International Investing – 10 Things to Consider When Taking Money From Overseas

1. Will your other investors mind? Will your current investors care if more funds come from country X? Does country X help or hurt them financially, legally or psychologically? Getting your current investors’ permission might be necessary.

2. Will your overseas investors have access to your company’s trade secrets? Frequently, investors want to understand and potentially copy your intellectual property. It may be impossible to track the actual source of overseas money. Thus, some overseas investor could be connected to a real (or future) competitor. Investment dollars might come from a real (or future) client or vendor. Will they be able to access your “secret sauce” and do you mind if they do?

3. Do you understand how to deal with the investor’s culture? We are back to the No. 1 stumbling block in international business: the differences in culture. If your way of doing business is completely different than what your investors are accustomed to, then there may be potential conflict on the horizon. How will you deal with their views on risk, profit, law, ethics and management? How will they deal with yours? How much education and hand-holding will be necessary? How active will your investor be in running your business?

4. Do you realize it may take more time to deal with an overseas investor? The single biggest cultural difference is our perception of time. The overseas investor may be willing to invest, but not as quickly as your firm wishes. Investors are often known for showing high interest initially, and then stalling. In places like Asia and the Middle East, that syndrome is even more widespread.

5. Are there tax consequences to your company taking foreign money? Even if you completely and fully understand the U.S. tax ramifications, does country X’s tax practices agree with ours? Are you suddenly filling out a tax return for country X?

6. Are you suddenly dealing with a whole bunch of foreign laws? Firms may not think of this, as in the United States we often have contracts that say “this is governed by U.S. law,” but does country X care what you wrote down (in English) and signed (in the United States)?

7. Are you suddenly dealing with government agencies in the U.S. that you may not have dealt with previously? As an example, a high-tech firm may take on an investor from country X and before they know it, they are on the radar of the Defense department, the IRS and the Department of Homeland Security. It’s easy enough to check this out in advance.

8. Is there an intermediary involved and will he or she make you comfortable with each other? In many situations brokers facilitate transactions between buyers and sellers. Many times, they prefer to stay in the middle of all transactions (this is the best way to ensure they get paid). But when a firm takes on an investor, it takes on a partner. Any intermediary must facilitate a relationship between the funder and the recipient of funds.

9. Is there an intermediary involved and is he or she authorized to do this kind of work? That intermediary needs to be authorized in the United States as well as in country X. You don’t want to be a party to breaking foreign laws unknowingly.

10. Does the country that’s investing in you have some kind of stigma? So, will your clients or employees mind if you are taking funds from country X? Does the country that is sending you money have a poor reputation for anything? If you take money from country X, does that mean that you can’t take new money from country Y? What countries does country X have a rivalry with?

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When Chinese Money is Worth Less What Does Your Business Do?

Everyone has seen the news that China has devalued its currency. This means the Yuan Renminbi is weaker. When you exchange currency, you can now buy more Yuan for each dollar spent. If China is really the world’s second largest economy, than the Renminbi (People’s Currency) effects world markets.

After all, if Chinese money is weaker, that means that US products sold into China become more expensive. Take the example of Mandarin Oranges for sale in China, but imported from the USA. An 8 kg box costs between $20 and $30. With the weaker Chinese currency, this could cost 25 percent more this year. Thus, the imported oranges are more expensive and the Chinese will buy less of them from the USA, critics say.

On the flip side, items we buy from China will cost less. Importers of (e.g.) Chinese toys will pay less. If the US importers keep the price constant, then the importers will benefit and make more money. So why is everyone complaining?

If your firm is selling a price-based commodity to Chinese buyers (rice, soy, oil, hogs, corn, cotton, etc.) your sales may suffer because your price is too high.

But if you are selling iPhones or BMW’s, the higher price may not matter. Higher prices may even work as an advantage, because the products are more expensive and hence more prestigious.

What advantages do BMW and Apple enjoy that cotton growers and soy farmers don’t?

It comes down to branding and positioning. The successful firms plow back profits into building and protecting a brand. They have made it clear that an iPhone costs more, but is worth it. A BMW costs much more than almost anything Chevrolet makes and their argument is that “price doesn’t matter.”

U.S. firms can often be lazy when it comes to branding overseas. My work in this area points to many firms that relinquish overseas branding to local “partners.” If U.S. firms remember their marketing muscle, they can expand overseas and not be as sensitive to price fluctuations. If we can remember that Starbucks is a lifestyle (not a coffee) we can export that concept (as Starbucks does well).

For those businesses that deal in commodities, there has to be a way to differentiate other than price. Last week I asked a firm (who wishes to deal abroad) if they had bank accounts set up in overseas markets. When they explained that they wanted to be paid in US dollars via wire, one has to wonder if they really intend to service the markets. Better service would be a differentiator.

This firm picked China as a target market. I asked these questions of this firm:

Did they have anyone on staff that speaks Chinese?

Are they interested in going to China regularly?

Do they have relationships in China?

Can they help the Chinese with their own businesses?

Do the Chinese clients need help where the U.S. firm is better connected?

Did they read anything about the region?

Do they eat Chinese food?

All of these points can be differentiators.

All of these questions point to ways in which the Americans can enhance customer intimacy.