Starting A Business in a Foreign Country: Challenges and Risk There can be many different challenges when trying to set up a business in a foreign country. These are some of the more challenging areas that need to be thoroughly thought about prior to starting a business in another country; such as, cultural, business and political risks, and financial and economic risks. Cultural Risks Some of the cultural risks may include, failing to adapt to global business models that are in the new local market. A business would want to identify regional and subculture differences. An example of this is you would not want to start a restaurant selling a specific type of meat, if the people of that culture do not eat that type of meat. This would be taken as a cultural hit to the people of that area. If a new business was not aware of local business policies, this would turn others in the new country, to not want to conduct business with a newcomer, due to their lack of understanding of the culture and the local business practices. Another drawback of starting business in a foreign country would be failing to adapt management practices across the different cultures. In some cultures, it is not customary for women to lead business meetings and this would be something that would have to be considered to help ensure that you are not doing something that is culturally inappropriate in your host country. Not identifying new opportunities in business can be harmful to the new international business as this could forever impact the company in the new country. Local and ethical issues are another area that you want to ensure you are following all of the rules and regulations within that local country and community, as this could be harmful to the long-term productivity of the company. When beginning a company in a foreign country, it would be wise to be able to effectively have a diverse employee population that closely resembles the local economy. Being able to take these and many other aspects of starting a company in a foreign land will help this business thrive in a new country. Business Risks There are many potential risks for a business that is looking to expand their company or start a new company in a foreign land. The company structure has to be up for this type of challenge and the right team must be in place in order for the business to be successful. If the aim for the company is to be competitive in the industry, the correct team must be willing and able to meet these new challenges. The legal team must be aware of the local laws and regulations regarding the industry in the foreign country. Along with getting the company structure in place, it is critical in gaining a comprehensive understanding of the local laws and regulations, which will save the company time and money in the future. The company must be aware of the tax implications, trading laws, and being able to appropriately navigate the legal requirements within the country that the company will be operating in. This is really vital to the successful global company. The global accounting system can present a challenge at times; as multinational companies are liable for certain taxes and this can cause a serious nightmare for the accounting team, if the proper procedures and policies are not being followed in the foreign country. Being able to set the price for the items or goods that are being sold is important as the company must ensure that they are able to set the correct price point, so that the company will be able to make a profit, in the foreign country. A universal payment system must be in place. So as this company will be operating in Seoul, South Korea, the won must be able to be utilized along with the US dollar, as necessary. Knowing the exchange rate for the currency would be required on a daily basis, as the currency exchange would change daily. Political Risks Most of the countries that you may plan to place your company will have stable countries, there may still be concerns that will have to be addressed prior to going to the country to begin setting up a company. For instance, all members of the World Trade Organization are committed to free trade with countries and you must ensure your protectionism in other countries. Tariffs and quotas may hinder or restrict the trading abilities within the country. The company may have to get import and export licenses, custom duties, and knowing the laws regulating currency are also topics that would need to be explored prior to beginning a business in Seoul, South Korea. Companies must keep in mind that foreign countries have different laws and regulations for doing business in their own countries. If you have patent on your items, be prepared that the host country may decide to make your item, for less money, as this is normally the case, in foreign countries. One way to combat this problem is to protect your intellectual property in more countries than just the United States. Avoiding Operational, Transaction, and Translation Exposure To help avoid the operational, transaction and translation exposure it is important that the company opts for a forward exchange contract, as this usually is extended to the customers. Banks can offer forward exchange contracts both for the sale and purchase transactions to customers that has a maturity date for a fixed amount at a determined rate of exchange at the outset. A company can also look at currency futures is an agreement to buy and sell a standard quantity of a specific financial instrument at a future rate at an agreed upon amount. Lastly, a company can utilize the currency option, as this option gives the right but no obligation to the buyer of the option to sell (put option) or buy (call option) a specific amount of foreign currency at a pre-determined amount, which is called a strike price. These are a few ways that a company can avoid operational, transaction and translation exposure.
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