Only a fool doesn't play by the rules
Investing in foreign markets might seem like a revenue earner but, says Rashna Writer, firms should make sure they identify risks and threats in other countries that may not exist in the UK
Non-domestic markets can offer huge opportunities for business, but while lucrative returns entice companies, it can also expose them to a range of risks, threats and weaknesses perhaps not encountered in their home markets. Grey area dynamics (GAD) are factors that affect the return on assets, performance effectiveness and can jeopardise a foreign investment project. An emerging market is an alien playing field driven by alien dynamics. It is governed by different rules, has different determinants of success and operates within a different cultural environment. To operate successfully in such an arena requires an in-depth understanding of the characteristics that exist in a specific market. From a list of 100 GAD that cause assets to underperform, a sample of three: corruption, counterfeiting, lack of legal safeguards – helps to drive the point home.While the general perception is that negative practices are mainly found in less developed economies, such activity in the West is not unheard of. For example, the highly litigious nature of the US business environment means an astronomical law suit is often only around the next corner, hence an essential cost factor that should never be overlooked by foreign investors.CorruptionCorruption can be loosely defined as the use of a public office, or other position of responsibility, in which an individual is accountable to others for their conduct and performance, to further private interests. Beyond this, what constitutes corrupt behaviour is often culturally and contextually bound.It is common to cite the giving of gifts and other marks of respect as subtle forms of bribery and attempts to gain favour. Many western companies, at least in public, profess to abstain from such things. Paying a government official to ensure that a deal is influenced in favour of a certain party could be considered corrupt. But what about paying a private agent to lobby with that same official in exchange for payment and a post-success commission that constitutes a proportion of the total value of the deal?Corruption contributed to the financial crisis and economic slump that gripped many Asian countries in 1997-98. In many cases, the links between government officials and business people were too close, and too oriented towards mutually beneficial private arrangements instead of the meritocratic competition model championed by most leading economic theorists. High levels of corruption in China, Indonesia, Vietnam, Korea and India (among others) have impinged on foreign investment. Pakistan has consistently topped Merchant International Group’s GAD ratings as one of the worst countries to do business in. Corruption is rife and the simplest tasks, such as access to essential utilities, can often be withheld if bribes are not paid.
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