4 Common Risks When Doing Business Abroad

Businesses can face financial, cultural, legal and commercial risks when starting a company in a foreign country.

In the context of international integration, many companies want to launch new business ideas and reach as many target customers as possible by expanding their business activities across borders.

However, besides opportunities such as using preferential regulations, expanding markets or supply chains, companies still face many risks stemming from market dynamics or differences. culturally.

These are some of the risks companies can face when doing business internationally, according to ICOS, a division that specializes in providing overseas business services.

Enterprises must accept many risks when doing international business. Source: Internet

Financial risk

Financial risk is one of the most common challenges companies face when doing business abroad. This leads to unfavorable exchange rate fluctuations when companies trade in more than one currency.

With currency fluctuations, the cost of importing raw materials and components can increase sharply, increasing production costs. At the same time, the asset value, revenue and profit of the company. Businesses can suffer if the exchange rate falls in the country where they do business.

To effectively manage the company and control cash flow and risk, according to financial analysts, companies must actively hedge foreign exchange risks through a series of tools such as: Buy/sell contracts. /spot, forex forward contract, forex swap contract, cross currency swap contract.

These derivative contracts help businesses limit the impact of currency exchange rate differences. Buying foreign currency under futures contracts is also a form of “insurance” on exchange rate fluctuations that businesses can apply.

In addition, the ability to forecast cash flows is also considered a “key” to helping companies minimize losses in the face of financial risks.

Enterprises can actively improve cash flow forecasting to integrate and update statistical reports to provide quick statistical reports and make appropriate decisions when the market fluctuates.

Cultural risks

China is an attractive market with billions of people for any business, but many foreign companies have difficulty implementing marketing strategies here.

Previously, Yahoo withdrew from this country in November 2021. The Chinese market, stating “The regulatory and business environment is becoming more and more stringent”.

Some well-known Western brands are having a hard time successfully entering the Asian market due to cultural differences.

Cultural risk arises in many aspects of doing business, from dealing with customers to sourcing and conducting business abroad in accordance with the local culture.

This is explained by the companies participating in this activity having access to a wide variety of resources and different cultures.

To succeed in the international market, companies need to understand the market and consumer behavior in order to develop the right products and marketing strategies.

In addition, a number of international furniture, fast food and beverage brands are choosing to “localize” their products in their overseas stores by adding menu items that match the needs of their customers. preferences of customers in that country.

Legal risks

According to the ICOS representative, there are many legal risks when companies do not understand the regulations and laws of the host country. In a survey of new customers using the company’s services, about 50% of company representatives said that legal challenges are the main obstacle for companies doing business abroad before problems arise. management problem solved.

Therefore, the legal regulations on tax, accounting, auditing, and operating license … make many companies “headache” when deciding to expand their business activities beyond the border.

Working with partners who have consulting services to set up businesses abroad is the solution many companies choose. Source: Internet

To address this risk, companies should proactively update their incorporation and liability requirements, or through third-party, business services firms that specialize in providing business services. The solution to establish a company abroad. Specifically, these companies assist partners with international business needs in document creation, business consulting, and more.

In some countries, the authorities where the company is registered also give preference to working with trusted business partners over working directly with foreign companies that do not have much experience in dealing with legal issues. physical.

Trade risk

According to the Global Association of Fraud Professionals, companies are scammed every year and lose about 5% of their sales; On average, a scam is worth about $1.7 million. In 2022 alone, up to 46% of businesses worldwide will report being victims of fraud and economic crime.

At the same time, businesses can consult solution consulting services to work with experienced experts in the market. By working with consulting services, businesses will get support in strategic consulting, tax, and marketing, …

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