Ninety-six percent of the world's population and over two-thirds of its purchasing power reside outside US borders. Small and medium sized businesses have long realized the benefits of this purchasing power beyond their doorstep: They now account for 95 percent of all US exporters.

The importance of going global is undisputed, as is the importance of adhering to certain basic rules. What follows is a list of the 10 most vital rules to remind you of the "Do's and Don'ts" of overseas expansion.

1. Do conduct thorough due diligence investigations of your agent, distributor, or partner before entering into a contractual relationship. The first step in any due diligence investigation is to conclusively establish the identity, reliability and reputation of your prospective foreign associate. A review of financial reporting and operations of the partner's company is imperative, as is a thorough background check. Neglecting due diligence can lead to interminable headaches and the potential loss of millions of dollars if your partner turns out to be a fraud and not the expert or well-placed intermediary he claimed to be.

2. Do engage a reputable local law firm that knows local laws but is also able to understand your American business and legal requirements. The laws of the host country - especially in very distinct cultures, such as China - might be fundamentally different. In order to understand the local business environment, one must understand the thinking and assumptions that underlie the legal system. To do less is to fly blind - a risky, time-consuming, and nerve-wracking exercise, especially for Americans who, more than any other culture, depend on the law to provide stability and predictability in life.

3. Don't enter or operate in a transitional or emerging market country, e.g., Colombia, Indonesia, or South Africa, without regular political risk assessment. Political instability, the sudden collapse of governments, or unexpected political decisions in the host country can lead to expropriation, inconvertibility of your earnings into dollars, or complete loss of your interests. You can protect yourself from these risks with political risk insurance from public and private sources, such as the Overseas Private Investment Corporation (OPIC) or AIG, the insurance company.

4. Do prepare yourself for threats and potential disruptions of your foreign operations through contingency planning. This is made especially critical by the growing scale and range of recent terrorist acts carried out against Western interests throughout the world. If you conduct business in places where anti-American sentiments are growing, consider undertaking proactive steps to minimize your company's as well as your employees' exposure and vulnerability.

5. Do familiarize yourself with the Foreign Corrupt Practices Act (FCPA). Enacted by the US Congress in 1977, the FCPA prohibits companies or their personnel from offering money and any other items of value, or services, to an official of a foreign government or political party for the purpose of winning or retaining business within that country. The FCPA also holds American firms responsible for actions of their foreign partners. Some exceptions are permitted, but reliance on intuition alone may either provoke prosecution or result in loss of lucrative opportunities.

6. Do pay careful consideration to local employment and termination laws. Many countries have strictly-regulated labor markets that impose severe rules regarding terms of employment and termination. These can include obtaining government approval for layoffs, mandatory generous severance payments, and other requirements. Similarly, archaic laws still exist in some former communist countries, including requirements for a minimum number of workers for every several square meters of floor space, which may interfere substantially with your operations.

7. Do obtain a letter of credit to protect yourself against breach of contract. Exporters are exposed to the risk that their foreign partner may refuse or be unable to pay for goods or services. You can agree with your partner on a bank that will accept legal responsibility for payment upon delivery of your goods at their destination. You may consider consignment terms later if the relationship seems strong.

8. Don't permit geographic proximity to suspend your good business sense. Many US companies that leaped at prospects in Mexico lost sight of the fact that American business laws and norms stop at the border. Their euphoria, and the comfort level of a contiguous country, blinded many U.S. businesses to the lack of institutional protection mechanisms through Mexican laws and to differing views among Mexican businessmen as to how business should be done. The sudden opportunity to trade with a neighbor generated uncharacteristic recklessness, and subsequent losses.

9. By the same token, don't allow close cultural proximity to lull you into false assumptions. Societies that are culturally and linguistically similar do not necessarily possess the same market characteristics. An example might be, for instance, applying the same marketing strategy that worked in Quebec, Canada to France. Although both markets are French-speaking, the markets have distinct characteristics. Failing to conduct region-specific market research can result in costly errors.

10. Do familiarize yourself with the specifics of the target country's local culture and customs. It will be easier to gain your potential associate's trust, if you show some familiarity with the country's traditions. For example, in most Asian countries people take off their shoes before entering someone's house or office. Therefore, if you see shoes lined up at the entrance, take off your shoes as well and rest assured that you gained the respect of the person you are about to meet and that you have avoided a potentially embarrassing situation. Cultural differences should also be researched in advance with regard to traditions of making appointments, meeting practices, punctuality, hand shakes and gestures, and, most importantly, acceptable marketing strategies according to local norms.

© Copyright - Smith Brandon International, Inc.

Smith Brandon International, Inc. conducts international investigations and provides actionable business intelligence and risk avoidance counsel to assist companies in their overseas operations. The firm's principals are grounded in investigative, analytical, and intelligence gathering techniques, drawing on decades of experience in the FBI, State Department, intelligence circles and the private sector. For more information, please call 202-887-9363, or visit our website at http://www.smithbrandon.com/.