Risks of Expanding Globally
Any company that expands internationally is bound to face certain
risks in dealing with the local culture, language, business practices
and government regulations. Before expanding, the business should
first consider and study all of these factors to determine if the
decision to trade abroad is the right one.
Potential risks of global expansion are explained below.
CULTURAL AND LANGUAGE BARRIERS
Business transactions are not conducted in an identify way worldwide. These cultural
differences may interfere with the manner in which business associates work and
communicate with each other. For example, in India a potential associate may be nodding his
head from side to side, which to New Zealanders may appear to be a negative gesture. In
India, however, it is a gesture of understanding. Meetings with business associates in China
are run differently than they would in New Zealand. In China hosts arrive later than guests,
and Chinese associates may talk among themselves during presentations, both practices we
would consider rude in New Zealand.
These conflicts are most noticeable among cultures that are unable to understand each other
and have completely different traditions and thought processes. As long as staff members who
will be visiting overseas trading partners are trained to be aware of these differences, business
relationships can be successful. An important element in making global expansion successful
is finding creative solutions to cultural differences by respecting both cultural perspectives.
Language is another barrier that causes conflicts to businesses wanting to
expand internationally. When a New Zealand company is trading in a
country where English is not widely used, it will probably be necessary
to use trained translators to bridge the communication gap.
MARKETING CAMPAIGNS
When launching a marketing campaign or advertising to members of a different culture, a
firm must always research the target market prior to beginning the campaign. Levels of
conservatism, gender views and ideologies can vary greatly between cultures. Presenting a
campaign that is not in line with specific cultural norms can insult the target audience and
greatly harm the campaign. Being aware of cultural norms can also help a company narrow
down the target audience. For instance, in Japan men are usually in control of decisionmaking, whereas women make the majority of purchasing decisions in Sweden.
TRADING ENVIRONMENT
A company wishing to enter a foreign market must do thorough research beforehand to ensure
the unique risks and issues presented by the country are known. It is important to assess
political risks, the legal environment and the business and competitive environment.
Strategies can be developed to minimise or avoid risks. The business should study the
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histories of local and international companies in the country and the industry to gain deeper
insight into what their own experience may be like. Exchange rates, current and historical,
should be carefully examined. Consulting firms specialising in international investment will
have good knowledge of the challenges and opportunities presented to international
businesses in the foreign country.
UNCERTAINTY
Business does not like uncertainty. It affects future planning and investment. The business
should consider partnering with organisations in the foreign country. Some of the
uncertainties can be avoided by co-operating with organisations to take advantage of their
market-specific expertise and local reputation.
Uncertainties and Concerns
Collapse of major industry
Fraud and corruption
Political change
Supply of resources
Rumour and reputation issues
Payment default affecting cashflow
Rise in energy costs
Market changes affecting share price
These less likely situations should also be considered
War
Natural disasters
FLUCTUATIONS IN EXCHANGE RATES
Supply of the currency
Influenced by
Demand for the currency
Price of one currency in
terms of another
EXCHANGE RATES
Appreciation ~
Exchange rate rises
Import prices likely
to fall
Depreciation ~
Exchange rate falls
Export prices may
have to rise
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Import prices likely
to rise
Export prices could
fall
TRADE AGREEMENTS
Trade agreements have become an important part of New Zealand’s international trade policy.
Trade agreements, also known as ‘closer economic partnerships’ make trading between New
Zealand and the trading partner easier. Some of New Zealand’s trade agreements include:
 Closer Economic Relations (CER), with Australia, came into force on 1 January 1983
 China: New Zealand–China Free Trade Agreement (2008)
 Singapore: New Zealand and Singapore Closer Economic Partnership (2001)
Economic free-market reforms of the last decades have removed many barriers to foreign
investment, and the World Bank has praised New Zealand as being the most business-friendly
country in the world.
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