7 Big Challenges of Doing Business Abroad You Should Know

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Written By Adeyemi Adetilewa

If you are thinking of moving to another country and starting a business once you are there, this is a very ambitious idea and one you have to think through thoroughly.

You first have to make sure that the local business climate is favorable to outsiders. You then have to be ready for all that comes with doing business in a completely different country and market.

Let’s take a look at some of the challenges of doing business abroad you should know about today.

1. Lack of Infrastructure

This is one of the biggest challenges people have to face when managing a business abroad. If you are from somewhere with a solid infrastructure, you are probably taking a lot of things for granted without realizing it.

You might be used to having easy access to public transit and for it to be reliable. You might be used to having electricity 24/7, or there might be an ATM at every corner.

Don’t expect that if you are moving to a third-world country. Cash, in particular, may be hard to come by. You might have less trouble getting money through an international money transfer than an ATM in some cases, so it would be wise to always have someone back home who can send money over if you are in a pinch.

2. Cultural Issues

Doing Business Abroad? 7 Big Challenges You Should KnowThis one is very common when doing business abroad. Even if you spend days and days researching the culture of a country, you will never truly understand it before you experience it first-hand.

You can’t really tell what their true attitude towards foreigners is, especially those who are here for business. 

You also have to deal with cultural differences in doing business. Some countries will have more of a laidback culture where meeting times aren’t strict and are more informal.

Some places will keep things all business, while in some countries, people want to know the person they are dealing with before they do business with them. These are all things that you’ll have to prepare for.

3. No Support System

People also often overestimate their ability to do things alone. You won’t have any of your friends from back home to fall back on after weeks without being able to make a connection there.

Things can get tough if you can’t get things going. You have to make sure that you are ready for the jump and everything that comes from having no support system.

Fortunately, this is rarely a problem when referring to larger corporations since it is much easier to send a representative abroad to manage the entire transition process. 

4. Bureaucracy

You may have done your research on the documents you will need to do business abroad in your country of choice, but you may not know how long the processes take there.

If you are waiting weeks for a document that you expected would come within a few days, you could find yourself in trouble. So, make sure that you inform yourself of the bureaucracy in the country and what it is really like.

For instance, in New Zealand, there are some specific products that are prohibited or completely restricted. You cannot import anything prohibited but you could import restricted products. To do this, you need to get a special permit. Without it, the business would be fined and there is a possibility that the products imported would be destroyed. 

5. Foreign Regulations And Laws

It is vital that you understand the target market’s regulations and laws. This ranges from trading laws to tax implications. You have to navigate all legal requirements or you cannot be a successful international business. 

The significant consideration is trade eligibility, but you also have to think about legal costs that appear when you enter the new market. 

As an example, in 2014, Airbnb was faced with a problem because advertised rental properties fell outside the local tourism and housing regulations. The result was that Barcelona’s local tourism laws were broken and the firm had to pay a fine of 30,000 EUR. 

Labor and employment requirements differ from one country to another. As an example, in European countries, the maternity leave needs to be at least 14 weeks. This is not a requirement in the US. Foreign trade is complex, with several employment laws that have to be navigated so investing in experienced and knowledgeable corporate counsel is surely invaluable. 

6. International Accounting

Doing Business Abroad? 7 Big Challenges You Should KnowWhen doing business abroad in another country, a vital legal consideration is tax compliance. Accounting is always challenging for a multinational business.

There can be many different tax rates, systems, and even compliance requirements that apply. Due to this, the multinational organization is faced with a challenging accounting function. 

If you want to maximize revenue, accounting strategy is really important. The business’ registration location will impact tax liability. You have to mitigate risks associated with multiple taxation layers whenever trading abroad.

Tax treaties exist between countries and they need to be taken into account so you do not end up unnecessarily paying double taxes. 

International accounting is mainly about tax efficiency. When doing business in the EU, firms benefit from the proposal of the Common Consolidated Corporate Tax Base. This practically means that when operating in the European Union, the tax liability is limited to a single corporate center.

We thus often see many multinational companies have a headquarter in Dublin. This is because Ireland has a very beneficial corporate tax policy. Some of the big names that do have headquarters in Dublin are Facebook, Intel, and Google. 

The last important part of accounting that you have to remember is that you may need to deal with currency exchange rates. In this case, the business needs to develop a system to take advantage of the best possible rates, which is much easier said than done. 

7. Global Pricing Strategies And Cost Calculation

It is often challenging to set prices for services and products as a part of overseas business practice. This is a major strategic consideration.

Costs have to remain competitive but without sacrificing profits. Businesses have to research prices for local-market competitors and direct competitors. Some of the things that need to be considered are margin, distribution, marketing, labor, product production, and shipping. 

Pricing is also impacted by how the business positions its brand. For instance, is the product a luxury one? Or is it one that needs to be priced low in order to penetrate new markets?

As an example, IKEA is very profitable in Europe and is renowned for its low-costs. In China though, IKEA is struggling. Local competitors offer much cheaper products due to cheaper production and local labor costs. The furniture giant has to relocate product production to use locally sourced resources to boost sales and reflect its brand. 

Final Thoughts on doing business abroad

As you can see, there are many things that you’ll have to be prepared for when moving somewhere for business. Make sure that you know exactly what doing business abroad on the ground is and ask from others who’ve been there and done that.

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