International business risk factors to consider
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
International business risk factors to consider
Luckily, you’re in the right place. In this article, we’ll outline some of the factors that
could make an impact on your business’s total risk exposure, so you can get a feel for what
to expect before you set up shop in a new territory. We’ll also explore how businesses can
limit the international risk factors outlined below.
1. The usual suspects: market and economic forces
2. Cultural differences
3. Extreme weather events and natural disasters
4. Legal challenges
5. Political risk factors
6. Purchasing power parities
As an entrepreneur, you’ll be familiar with the typical business challenges of supply and
demand on your own turf. You may even have achieved a resilient system and only ever run
into problems infrequently.
However, entering into a new market is a whole different story. You might have spotted
a complete or partial gap in the market, but you’ll be entering a new business environment
where you’ll face new competition and different consumer preferences. Local suppliers will
probably have a more established foothold in the region, so you’ll need to break through
existing brand loyalty.
You’ll need to carefully manage this new business risk factor with thorough market
research and advertising to build up brand awareness and trust — especially if your
goods/services are price-sensitive.
If the local economy of your new overseas market is in (or heading towards) a
recession, certain customer demographics may have less disposable income to make
purchases. In addition, the wider economic health of the country might not last long enough
for you to set up properly. While you can’t eliminate this international business risk factor
entirely, you may be able to reduce it to some extent — and that will take time and
planning.
Much more obvious international business risk factors include language and cultural
barriers. Practically speaking, businesses must be able to communicate with their customers
and/or suppliers — at a bare minimum. If you’re expanding into a market where there is a
dialect or language barrier, therefore, it’s important to make sure your language skills are
passable.
Fortunately, e-commerce businesses can use freelance translators on platforms like for
product description and marketing material translations. In contrast, physical stores may
need a more ‘boots on the ground’ approach, — and that can be costly, unfortunately.
If you do have a functional familiarity with the local language, understanding the finer
points of your new cultural environment is even more crucial. While your communications
might be grammatically correct, a taboo turn of phrase can quickly spoil a business
relationship. The same principle applies to behavioural conduct, meaning you’ll need to
keep up proper appearances to sell effectively.
Business cards and etiquette, for example, are important elements of doing business in
China, while inviting contacts for meals during the daylight hours of Ramadan may be
considered insensitive in Saudi Arabia. Even accepted business attire own backyard,
relatively speaking) is changing.
Globally connected supply chains mean you may need to relinquish total control over
every logistical step. Although there are perfectly reputable and reliable manufacturing and
shipping partners available, mother nature can be a hindering force at times. For this
reason, extreme weather events and natural disasters present a sustained business risk as
entrepreneurs expand internationally.
While the UK itself is increasingly facing the , the British Isles have historically been a
safe haven from natural disasters and extreme weather because they don’t sit on tectonic
fault lines, and because they benefit from a generally
Unfortunately, this isn’t the case everywhere. Damage to Japanese infrastructure after
the 2011 predicted to cost similarly large amounts. On a practical level, your business may
have to account for increased business insurance premiums and operational challenges
should your premises or goods be affected by extreme weather events. As if overcoming
cultural and language barriers wasn’t enough, your business must also become familiar, and
comply with entirely different legal systems.
Businesses are subject to fines or further legal consequences if they don’t comply with
their relevant local authorities, for instance. Because of inevitable regional legal differences,
we advise that you seek advice from a qualified solicitor and an accountant to make sure
you’re not violating local legislation.
To illustrate this point more effectively, we’ve broken down the main legal challenges
you may face into three distinct areas: tax, operations, and contracts. Almost every nation
has some form of tax requirement (although a lower threshold than others). Regardless of
the actual payments to the governing bodies in question, the local governments you deal
with will require your business to file some form of tax return paperwork — even to report a
loss, or no net profit. Each of these obligations will come with deadlines and workloads that
will need managing on top of your business’s existing operations.
