?

More cautions: How secure is your business, your person, your information? Are competitors spying on you? It happens more that you may think, especially abroad. Could you be caught in the crossfire of battling forces and be splattered in the process? What happens if the nation’s ruling party, or the senior leadership of your prospective customers changes?

Can You Walk Away?

In the movie “Heat,” actor Robert DeNiro’s character defined his strategy for survival: “Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.” A similar strategy should be employed when doing business abroad.

You may be asking, “Why would anyone spy on me, or have reason to harm me? I’m just a simple businessperson and my company sells basic consumer products.” You may be right, but you also may severely underestimate what’s really going on. For example, what if your competitor, a local oligarch, is selling a similar product in the country and dominates the niche, with a solid and consistent cash flow? This person would not take kindly to your intrusion into his market space, and he or she would have the resources to conduct commercial espionage, and may chose to engage in discreditation in the press, or even more sinister activities.

Do you have contingency plans? These could range from leaving the country in a hurry to having a crisis management plan, to medical evacuation insurance or having an idea of where you can borrow a few hundred bucks in case your wallet is stolen.

If your company has physical assets, invest in political risk insurance that covers expropriation, nationalization, terrorist acts, currency inconvertibility and a host of other risks. Insurance may also be available for other politically charged commercial risks when bidding on certain contracts, financing from local banks or bonding customs shipments. Such insurance may be available from Overseas Private Investment Corporation (OPIC), Multilateral Investment Guarantee Agency (MIGA), or private insurance companies.

You also should assess the potential rewards as they relate to the extra risk you take on. Selling your goods or services at a modest mark up, as you may do back home in the face of stiff competition, may not be worth enough if the risks are significantly higher. Even though your product or service offering should be competitively priced, you should NOT be involved in doing business abroad if you are not able to price your services to include all the risks that exist.

If you are not able to evaluate this on your own, hire professional advisors, but make sure your upside is always much greater than the downside.

Alex will be moderating The International CEO Roundtable on February 17th in Manhattan. This unique and timely CEO roundtable is designed to produce informative discussions between business leaders that operate in the international arena. Attendees will walk away with new ideas and the latest best practices from other CEOs which they can implement into their own businesses. To request an invite to this event, visit www.nyreport.com/roundtableinvite.

Advertisements

About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Site Title

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” — Maya Angelou

Museum of International Trade & Merchant Banking (MoMBIT)

chronicling the importance of international trade and merchant banking in the global development

Fluent In Foreign Business

Helping To Grow Your Business Abroad

Emerging Market Insights

How to make a killing in Emerging Markets without losing your shirt?

Ideas That Work @ GIDASPOV.COM

Strategy | Creativity | Innovation | Fundraising | Marketing

Nu Leadership Revolution Blog

“Helping Emerging Leaders Gain the Competitive Advantage in the Future"

Mike Z's Blog

Exploring the causes of cancer throughout the world

Bucket List Publications

Indulge- Travel, Adventure, & New Experiences

FranchisEssentials

Sharing Information, Insight and Perspective about Franchising, Small Business and Entrepreneurship

bizrisk.wordpress.com/

We Help Insurance Agencies Stand Out

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: