As the world continues to move in a multipolar direction and international trading relationships become more complicated, understanding the risks of expanding business overseas is becoming critical. To be sure, it has always been this way to some extent. However, the geopolitical world that existed before 2019 tended to be one that was more forgiving of mistakes caused by lack of understanding than is the current one. Trading relationships between countries were more stable then, while the current trade paradigm is in flux. As pump technology is one of the key pillars on which modern life stands, there will always be opportunities for companies in this industry to expand outside of their home country. In doing so, there are several risks that must be measured and monitored if one is going to have a successful overseas venture.
Understanding the Market
If you are a company that is successful, you obviously understand your niche in whatever segment of the pump industry in which you operate. Unfortunately, you can’t assume that the market for your product works the same in the country you are looking to expand into. From regulations to market competitors to local relationships, there are likely to be several blind spots in your understanding of what is actually happening. Before jumping in, it is critical that you get some people with local knowledge on your payroll. Local consultants can often be a treasure trove of information and guidance, especially in the early phases of an overseas expansion project. The authors are acquainted with one American company whose strategy was to enter an overseas market by purchasing a small player in that market. They would learn how business was done in that country—as well as the local market dynamics from their acquisition—largely by letting the acquisition operate as it always had. Once they observed it long enough to gain an understanding of local conditions, they would modify their product (if necessary) and then expand either organically or by buying up local competitors. Understanding the local market is key if one is to be successful, and that really cannot be done without locals on the ground.
Understanding the Culture
A key factor in any successful overseas business venture is understanding the culture you are going into. There are two types of culture: one is the national (social) culture and the other is the business culture of the country you are going into. Although they are linked, it is important to understand both. In order to be successful, you have to understand the motivation of the people you are going to be working with and know how to appeal to it. For example, many Americans believe that the purpose of a company is to maximize profit for the owners/shareholders. Everything boils down to a few factors, of which cost, price, speed and quality are near the top of the list. However, in some other cultures (Germany and Switzerland come to mind), the purpose of a company also has a social element, which is that it also needs to provide the workers with a job and some ability to have a decent life. Yes, the company needs to make money and profit and offer a return to shareholders, but it is also seen as a social unit contributing to the overall wealth and social cohesion of society. If you understand this, your negotiations with the company will be about both sides looking for something long-term and mutually beneficial—not about squeezing every last dollar of profit out of a specific contract. If you instead approach the negotiations in a cutthroat manner, they might not want to do business with you.
Understanding the Politics
When looking to expand into a foreign country, understanding the politics beyond the headlines is a necessary precondition. Often, looking at the big headlines to understand a country’s politics will lead one astray in trying to analyze what is actually going on. The internet, by allowing more information to flow to more people than has ever been possible in human history, has meant that societies evolve for better or for worse much more rapidly than they did before. It has been surmised that a society may now go through changes in 10 years that would have taken 50 years before the internet. A rapidly evolving society is one whose politics will also be evolving, as will its approach to businesses and regulations. Something that was appropriate five years ago may be completely inappropriate today.
In an earlier time, political shifts resulted in U.S. assets being nationalized and their owners not being given any compensation. In the last 30 years, the U.S. has been the sole superpower and seizure of American assets (apart from criminal activity) has been rare. Now that the world is moving in a multipolar direction, nationalization of American assets can no longer be ruled out in certain countries. This is more of a risk if one is doing business in a country in which connections to a politically connected elite is the determination of economic opportunities. For example, in Russia (the war in Ukraine notwithstanding), who you are connected to determines everything. If you are not connected to the right people, you will absolutely fail. Understanding who your local partners are connected to and their political position (which is likely to be constantly shifting) is one of the key points to understand. And while Russia may not be the ideal place to expand into right now, many countries operate similarly. That is why it is so vital to understand the local politics and partner with someone who does when deciding to expand into another country.
Understanding Security Concerns
Another important concern is keeping yourself and your people safe when doing business abroad. Doing research and understanding the security situation in the country before the first business meeting takes place is key. While certain countries in Western Europe, Canada and Japan are very secure to the point that safety can be taken for granted, one often needs to take care and make arrangements for one’s own security when traveling to certain countries.
A few years ago, the authors went to Albania, a country with a reputation for not being the most secure place. To start off, one of the authors spoke to someone he knows who lives on the Albanian border to get her opinion on the risk. Then, we made sure our clothing did not make us stand out. We wanted to look like normal, average people, not people who might be well-off. Thirdly, when there, we did not walk around taking pictures, pointing at landmarks or speaking loudly in English, as that would have made us look like tourists (unsure as to how we would be received as Americans, we actually spoke German with each other when in earshot of locals on the street). In short, we tried (and were successful) at not standing out. Those who stand out often look like they do not know what they are doing and can become targets for local thugs. Finally, we were careful who we engaged with. Most people are not open and friendly like Americans. If someone you do not know (and who your local business associates do not know) approaches you, it is best not to engage with that person. There is a strong likelihood that they are trying to set you up for something.
And of course, talk to the staff at the front desk of your hotel about which areas to stay away from. The hotel has an interest that you return home safe, as a city becoming known as a place where foreigners disappear is bad for business. They will be happy to guide you away from dangerous areas of the city.
In summary, paying attention to these four factors is important when looking to expand overseas. While there may be other factors unique to the specific country one is looking at, these four are important in most situations. If you get these four factors right, the chance that you will have a successful expansion improves significantly.