Differing tax rates can also impact your growth strategy in each new location: it can be
very difficult to implement a unified strategy across your enterprise if you have fewer
resources for one location versus another.
Fortunately, thanks to globalisation, certain legal elements are coalescing — like the for
example — which can help your business budget with consistency. An accountant qualified
in your chosen market can help you understand your tax obligations more clearly.
Operational requirements are a far more diverse and less standardised element of
international business than our tax example above. Different countries regulate their
business macro-environment more intensely, and certain industries within each country are
more heavily regulated than others. Depending on quite how ‘free’ your new country’s
market is, you may have to acquire permits for certain business activities before you can
operate legally.
Agriculture and fisheries businesses, for instance, have to cope with environmental
legislation, while manufacturers often have to abide by rigorous safety product standards
when they produce children's products. Certain business activities, like playing copyrighted
music or handling food, may also need a license.
If you make or import goods as an e-commerce business, specific regulatory
requirements will depend on the product category. Alcohol vendors, for example, may have
to secure a licence or permit — and may have to promise not to sell to minors — while tech
businesses may have to make sure their products meet electrical safety standards. Whether
you’re hiring staff to fulfil orders, or liaising with local businesses for support or supplies, it's
essential to create ironclad contracts.
Certain agreements between businesses and their employees or suppliers may be
considered unreasonable and unenforceable, leaving you open to lawsuits or unfulfilled
obligations. Specific legal principles, like time-centric clauses or what might constitute a
‘good faith’ agreement, can vary wildly between two nations’ legal systems. Adding a
language barrier on top of this can make securing reliable contracts difficult.
Consult a locally qualified solicitor to make sure you’re not left exposed to this risk
factor. As factors affecting business risk go, politics is arguably the most astounding. Given
the power they wield, some politicians don’t need to do very much to heavily affect market
performances. Stock markets can be spooked when political leaders give impassioned
speeches about (never mind actually delivering them), while currency values can tank or
swell along the lines of certain
Even if your business isn’t yet publicly traded, as an aspiring international business, it’s
worth paying attention to the shifting political scenes of your target market(s).
Unfortunately, this isn’t the only risk factor from politics that affects international
businesses. There are far less salacious examples that come from emerging legislation that
your business should pay attention to.
First and foremost are changes to existing laws (for example, in tax rates, employment
wage minimums or mandatory licences). We touched on these points above, but we haven’t
yet mentioned that politics make this a dynamic challenge for businesses. Being compliant
with the law means staying compliant, even as new governments tweak or overhaul entire
pieces of legislation. Simply put, changes to the law can upend existing compliance efforts
and move business strategy back to square one.
International businesses, importers and exporters also have to stay abreast of trade
deals. The introduction (or removal) of lucrative international trade arrangements affects
small businesses heavily, and can almost entirely determine their viability outside their
original domestic market. With already thin margins in some product categories, small
businesses can benefit from free trade agreements or lax tariffs on goods between nations.
When these arrangements are changed, removed or even expanded to a third-party
nation, the business landscape can alter very quickly. As you’re reviewing your expansion
efforts, take note of developments in government performance and legislation to ensure
your business is viable.
It won’t surprise you that financial factors affect your business’s risk exposure, but
understanding exactly how is important. As you’re expanding internationally, you may find
that your budget stretches less than in the UK.
This is known as , where international buyers (you, in this instance), need to
pay more for the same amount of goods as someone who lives there domestically. If this is
the case, your initial investment and growth strategy will need to account for this acute
business expense. Luckily, this isn’t always the case. If your budget forecast shows that your
money goes much further, it’s essential that you maximise this advantage as much as you
can, as it can help you fund a more aggressive growth strategy than your domestic
competition.
Vitally, parities in purchasing power aren’t consistent across the board; no one nation is
able to access goods cheaper than another every single time. Try to take a blended
approach, purchasing domestically (within the UK) and/or importing goods to your new
operational location to maximise your access to price differences.
