Have you considered risk management?
Overseas countries have their own forms of PL insurance, instruction manuals, corporate credit checks, contracts, laws, and business customs.
International expansion would not go smoothly if a company tried to sell steering wheels and gears exactly the same as they are sold in Japan.
Introduction
“82.4% of SMEs who have penetrated overseas markets still haven’t established a risk management policy specifically for their overseas business.” Study into the Actual Conditions of Overseas Risk Management, Feb. 2016, Organization for Small & Medium Enterprises and Regional Innovation, JAPAN(SME SUPPORT JAPAN)
Study into the Actual Conditions of Overseas Risk Management, Feb. 2016, Organization for Small & Medium Enterprises and Regional Innovation, JAPAN(SME SUPPORT JAPAN)
Make sure you thoroughly “look before you leap” when attempting international expansion to ensure that you are ready for any unforeseen emergencies and do not run the risk of your Japan headquarters also crumbling.
What kind of risks are involved in international expansion?
It would be easier to understand this by picturing the flow of each expansion type, i.e. international transactions (export) and international expansion (investment) from start to finish.
For example, in the case of international trading (export), if you receive an inquiry from overseas, you will start corresponding with an overseas company via email. You will issue a quote, then, if you obtain the order, you will begin production, collect payment, then export the product.
The risks involved in this process alone include…
- Leakage of technical information
- Payment delays
- Bad debt
- Import/export regulations/standards
- Packaging defects, damage, loss
- Possibility of return due to misunderstanding of product specifications
When establishing a store or factory overseas as part of international expansion (investment), there is a need to secure a real estate contract, supply procurement, and personnel, however, risks include;
- Insufficient infrastructure
- Construction delays
- Changes to, or inappropriate operation of, authority regulations/standards (law, tax, environment)
- Non-profitable contracts
- Poor supplier quality
- Insufficient maintenance
- No fixed personnel
- Incorrect understanding of local customs
- Strikes, terrorism, riots
- Natural disasters
- Infectious disease
How do the risks differ to Japan?
The extent to which a hurdle will trip you up or make you fall into a pit trap differs between Japan and overseas.
For example, in the case of international trading (export), the below could be the case;
A company sent you an email about doing business with you, but disappeared after you delivered your product to them and now cannot be located;
Information on your company’s track performance and product data you disclosed as part of an explanation appeared on an unrelated site without your permission, your company trademark was registered in an overseas country without your consent, or you were treated like a general agent in the said country;
The customer abruptly returned your product claiming it differed to the description on the product page despite this being a misinterpretation of the details on the customer’s behalf;
Your product is unable to clear customs due to the other party’s inadequate documentation which led to an accumulation of warehouse fees. Meanwhile, the product deteriorated and you were forced to dispose of it. You contacted the customer multiple times urging them to pay, but eventually they became uncontactable.
In the case of international expansion (investment), the below could be the case;
Your local partner only provides you with inaccurate or unhelpful information, you are forced to undertake an investment process that is inefficient or unrealistic and the cost blows out to an amount several times what you expected;
You realize something for the first time when you are withdrawing from a country, or you realize after the fact that no one in the target country told you about a certain key point;
As a result of not picking up on slight nuances in the local language, you lose opportunities on a major scale over many years;
Due to your management based on the theory that all humans are born good by nature, you suffer supply theft, inflated company expense billing, or you fail to discover ill-intended rebate requirements until it is too late, local employees don’t return to work after long weekends, etc., and the local subsidiary is no longer financially viable.
You may find yourself quite busy handling issues that you never encountered in Japan.
How can I avoid risks unique to international expansion?
First, it is important to know what the risks are and prepare accordingly.
In regards to knowing risks, particularly in the beginning, it may be easier for you to gain an understanding by referring to examples of companies that have attempted, but failed, to expand internationally, as well as the reasons for such failure.
Regarding how to prepare for risks, one approach is asking yourself why such a situation may occur, then completely putting yourself in the shoes of the overseas party you are dealing with.
For example, unlike Japan, overseas countries may entail the below factors;
- Short history
- Transient outlook
- Low literacy
- No safety net provided by the government
- Death from starvation extremely common
- Tough competition in society overall
- There are no, or extremely few, benefits to be gained by following the rules of society
- There is no system to deliver lost goods and even if there was, one may be suspected of stealing
Also, in countries outside of Japan, many people have the below line of thinking;
- Working overtime and weekends to the point where it is detrimental to their health is madness
- “God” or “family” may be at the basis of the meaning of life, but “the company” certainly is not in the same rank
- They do their best for people within their community but show no benevolence toward outsiders (people of different religion/nationality), and do not expect to receive it either
- There is not only one truth, but many versions of the truth, and what is right today may be wrong tomorrow
- It’s completely normal to have two or three layers of defense and make an effort to help themselves in order not to lose their share
- Despite not having a particular reason, they don’t trust people in general and aren’t surprised if they themselves do not easily earn another’s trust
- Believe that people should speak up if they have an opinion and that, even if a person participates in an activity, if they merely nod expressionlessly, it is equivalent to not participating at all
- Even if given work orders, if the instructions are sudden or not properly explained, they will not abide by the order and say the person giving the order lacks accountability
As you can see, the points of view differ to those of Japan.
Perhaps you will realize just how unusual Japan’s way of thinking is. With such a gap in perspectives and interpretations between the respective countries, it is not realistic to believe one can avoid risk entirely.
Be sure to thoroughly discuss in advance the minimum differences your company is willing to accept.
Risks that you absolutely must avoid and risks that you must accept will differ depending on the country and business you wish to target.
Not knowing is so scary, isn’t it?
I want to properly prepare for risk as well as I can.
That’s a great attitude.
Another risk management important to your success is the management of intellectual property.
There are a lot of imitations overseas, I hear.
But there’s nothing we can do about it, right?
Don’t take such a weak-kneed stance!!
You need to make sure you have firm ground to fight on if your intellectual property is used without your permission.
