Business opportunities typically bring visions of paradise won. But it is equally possible to wake up to a nightmare of misrepresented opportunity, choosing the wrong business associates, and bad timing in the wrong locale. This is particularly true when it comes to a business entering the international business arena.
How to Avoid This Nightmare?
There are a number of steps that might be implemented as a matter of standard operating procedures. These steps serve as filters, providing criteria to evaluate a transaction or a business associate. With the application of the proper filters, and with an appreciation of the cultural factors to be taken into account, business decisions can be made that lead to simplified procedures in an increasingly complex area: global business operations.
A good business concept, product or service is critical for any functioning business that seeks success in its foreign operations. This is particularly true in international operations because there will be hurdles that need to be overcome. One complication that might not be immediately evident is confronting the "home-court advantage," that is, the favoritism typically shown to the local, domestic business concern. Another complication not immediately apparent is caused by distance: the need to transport goods to a distant location, or to meet local representatives in the foreign locale, resulting in skyrocketing travel expenses.
These issues are a given outside the borders of a company's domestic operations. But they are not unfamiliar concerns to many US firms, which may confront similar issues and difficulties from state to state, or region to region, or from East to West. In fact, these business filters may apply equally to any situation where a new business opportunity presents itself, foreign or domestic. The various filters that may be applied include the following:
- Detailed forms. Detailed questionnaires, extended to new business associates as a standard and customary practice in terms of entering into any new business relationship, can serve to overcome objections, provide the basis for the application of uniform standards, and provide insight into a business entity or business associate merely by how they are completed--or otherwise handled. When a business is prepared to fully present its history, capabilities and staffing, it ought to expect the openness to be reciprocated. If there is reluctance to operate accordingly, it is worth evaluating the grounds for the delayed or partial response. Obviously, protection of matters related to intellectual property issues is another matter.
- Uniform criteria. Very much subject to the peculiarities of the specific industry, certain problems can be avoided by conducting a historical review of problem areas that have developed as to suppliers, customers or business associates. It may well be that standards related to quality control issues, minimum number of years in business or minimum annual sales revenue may prevent problems from developing in certain areas. One corporate CFO recently commented that he insists on minimum annual sales revenues for potential international distributors; he indicated that he had eliminated the majority of problem relationships following the application of this basic criterion.
- Trained staff. Staff must be able to do something more than to be punctual: they must have certain basic personal characteristics that identify them as attuned to business, financial and international considerations and the detail inherent in each of these areas. More than that, they must be given the proper tools and training to appreciate the importance of their role in assessing credit risk and overall business risk. In the international arena, this includes training in foreign business climates, cultural diversity and disparities from country to country and region to region.
- Review by objective party. Wherever or however a business proposal originates, whether a transaction, a relationship with a business entity or a businessperson, there's always the possibility of the proponent losing his or her sense of objectivity about a project or an assignment. Sometimes referred to as "falling in love" with the idea or the client, a charming personal relationship can cover quite a few business irregularities. Additional review, by another corporate resource or by an outside consultant, can provide the necessary objectivity and neutral consideration otherwise overlooked or ignored.
- Delayed review. A project may well be complex, confusing and misleading at various stages of its development. It makes sense to have such a project subjected to delayed review, while certain issues sort themselves out; or to allow some period of time for deliberation on a project's merits or disadvantages, and overall investment or ultimate pay-off. Some projects may simply require a period of time for the settling of market forces or the development of the proper parallel technical capabilities. One IT / Information Technology expert has commented recently that there are an array of some fabulous technological solutions, courtesy of highly creative, inventive IT engineers, searching for the right problem to present itself.
- Partial implementation. Business projects, on occasion, may allow for partial implementation of a proposal or the use of a test period in a business relationship. For example, there may be the option of a trial period with a supplier for a limited line of products. There may be a segment of a business project that might have a minor or limited application for one or more corporate components. An evaluation can be made about the supplier's or contractor's attitude, dedication and business worthiness in such a test environment that will likely hold true for further requirements and in other settings.
International Business: Cultural Adjustments
Business risk comes in many forms, and certainly not only in terms of financial or credit risk. There is a world of other risks facing businesses that decide to go global, with probably the greatest risk--and, unfortunately, one that may be transparent to many unsuspecting businesses--in the form of the local (foreign) business environment.
There exists a distinct need to make cultural adjustments at every level of an international project. Some of the issues involved are taken for granted, such as language and level of development of the local infrastructure. But there are other equally important issues that need to be taken into consideration, and the necessary adjustment made in mind-set and expectations. These issues include:
- Political issues. The political climate may be stable, or it may have been stable for years or even decades. That doesn't eliminate the need for political risk assessment and what it will mean for entry into the local business community. It is only necessary to cite the example of Indonesia, in the past decade, and the example of Mexico, at the present time.
- Economic issues. Devaluation is one issue that would be obvious to any business. But a more specific consideration is whether funds can be transferred freely in and out of a specific country. Doing well is meaningless if it doesn't translate into real, tangible profits.
- Communications. The availability of dedicated, reliable phone lines, fax lines and e-mail capabilities is not always a given. If time considerations on communications are a critical factor, some means must be established to override inherent difficulties, even if the communication system must be established and implemented by the corporation itself.
- Government role. Governments around the world consider local business matters to be of special interest to them. This may mean industry-specific rules and regulations, or it may translate into greater consumer protection laws and standards, or it may mean rigid labor laws. Tax laws must be taken into account in pricing. The telecommunications sector may be regarded as a matter of national security. Whatever the case, the role of government must be taken into account in any international business project.
- Time frames. Few countries in the world adhere to the same standards with regard to perception of time and timetables. The variations can be seen even in a region as small as Western Europe, from one country to another. Disparity in attitudes toward time elements is not just a question of missed or late appointments: it can destroy a business relationship. Understanding and appreciation is required of all parties on all sides.
- Family issues. In many countries, the first families--based on historical, financial or political criteria--may dominate the business arena. As key players in the business community, they should not be ignored.
- Ethnic issues. Sometimes this consists of a religious issue or sometimes a tribal issue, depending on the specific country or region. For those who think of the US as the bastion of cultural or racial tolerance, it can require a significant adjustment to address the reality of ethnic intolerance. It impacts on personal matters as well as business decisions. Ethnic issues must be taken into account because it may have very practical implications for business operations abroad.
International Business: A Dynamic Environment
In a fast-paced world, where the sun never sets on international business, the most diligent efforts to quantify and evaluate business risk can fail. The most intense, deliberate efforts to apply business filters to ensure risk avoidance can be futile. Not because of a failure of the system, a failure of standards or of staff, but because things change. The Iridium Project, a multinational resource intended to revolutionize global communications, providing a fairly compact handset with global satellite support for international communications in the most remote areas has been one of the most public examples. Revolutionary, yes, but a spectacular failure nonetheless. It was bypassed by products that were and are equally as dazzling, only smaller and cheaper.
The point is this: no matter what you do, projects may fail and collapse. Success can never be guaranteed, but it can be planned for. Procedures need to be put into place to deal with normal and typical business situations. These include the use of standard credit reports, both domestically and internationally. But other mechanisms and resources need to be incorporated to ensure that there exists the ability to deal with the pace of the 21st Century. These resources include advisory resources, focused not only on risk assessment, but risk avoidance, to assist on an ad hoc basis when the situation demands it. The enticements of international business shouldn't be ignored out of fear of failure.Gene M. Smith is a Founding Partner of Smith Brandon International (SBI), based in Washington, DC, with offices in New York City.