Sample Book Chapter – Fluent In Foreign Business™

Cover of my upcoming book
Now also available as eBook

Chapter 21

 Stay the Course



When the going gets tough, do you start packing?

The answer is “sometimes.” Over the last 20 or so years, my business has weathered a number of political and military crises which at times were so perilous and unpredictable that it often seemed like the best thing to do was to pull up stakes and go home.

First, there was a GKCHP coupe d’état in 1991 in Russia a couple of months after we received our official distribution rights and opened for business. Then, in October 1993, I landed in Moscow two hours after President Yeltsin dismissed the Parliament only to find tanks and armored infantry vehicles assemble on the approach to the city from the airport. Two days later, the entire world watched as Russian tanks fired on the Parliament building.  At the time, our subsidiary already had a radio communications system built out in Moscow and my staff picked up live transmissions during the gunfights at the Ostankino Tower.

Of course, who can forget the spring of 1996 when, in anticipation of the presidential elections in which the communists threatened to return to power, all the money seemed to be sucked out of the financial system and our business came to a screeching halt.

The financial crisis of 1998 was not any more fun. Although I did not have much exposure in Russia at the time, our clients did, and their losses totaled millions of dollars. Not the best time to seek increased business.

Then we lived through the Orange Revolution in Ukraine in 2004, and the gas wars between Russia and Ukraine from 2006 to 2008, which threatened to cut off supply to the European Union. Then there was the war of August, 2008 between Georgia and Russia.

Finally, there was the chaos and turmoil of the global financial crisis of 2008. The collapse hit the U.S. and the world pretty hard, but it almost devastated countries such as Ukraine, Hungary and Latvia. But, as they say, behind every crisis lies an opportunity.

Do it or don’t do it. There really is no do it halfway option. So if you choose to do it, you have to do it right.

You may end up facing cataclysmic events, political turmoil, or financial crises. There may be military coups, economic and political crises, disease pandemics, natural disasters, competitive threats, criminal threats and other very unpleasant events. Each has to be carefully and rapidly assessed on a stand-alone basis, and in some cases you may be forced to abandon your chosen market, as Gary did in Chapter 20. However, more often than not, these events are precursors to bigger and better things and overcoming them can be a highly rewarding experience down the line.

Over the last 20 years, Russia experienced a series of crises. After each one, the country came back with stronger and more robust economic expansion. Similar observations can be made about other markets, including the U.S. There was the devastation of the 1929 stock market crash and the Great Depression that followed. But the U.S. came roaring back. What about the 1987 crash and the dot com meltdown? All these events seemed to spell doomsday at the time, but those committed to the markets long-term found great opportunities in their aftermath.

The same think is happening right now in the wake of the global financial crisis. Countries like Poland, Hungary, Ukraine, Iceland, to name just a few, have been hit terribly and their economies ravaged. Egypt, Libya, Yemen and Tunisia are battling their authoritarian leaders and Japan is dealing with consequences of natural disasters and major nuclear accidents. Yet, fundamentally, most foreign markets remain sound long-term and are poised to resume their economic growth in a few years after these devastating events. You do not want to invest significant resources into a venture only to be shaken out of the market at the bottom.

Take a long-term view. If you are already operating in these markets, reassess your company’s position. Play defense and control spending. Look for acquisition and consolidation opportunities. If you are thinking of entering any of these markets, it may be a great time to do it — the costs of just about everything, e.g., labor, advertising, real estate, and other inputs, have gone down significantly. Stake your claim and position your business for growth.

Then again, think back to Cuba in 1959. The Castro-led revolutionaries pulled off a coup that plunged that country into oblivion and has so far been irreversible. Here again, I emphasize the importance of political risk insurance, which would protect your business from such perils as expropriation, nationalization, terrorism and currency inconvertibility.

To help you make right decisions, you should become completely plugged in to the numerous economic and political information sources. From credit agency reports, to U.S. State Department briefings, to assessments of IFI economists, bankers and political analysts, you should monitor the state of your chosen market daily. Simply reading global papers or listening to CNN may not be enough. You need to have access to reliable local information. If all this sounds like a lot of work, it is. But there is no other way to diligently protect your financial investment.

It takes guts, patience and money to navigate your business through a crisis, but if you are prepared to, and do, weather the storm; you are likely to be handsomely rewarded.

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Using PRI to protect international franchise royalties and investments

In my thirty-plus years of international business development and financing, I have met and worked with dozens of franchisors and investors who either took their companies abroad, or planned to do so.  Predominantly, their concerns were finding the right local partner, generating sales and winning against competition.  But one concern that I rarely heard voiced was: “What will happen to our company’s investments and royalties if the country we are operating in experiences a change of government and a new government goes on to expropriate our assets or change regulations that would affect our ability to conduct our business?  How would we manage if our business were to fall victim to terrorist attacks, war, civil unrest or other political perils?”  I began to explore reasons why fairly savvy business owners, franchisors and managers who routinely use tools like cargo, health or travel insurance, were hardly using insurance against political risks to protect their investments and income abroad.

