As the global economy seeks to expand, more investors are finding that their portfolios are becoming inevitably diversified from foreign markets. Products that reach consumers at a global level almost always involve an international supply chain that requires various investments in various foreign markets. For example, investors might find infrastructure or job training investments in India are needed in order to service a customer service need or deliver an inexpensive product to consumers in rural areas.
Products made cheaply in China that reach a global audience also requires investments in shipping, marketing, and advertising in other markets. Niche companies in the United States might wish to open up a similar service in Europe or Asia, and establishing another branch and linking them together requires its own form of investment. Real estate investors that might wish to expand their business and expertise abroad must make significant investments into foreign real estate markets, many of which might function very differently from the markets in his or her parent country.
While the type of investment you are trying to make in a foreign market will vary from investor to investor, there are a few tips to consider before investing abroad. Consider the following:
Know the Rules. Not every market is the same, and it is important to fully understand the host country’s rules and regulations that apply to non-nationals who may want to invest in the country. Some countries are friendlier to outside investment than others, and it is important that all investors fully understand the legal and regulatory aspects of their investment into a given market.
Consider the Risk. Risk analysis is vital for any enterprise looking to establish operations abroad. Investment strategies will inevitably be tied to turbulent markets or countries with considerable political risk. By understanding these concerns, you may be more successful than competing investors who are not willing to take the leap.
Prepare to Lose. Investing in developing countries with weak democratic and legal infrastructure can prove to be difficult for foreign investors who might be used to stronger, established judicial institutions. Investing in countries that are ruled by dictators or despots or of which regularly experience coups, civil wars, or nationalization means foreign investors avoid those markets simply because the political risk is too great. Nevertheless, some investors find these markets desirable because they scare off much of their competitors and they can sometimes monopolize a market for a given amount of time. These investors, however, are always prepared to lose some or all of their investment and also have backup plans before going into places like Zimbabwe, Syria, or Burma, for example.
Know the Currency. Investments into foreign markets will require you to know about the local currency. Many currencies fluctuate dramatically and while pegged to the US Dollar or Euro, are not as strong, valuable, or stable. Big changes in the global market can have dramatic effects on foreign currencies, which can be either positive or negative depending on where and how you have invested. This will have consequences for investment portfolios and businesses established in a foreign market, and keeping track of the currency rate in the foreign country will prove to be a necessary part of savvy investing abroad.
Understand the Supply Chain. Your investment means nothing if your foreign country does not have the resources to fully develop, ship, and sell your product. Even if your investment is in currency or finances, the productivity and resources utilized by a country’s workforce can be different from the markets and industries you are more familiar with. Building a matchstick factory driven my inexpensive labor in West Africa is useless if the local market has no access to sulfur or the workers have no training & expertise on how to develop sulfur tips for matchsticks. How will these matches be shipped after development? The answer to that question resides outside of your industry, but must be considered if you want your investment to be profitable. These must be considered before spending substantial cash in a foreign market.
Find a Trustworthy Partnership or Strategic Ally. Leave your ego at the door. If you were not born there or didn’t spend a lot of time in a foreign country, you can do all the research in the world and still miss nuanced cultural aspects of a foreign market. This is why finding a partner or developing a strategic relationship with business owners and other investors in the country is helpful. This also builds your legitimacy as an outsider, because it will show local businesspeople that you are serious about making a legitimate investment in their country. Such an ally or strategic alliance will put you in contact with people who can help you better understand things about the local or regional environment that five years of business school could never teach a student.