FEATURE | SPRING 2011 EFFECT

Top 10 International Business Mistakes

by Sara Gilbert Frederick 

At any given time, one of Jonathan Fink’s clients may be making a business faux pas. In fact, a company he’s working with right now has already chalked up four or five of them, Fink says. But, he adds, that’s not at all unusual. “There are a lot of mistakes that U.S. companies make when they try to go international,” Fink explains. “Business practices in different parts of the world are quite a bit different, and most people don’t understand anything about that.”

Fink gained an understanding of international business when he worked as a marketing director for a large textiles mill in Jakarta, Indonesia, and then started his own textile exporting business in Indonesia in the late 1990s. Now he’s back in the United States and using his experiences abroad to help other companies go global. Since 1996, his San Antonio-based company, TSI Global Consulting, has been helping clients plan ahead for their international expansions.

Many of the errors he and other international business consultants see could be avoided if companies invested a little extra time preparing for international growth. “The main thing is do your homework in advance,” advises Larry Chastang, managing principal of international services for LarsonAllen. “You have to very carefully research the market you are going into. And don’t assume anything.”

“Each and every country is different,” adds Frank Hughes, the owner of F.F. Hughes & Associates, a management and real estate consulting firm based in Mount Dora, Florida, and a longtime client of Chastang. Hughes has worked internationally and has helped establish operations in Latin America, India, the Philippines, and South Africa. He draws on that experience when advising clients eager to expand overseas. “Folks rush into international business like it’s going to be the gold rush. But it’s never quite that easy.”

But it doesn’t have to be horribly hard, either. With the right advice, companies can avoid making some of the most common international business blunders, from big financial blunders to more minor cultural misunderstandings. Consider this list of ten mistakes—and how not to make them—a starting point.

No. 1: Planning a quick trip

When it comes to developing relationships with international partners or negotiating with associates in another part of the world, videoconferencing usually doesn’t cut it. In many countries, especially in Southeast Asia, business is a much more personal endeavor than it is in the United States. The expectation is that a personal relationship will be in place before the business dealings are done. That may take a matter of months—and more than one trip—to establish.

“That’s where a lot of companies go wrong,” Fink says. “They get on a plane, fly out there, and then expect to make a deal and come right back home. That’s not how it works. They have to trust you before they’ll do business with you.”

Allowing time for a lengthy trip also speaks to the time needed to prepare the business plan in general. Going global shouldn’t be a rushed process. Putting together a business plan for overseas operations may take a matter of weeks—but that’s just the beginning, Hughes says. “Filling out the plan can take as much as several months before one can make a rational decision,” he explains. “Too often one sees a company make a quick trip and a gut reaction to go international.”

Being there helps break down language barriers as well. Although English tends to be the universal business language worldwide, the way words are used varies from country to country. Those subtle nuances can be especially difficult to pick up or understand over the phone or in an email, or even in a quick trip to sign the deal.

“They expect to see you a couple times a year,” Fink says. “You need to be on the ground for a while when you’re there too, so that you can become viewed as a local partner and someone they can count on. You don’t have to set up an office there, but you do have to be there, in person.”

That won’t always be the case; once you’ve gained an international associate’s trust, technology can take the place of some trips, Fink says. “Videoconferencing is great,” he says. “But not up front. It has to come later.”

No. 2: Expecting the red carpet

Making the effort to go to Mexico, Venezuela, India, or wherever else you’ll be doing business will certainly endear you to future partners and associates. It doesn’t, however, guarantee you celebrity status or even a bank loan once you’re there.

“Just because you’re a successful businessperson here in the United States, don’t assume that you will be immediately welcomed and received by bankers, lawyers, and accountants in another country,” Chastang says. “It will be more like you’re 18 years old without any experience again. You won’t automatically be given credit. Many times people mistakenly expect that the red carpet will be rolled out for them when they arrive, and they tend to be surprised when it isn’t.”

Of course, in some places, American businesspeople definitely do attract attention—but it’s usually of an unwanted kind. The threat of kidnapping led Hughes to hire a private security service when he was doing business in Colombia several years ago, and now he warns the clients he works with to be aware of security threats as well. “I wouldn’t go into Venezuela or even Mexico without security,” he says. “Any executive from the United States is at risk, no matter how safe they think they are. Security is a very, very important thing.”

No. 3: Expecting things to go as expected

“Nothing will ever go off just exactly as you expect it to,” Hughes warns. “Something will always come up. I can assure you that it will.” That’s why he advises clients to carefully analyze the costs of launching international operations both in terms of the time needed to get it started and the funds that will be required to finance it—and then add 25 percent. “I used to say add 10 or 15 percent,” he says. “But that’s not enough. Add 25 percent.”

No. 4: Thinking in dollars

American companies that expand into the emerging markets in Latin America and Southeast Asia need to be particularly aware of the volatile exchange rates in those areas. In Mexico, for example, the peso may quickly appreciate by 10 percent—and then depreciate just as rapidly. “That means that U.S. imports are now 10 percent more expensive for Mexican citizens to buy,” Fink explains. “Now those customers need 10 percent more pesos to buy the same amount of your goods.”

The solution, he says, is to do business more like the locals do: with a lot more flexibility. “You lose competitiveness if you don’t go in with a flexible pricing policy,” he adds. “The market can literally dry up.”