There seemed to be two recurring answers:

1.  Political Risk Insurance (PRI) is a specialized subject and not well known, understood, or widely available to most medium and small companies;

  1. Political Risk Insurance is a complex and pretty dry subject. It is filled with acronyms like OPIC, MIGA, PRI, CIA, MIA and most business owners and franchisors consider the subject too complicated and lack proper access to experienced PRI specialists.

Yes, the subject of PRI is highly complex. What is simple, however, is that in today’s tumultuous world, any franchisor that is not using Political Risk Insurance to protect itself against exposure overseas is walking a tightrope 20 stories off the ground without a safety net.

International expansion, either by way of franchising or direct investment, is complicated enough. Cultural gaps, language barriers, aging or undeveloped infrastructure, arcane legal systems and corruption are just some of the factors which need to be dealt with as U.S. companies seek to expand across borders.  Combine this with the possibility of changes in political regimes, political violence (think Arab Spring, Orange Revolution), government interference, expropriation, transfer risk, or currency inconvertibility, and international expansion becomes downright treacherous.

Fortunately, PRI will help mitigate the latter set of risks and allow management to focus on the commercial elements of business expansion.  A number of large international insurance carriers offer PRI, as do certain government and multilateral agencies such as Overseas Private Insurance Corporation (OPIC) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Franchisors who set out to expand overseas make substantial commitments in legal, training, market research, marketing, system customization and opportunity costs.  Despite receiving upfront fees, a very large portion of the potential profits is left on the table in the form of royalty stream payments. Thus, internationally minded franchisors have several potential exposures to protect:

Direct Investment into the company owned locations, minority interest in the franchisees or any franchisor financing, third-party loans and loan guaranties.

Business Interruption – when events such as war, terrorism or political unrest interrupt ongoing business operations.  (Think about 9/11 and all the businesses in the surrounding area, which were crippled for months, and even years).

Loss of Income stream earned as result of royalty or technical assistance agreements.

So how does one approach and evaluate PRI?

Franchisors should consider their company’s actual investment and future income potential in each country.  Some PRI policies, such as those offered by OPIC, cover up to $250 million of investment per project and can protect equity investments, loans and royalty income streams for up to 20 years.  For example: imagine a franchisor who is entering the Middle East North Africa (MENA) and is seeking to sell master franchises in four or five countries, then establishes several company-owned locations and individual franchisees in another location, thereby bringing the total number of locations in that country to 15 units over a five-year period. His total exposure would be the book value of actual investment in the company-owned locations and the projected royalty stream would come from all the countries over the 20 years. 

Obviously, not all the investment goes in at once and not all of the franchises start operations at year one. One possible approach would be to secure a master contract or risk sharing agreement to serve as an umbrella contract for all the markets into which the franchisor enters and then defining what’s called Maximum Insurance Available (MIA) for this particular policy. This way the entire project gets underwritten and priced once, resulting in the premium costs being significantly lower. As the investment funds go in and the royalty income starts to flow, the franchisor will select what’s called Current Insured Amount (CIA), or the actual amount for which reimbursement to be provided.

The beauty of political risk insurance is that it is available in over 150 countries including high-risk markets such as Afghanistan, Iraq, Democratic Republic of Congo and Rwanda.

The next step is to select appropriate coverage level(s).  Depending on the country’s risk profile and the type of business it operates, the franchisor will need to decide whether to use lower stop-loss coverage limits and reduce the amount of covered risk, thus decreasing the premiums.

A good Political Risk Insurance policy will offer protection from the following risks:

Political violence  – This coverage compensates investors for property and income losses caused by:

▪                            Riots,

Declared or undeclared war,

▪                            Hostile actions by national or international armed forces,

▪                            Revolution, insurrection, or civil strife,

▪                            Terrorism and sabotage.

Expropriation or nationalization – Under this coverage franchisors and investors would be compensated for risks, which include:

         Government interference or change in regulations that affects the franchisors’ ability to conduct operations,

Forced abandonment,

Contract repudiation and/or impairment,

▪                          Outright nationalization of the project,

Creeping expropriation, whereby the government gradually squeezes investors out of the project through “suffocating” actions, including corruption,

▪                             Confiscation of funds and /or other tangible assets.  [note, transfer risk is an inconvertibility coverage]

Currency inconvertibility coverage protects from inability to convert and repatriate host country’s currency abroad.

