Establishing or expanding a business in a foreign country can be challenging due to differences in language, culture, business regulations and consumer patterns. Establishing or expanding a business in a developing nation presents additional challenges such as poor infrastructure development, an impoverished population, and the lack of a well-trained workforce. The county may suffer from political instability and the potential for violence. Nevertheless, developing countries also offer advantages that may not be available in developed countries, such as inexpensive labor, an under-served market, and fewer or less-demanding business restrictions that can lead to stronger business growth.
This article explores some best practices for starting and growing a business in a developing nation.
Lay the foundation
When you first contemplate doing business in a developing country, research possible targets using resources such as the United Nations Human Development Index. The index offers a relative scale that combines life expectancy, education, and per-capita gross national income. With a country in mind, examine their legal and political requirements for establishing a business. A key item to focus on is whether the country has “free trade zones,” which offer special incentives to encourage business development.
First-hand experience
Visiting the target country is essential. Guidebooks and internet research will never tell you what you might learn from talking to local business owners. Talk with potential customers, if you can, to learn what they think of your idea and how they are currently solving the problem that your business plans to address with your product or service.
Evaluate local conditions, including culture, traditions, customs, and the political climate. Factor these into your value proposition and marketing. Consider your startup costs and determine how profits are taxed in this country. Look for anything that could disrupt your operations.
Check other businesses in the region. Look for possible competitors, of course, but also how you could improve your product to be more attractive than theirs. Keep an ear open to learn of any local business partners for suppliers, distributors, and administrative support. Whatever you can source locally will lower your costs and minimize disruptions due to import requirements and delays.
Other initial tasks
If you become confident that this is a viable opportunity, take the time and spend the money to hire reputable legal representation to advise you on the legal structure of your business, the local regulatory environment, and any filing requirements. You might wish to first consider establishing a joint venture with a local company to sell or distribute your products or services and striking out on your own later.
Based on everything you have learned, review your business idea to ensure that your product or service is targeted to your market’s needs and purchasing behavior. If you are already in business, then any way you can leverage your current Intellectual Property to make a product for the new market will be useful.
Keep in mind the inevitable risks of starting a business in a developing nation. Your start-up timeline may run in fits and starts, with unforeseen delays throughout. Make sure that you have enough capital to weather a longer-than-usual time to profitability.
Include travel and living expenses in your budget; you will probably be either living in the target country or making frequent trips there.
Capital investments
You will need to obtain facilities for your business, whether you build, buy, lease, or rent. You might need manufacturing facilities, warehouse space, business offices, or all three. Keep expansion in mind, either by securing the space you will need in advance or building the cost of expansion into your budget.
Hire employees and managers for your business. If you will not be living locally, you need to find exceptionally trustworthy management. You may need to expand your search internationally to find top- and mid-level managers with the education, language skills, and industry experience that you need to optimize your chances for success.
Decide whether you will train new employees in the skills you need or find people who already have those skills. Training is expensive and there may not be people (with the skills you need) available in the local market. All the usual hiring rules apply, including finding employees who fit your corporate culture. Be sure that your hiring managers understand your standards and expectations.
Ongoing Operations
Management from afar can be problematic. Plan periodic on-site visits. Stay connected with your senior management by phone, email, and video meetings. Establish strong financial reporting to include data you need to gain a clear picture of your business. If you have any concerns, consider implementing auditing procedures through outside contractors. Be flexible, too; you may need to adjust your original business plan quickly, based on local conditions.
Higher risk might bring higher returns
Operating a business in a developing nation carries great risks and potentially great rewards. It requires correspondingly greater planning and preparation to reap those rewards. If you are looking for a challenge or want to expand your existing business into a new market, you can find profitable opportunities in developing nations, provided you plan properly.