Introduction
The decision to engage in business in another country or financial activities usually comes bearing numerous opportunities as well as risks. The key risks involved with businesses in foreign countries include the political risks, cultural differences and foreign exchange risks. Such risks may make it extremely difficult for businesses to maintain a constant and dependable income and may take a while before stabilizing themselves in the new countries (Hult News, 2017). It thus imperative that businesses plan on how to mitigate the risks and seek ways of manoeuvring through the risks and challenges and proceed on to conduct successful businesses. The following paper addresses the various challenges that face new businesses in foreign countries and how one can plan to avoid transaction, operational and translational exposure.
Challenges
International structure of Company
A company must have a team in place to face the challenge of setting up an international business in order to be globally competitive. International companies vary in terms of size, product and industry that the businesses are usually involved in such as Coca-Cola (Hult News, 2017). Setting up a structure that will allow people or businesses to do well in new countries is usually a problem as businesspersons struggle with identifying the most suitable structures that will blend properly with the expectations of personnel in the country notwithstanding the other attributes such as industry norms and aspirations (Hult News, 2017).
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Laws and Regulations
Foreign laws may vary from the native home of a business owner in terms of implications on tax to the trading laws. In this regard, it becomes very difficult for one to navigate the legal requirements and thus one must comprehend the central functioning of the laws for any successful business at the international level. For instance, in the year 2014, Airbnb got into trouble for violating the local housing and tourism regulations after a crackdown on advertised rental assets and was forced to pay a fine of €30000 in Barcelona (Hult News, 2017).
Culture
Cultural differences may influence the demand for products or services that a business offers. The need the business serves may not be in existent in the foreign country. Indeed, the insight of the local market is important but hardly do they imply that the same business models will be successful in markets overseas. For example, Starbucks that is an American coffee company has struggled in serious measure in Australia because the demand for local and independent cafes as well as coffee shops far outweigh the appeal for the corporate giant (Hult News, 2017).
Politics
One crucial risk and challenge that businesses face in foreign nations is the political instability and lack of certainty. Countries that act as emerging markets hence offer attractive opportunities for either investment or expansions for businesses may pose serious challenges that do not exist in the more established markets (Hult News, 2017). Shifts in persons in power or governments rather may bring forth changes in policies, regulations and rates of interests that may be damaging to the foreign businesses as well as the investments. For example, companies such as Facebook are facing bans in China courtesy of the national social networks and the regulations on the internet set forth by the government (Hult News, 2017).
Planning to avoid transaction, translational and operational exposure
The primary thing that one must do to plan against such exposures is identify the sources of the exposure in the business or rather the probable causes of such exposures. Once identified, a business can deal with the transaction exposure through operational hedges which are internal strategies of the organization that companies use to handle currency exposures ( Hooper, 2012) . The operational techniques entail shifting of risks that include invoicing overseas and purchases as well as sales in the home currency, netting that entail the hedged net amounts of transactional exposures ( Hooper, 2012) .
References
Hooper, J., Hurlbut, W., & Bai, S. (2012). Hedging Strategies and Effects on MNCs’ Valuation.
Hult News. (2017). 11 Biggest Challenges of International Business in 2017 - Hult News. Hult News. Retrieved 22 September 2017, from http://www.hult.edu/news/international-business-challenges/