OPIC also offers qualified small businesses, defined as having annual revenues of less than $250 million, the opportunity to utilize OPIC’s political risk insurance at a discount through a streamlined approval process.

So how does one go about assessing risks of various countries and selecting appropriate coverage?  Here are two possible approaches:

–      A safe, but somewhat expensive approach would be to buy full protection for each market where the franchisor operates.

–     A more prudent approach, however, would be to tailor the individual     coverage mentioned above, define appropriate coverage limits using stop-loss measures and enter into a risk-sharing multi-country arrangement.

Many large insurance companies offer political insurance maps, evaluating overall country risks and highlighting specific perils inherent to each country.  Another useful tool is the new Fi3F Franchisor Appeal Index™, which measures attractiveness of 180 countries for franchisors. This index not only incorporates forward-looking business indicators, but also examines risk factors such as corruption, extent of rule of law protection and latest political climate indication.    Due to the complexity of the subject, I highly recommend speaking to a PRI specialist at one of the PRI providers (e.g., OPIC, MIGA, or their approved representatives) rather than to a general business insurance broker.


Even though premiums for political risk insurance vary widely depending on the country and coverage chosen, it is possible to get a glimpse at representative costs in order to be able to assess their order of magnitude.  The table below offers annual insurance premium guidance for $100.00 of coverage.  There is no minimum investment size required, although given the fairly complex nature of the process franchisors should aim to insure sufficient royalty streams and or/foreign investment to make the process worthwhile.

Annual Base Rates Per $100 of Coverage

Coverage* Active/Current Standby
Inconvertibility $0.18–$0.42 $0.20
Expropriation $0.28–$0.60 $0.20
Political Violence  $0.21–$0.53 $0.20
Business IncomeAssets $0.21–$0.53 $0.20

* Discounted rates may be available for small businesses and/or a combination of coverages. Source OPIC.

Although political risk insurance is a highly complex subject and one that is not often readily associated with franchising, it is a vital risk management tool that should be added to an arsenal of every franchise system seeking to successfully expand its operations overseas.


No, you probably would not.  Yet, if asked “Would you travel abroad without travel healthcare/medevac insurance?” a good number of you would also say “NO”. Not having medical insurance when traveling abroad certainly leaves you exposed and vulnerable. Yet, just having medical travel insurance is often not enough….

What happens if while abroad you become very ill, are involved in an accident, or suffer food poisoning, heat stroke, or severe allergic reaction. Chances are doctors treating you would want to access your health information prior to treating you. More often than not, business travelers are not accompanied by their family members who know their medical history and very few of us carry our medical records while traveling.  Until recently, only folks with chronic medical conditions or severe allergies or wore bracelets which alerted emergency medical workers in the event patients could not communicate as result of accident or illness. The rest of us mostly left things to chance.

Conversely, and much more likely than getting seriously ill, or being involved in an accident, how many of us get  stomach flu, catch colds or contract an untold number of travel related ailments from heat strokes, mosquito bites and food poisonings, while traveling abroad. How many times you wished you could easily communicate with your Doctor despite the time zones and get some much-needed advice and informational therapy?

Over the last few months we have been testing a brand new platform called HealthKnight™ as the way to leverage technology for international travel. At this point it is an invitation-only full-blown social network and information platform designed exclusively for healthcare and wellness management.

Shortly,  Fluent In Foreign™ will have an exclusive group on the HealthKnight® platform dedicated to the needs of international business travelers ( ). Members will be able to store their health records in a secure HIPAAA compliant manner, yet easily access or share them while abroad. Members will also be able to easily and privately communicate with their own healthcare professionals, or reach out to other doctors in various countries. The Group’s members will also be able to share own experiences  and speak online to guest moderators – experienced travelers, doctors, insurance professionals. and celebrity personalities Best of all the entire service is free of charge. International business is difficult enough and we need to minimize risks every place we possibly can. You would not travel abroad naked, but why would you play Russian roulette with your life and travel unprotected?

To receive an invitation to join the Fluent In Foreign Travel group please email or fill out the form below


Cover of my upcoming book

Fluent In Foreign Business is available in hardcopy and paperback on, and at other online booksellers.

Now also available as eBook
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3 Responses to Sample Book Chapter – Fluent In Foreign Business™

  1. Alexander, you make some excellent points and you can readily see the knowledge you possess when it comes to international business. I have been trying to work (and find) those companies that are new-to-export and provide assistance, notwithstanding, my primary focus on delivering services domestically (here in the USA) to those companies which are considering the markets stateside for their products or services. I already wrote to you and I appreciate that you took the time to respond. I will also consider the support that you can provide should I come across a serious inquiry about exporting.
    Very truly yours,
    Gerard Santini

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