What Are the Potential Risks or Dangers of Doing Business Overseas or Making Investments Abroad?

In addition to the universal and basic legal protection enjoyed in domestic contracts, including contracting and assuring performance by the parties, the largest legal challenge is to draft and execute a binding agreement that captures the intentions and the promise of the parties – and one which will be enforceable in the chosen jurisdiction.  

Importers generally will be most interested in the timely delivery of the goods ordered, as well as the non-defective and proper quantity of the goods delivered.  Exporters are focusing on getting paid, including the timing and security of the payments to be made. Other important issues include the minimization of risk, protection of intellectual property, dispute resolution and regulatory compliance.

General international business risks include:

  • Foreign Exchange Risk.  As the value of currencies are constantly fluctuating, foreign exchange risk occurs when the value of investment fluctuates due to changes in a currency's exchange rate. When currencies fluctuate significantly, the value of the projected profits/income can be reduced.  Additionally, the cost of imported parts or components (supply chain items) used in manufacturing or assembling finished products can significantly change if the value of the currency of the imports changes during a transaction.

 

  • Political Risk.  Political risk occurs where, during the course of a contract, developments in the political, legal, and economic environment in a foreign country or government increases the financial risk and/or costs associated with doing business. This generally can be seen with major changes in governing administration dramatic policy changes.   In such a case, a foreign government unexpectedly changes its policies, which may then negatively affect the business transaction and/or agreement.

 

  • Repatriation of Capital.  As a subpart of Country risk, the “repatriation” of capital involves the transfer of money or property (or profits) from a foreign country back to its home country of residence.  In some developing countries, the foreign government may have in place, or institute, rules which restrict the repatriation of capital to prevent a loss of capital or “capital flight”.  These issues should be taken in consideration as a fundamental part of a business plan on the front end of your business expansion, so that you are not later subjected to such rules or that risks are minimized.

 

  • Commercial Risk.  Commercial risk refers to problems relating to under-developed or poorly executed business strategies or procedures.  These issues are generally present in domestic contracts, and include issues such as the selection of business partners, timing of market entry, pricing, product types, and marketing. In a foreign market, however, the lack of compliance with different local laws can prove costly due to regulations that protect local firms.

 

  • Cross-Cultural Risk.  Cross-cultural risk includes situations where a cultural miscommunication causes problems in a business relationship. Typical examples are differences in language, lifestyles, mindsets, customs, and/or religion.

RKF assists clients in managing these risks by providing the following advice and counsel:

  • Establish and implement best practices to overcome commercial and political risks

  • Forming strategic business and operations plans to manage risks

  • Working closely and proactively with government and regulatory leaders to protect the interests of the client

  • Performing due diligence analysis

  • Repatriation of capital management

For more information on The Potential Risks or Dangers of Doing Business Overseas or Making Investments Abroad, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (847) 400-8650.

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