The improvements of technology in the form of video conferencing, e-commerce and other various methods of communication have significantly lowered the costs of doing business abroad. The benefit of these developments have allowed small to mid-size companies to consider expansion into international markets. The expansion into global commerce was considered something typically reserved for large companies that could afford the cost of international communication. Since technology has lowered these costs, it has become even more important for organizations to familiarize themselves with regional trends and geopolitics. Businesses must become familiar with international affairs, beyond what is reported in the news, in order to achieve an advantage over other companies that are doing business abroad.
Questions of international relations and geopolitics were once reserved for presidents, prime ministers, and politicians. Now more than ever, small corporations that have an interest in expanding their business to the international market must ask themselves where they stand. The Harvard Business Review published an article by John Chipman in their September issue titled, “Why Your Company Needs A Foreign Policy”. Mr. Chipman, director-general and chief executive of the International Institute for Strategic Studies, challenges executives to assess the current geopolitical climate in their analysis of the prospective market. He explains that CEOs need to develop a policy perspective due to the fact that international trade is an essential part of a nation’s economy.
His challenges not only apply to the leaders of large multinational organizations, but also the small companies who expand business ventures outside of the US. This policy needs to be unique and based on the company’s overall vision and values. When developing an international policy, businesses should focus on the following four factors:
Understanding The Political Climate
Understanding the political climate means more than merely assessing a nation’s attitude towards their government leaders. It also requires taking a look at this from a broader and more specific perspective. A great example of this is found in Latin America. The elections of Lula da Silva in Brazil, Rafael Correa in Ecuador, and Cristina Fernández de Kirchner in Argentina among others in the early 2000’s signified the shift in political ideology in Latin America. These policy changes in most cases made it more difficult for businesses to be established in those regions. The recent election of Mauricio Macri in Argentina in 2015 along with the development of the Pacific Alliance by Chile, Mexico, Peru and Colombia signals a shift by Latin American nations from socialist economies to market economies. These countries are now looking to trade and investment as an important economic policy tool to help their country grow.
This study needs to go deeper than just an overview of the nation. The state and local levels must be examined as well. This analysis would be similar to a corporation looking to expand in the United States. Their focus would be to assess potential states as candidates for setting up a factory or an office. Part of that assessment would be a review of the aforementioned state’s economic statistics and the current economic policy. A recent example of this type of analysis would be comparing the level of support for the EU in England, Scotland, Wales, and Northern Ireland during the Brexit vote. The support for the EU was so strong in Scotland that Scots seriously considered supporting a move of separating from the UK after the Brexit vote. However, talk of leaving the UK was put aside when the EU did not meet with a Scottish delegation in hopes of preventing potential problems that could arise from other EU countries that had previous thoughts of creating their own state such as the province of Catalonia in Spain[3].
The Relationship Between the US and The Nation You Will Do Business In
Corporations need to understand the relationship from both the U.S. perspective and the other country’s perspective. The analysis from the latter’s perspective should have been addressed in the first factor. Recently, with the U.S. taking a more passive approach to pending crises, countries have begun to question the once proactive policies of the United States. This concern regarding the U.S. may be transferred to American corporations as their level of involvement is assessed. Also, businesses need to be aware of any free trade agreements or tax treaties that U.S. and the other nations may be a signatory of. Tariffs and tax rates can either be an obstacle or an incentive when entering a new market.
Be Familiar With Sanctions and Anti-Corruption Laws
The BNP Paribas settlement with U.S. Department of Treasury in the amount of $8.9 billion for violating sanction laws when their clients dealt with Iran, Cuba, and North Korea is an example of the impact of sanctions law[4]. As Mr. Chipman noted in his article, there is a “proliferation of sanction laws.”
Companies should also be aware of anti-corruption laws. Developing countries such as Brazil are beginning to place teeth in their anti-corruption laws. The impeachment of Brazil’s President, Dilma Rousseff can be seen as a reflection of this anti-corruption stance. A major reason why countries such as Brazil and others are putting teeth into their anti-corruption laws is because they recognize that investors are not going to invest their capital in countries that are corrupt and have greater risks of losing capital.
Develop Both Business and Political Relationships
Mr. Chipman described this last element, as the development of relationships as one where there is depth “between the government, the oligarchs, and civil society that needs to be appreciated.” When developing these relationships, a company needs to conduct their due diligence to make sure that the individuals or company are not in included on any of the OFAC or Bureau of Industry and Security lists that prohibit U.S. companies or individuals from doing business with them.
PobleteTamargo can guide your company through this process. This guidance will include providing you with the following: asking you the questions necessary to develop your policy vision that will fit into your overall corporate vision; providing you with political intelligence based on our experience in handling international affairs and relationships with members of the foreign policy establishment; and, advice and counsel regarding sanctions law.
