Reasons a Company Might Do Business in a Foreign Country:
- A business can enter a foreign country to take advantage of cheaper production coats.
- A business enters to benefit from an untapped market opportunity
- A local government can offer business incentives to set up in their country
Differences Between Countries That Make Doing Business Abroad More Difficult:
- Cultural differences
- Currency exchanges
- Politics, government policy, and regulations
- Accounting standards
- Transport, shipment, and logistics network
Risks and Choices That Have to Be Made
Doing business in a foreign country carries different risks to which a local business is not exposed. Foreign business exposes companies to uncertain economic conditions, bribery, and fraud. A company can get exposed to interference with political problems such as diplomatic rows, insurrections, unstable political climate, and hostility from locals. Enyioko (2021) states that there may be challenges occasioned by volatile currency exchange rates and exchange restrictions that can impede international dealings. In addition, income generated abroad may be restricted, such as foreign withholding, tariffs, and other tax problems that affect business incomes.
When to do so, How Would You Decide if the Timing Were Right?
Timing is critical in international expansion since the business can sometimes overestimate the market potential abroad and underrate the effort and time required to attain a valuable market presence. Overseas expansion is largely set on an urgent need to participate in the market early. Moving in early is a bold decision that can be rewarded, considering it may require a sizeable investment (Enyioko, 2021). The other appropriate time would be to come in second, particularly if the pioneer fails to seize the new market. In such a case, the business will benefit from the market development supported by the forerunner and leapfrog into quicker profitability.
Where to do Business Abroad
There are innumerable business opportunities worldwide, making it difficult to point out the right location for foreign business. According to Enyioko (2021), the major consideration is to ponder on the benefits and drawbacks of the market, which requires conducting appropriate initial market research. The outcomes need to be weighed with the business expectations and the gaps in the market. Furthermore, the business must ensure the destination has good access to the professional talent they may require and economic stability. Additional considerations include the language and culture of the destination, the transport and logistics network, the regulatory environment, and the cost of the move.
Entry Mode for International Business
The findings of a market research describe the proper strategy for entry in a foreign country. The best approach would be a joint venture, a business agreement between the company and one or more parties in the foreign market (Enyioko, 2021). A local partner brings numerous advantages, including existing infrastructure and foreign market information. The company will also have more control over the engagement through which they will learn valuable lessons.
How Much to Risk
The investment in the joint venture depends on how much the local partner complements the business and supports the achievement of the business goals. Enyioko (2021) states that a local partner having a good market presence will make it easy to promote, distribute, and sell the product jointly. An initial investment of 20% would be appropriate, with further expansion focusing on whether the two companies are a good fit. Profitable cooperation will need both players to work well together and promote the business’s core values.
Enyioko, N. (2021). Foreign Entry Decision and Global Export Business. Foreign Market Decisions. GRIN Verlag.