Another solution? Diversify. “You should not only be in Mexico but also in Southeast Asia and the rest of Latin America so that when one currency depreciates, you can switch your focus to an area that isn’t depreciating.”

Another issue to consider when it comes to money: every country has its own tax structure and laws governing the transfer of funds in and out of the country. Not knowing what’s allowed and when can lead to stiff penalties and lost profits. Companies that take the time to learn the right way to handle financial transactions will be better off in the long run—especially in countries with unstable economies.

Hughes remembers when the Argentinean government defaulted and froze the movement of all money in the country. His company had an entity in the country that could have lost all of its assets in that crisis, but they knew better than to hold all of their accounts in country. “We knew Argentina allowed accounts to be held outside of the country, so we were okay,” he remembers. “We may have lost money then, but we didn’t lose a ton.”

No. 5: Relying on American advice

The intimate understanding of another country’s rules and regulations can only be gained by working with local experts. Hughes recommends maintaining legal counsel and accounting services both in the United States and in each country where you do business.

“You’ll have to file local tax returns for each country you do business in, so you’ll need someone there to help you,” he explains. “And the legal system never works the way you expect it to. You have to carefully examine the legal aspects of what you’re doing and understand the rules of transacting business in each country.”

In India, for example, Hughes found out that to establish a corporate entity, a business has to have a native Indian as a partner. “It could be someone in India, or someone who was born in India who now lives in the United States or elsewhere,” he explains. “And in Chile, the entity has to name a legal local representative who then becomes liable for the business.”

Chastang agrees that it’s crucial to understand the legalities of each country; he also agrees that it’s important to have international associates who can help with accounting and legal services. But he cautions businesses against relying exclusively on foreign partners for recommendations. “Get your own legal advice,” he says. “Your partner might tell you that everything is okay, but you have to be covered. Get your own advice and be prepared. Just like you don’t want to duke it out in court here in the States, you certainly don’t to be duking it out in court overseas.”

Be especially wary of contractual agreements, which don’t always have the same meaning and importance in different cultures. “In many countries, especially places like Indonesia and Vietnam, contracts are not viewed as set-in-stone documents,” Fink explains. “The whole issue of legality is almost non-existent. The court systems don’t work effectively, so you can’t sue anybody.”

No. 6: Expecting a meeting to start on time

They rarely do. Few cultures have the same focus on punctuality and time consciousness as Americans. “In Jakarta, a 10 a.m. meeting is meaningless,” Fink says. “The meeting will start whenever they can all be gathered in the same room. You might get there and they’ll tell you that someone is another meeting all morning—and that they’ll meet you when they’re done.”

That’s fairly routine when working abroad, says Chastang, and takes some getting used to. All it takes, however, is a bit of research and a few well placed questions to find out when to schedule meetings—and when not to. Chastang says that he’s learned not to set up meetings before 10 a.m. in England, for example. “They just don’t like meetings before 10 a.m.,” he says. “They’ll meet you promptly at 10, but not before.”

It’s also important to remember that lunch doesn’t always happen at noon, and that dinner isn’t always served at six. In most European countries, for example, lunch doesn’t start until 1 p.m. or later. “Don’t show up and try to arrange a lunch meeting at noon,” Chastang says. “You’ll just have to hang around until 1:30, when they’re ready to eat.”

Even more challenging may be waiting until 9 or 10 p.m. to eat dinner—but that’s what generally happens in the Middle East, Chastang says. “That’s very common. You have to plan ahead for that.”

No. 7: Expressing anger

No matter how frustrating it is to be left waiting an hour or more after the original meeting time, it’s important not to lose your cool. “Anger will destroy you,” Fink says. “Especially in Southeast Asia, where there is a very strong cultural sense of maintaining your dignity and not showing stress. To them, that’s a loss of face.”

The good news, Fink adds, is you’ll almost always be offered a cup of coffee or tea when you arrive at an office. “So just remain calm, drink your coffee, and chat with the secretary,” he says. “And then just sit and wait.”

The same rule applies once the meeting begins. But not only do you have to keep your cool, you also have to drop your demands at the door. “You can’t go into an Asian country with a detailed contract and tell them that they must meet these specific requirements,” Fink explains. “You have to go in with much more flexibility, more as a partner than as someone making demands. They will interpret that as Yankee imperialism.”

Even then, Fink says, they won’t let their feelings show during the meeting. And if you do, you’ll lose any trust you may have been able to build. “Then you’ll be the pushy American who is impatient and unwilling to adjust.”

No. 8: Trying to do too much in too little time

If you typically schedule four or more meetings in a day in the States, you might be disappointed to cut that in half when you go abroad. But between the often relaxed approach to punctuality and the commonly snarled traffic in large international cities, it’s almost impossible to accomplish that much in one day. “What you would get done in one day in Houston, for example, would take three or four days in Jakarta,” Fink says. “You just have to get used to it.”

It all falls under the umbrella of patience, Fink says. “We go into different places, into different cultures where they don’t look at time as money, and we get frustrated,” he says. “Really, we need to adjust our time clocks to that way of thinking. We need to realize that if we are going to be part of a global community and do business around the world, then we need to adjust to that culture and become more patient.”

No. 9: Not adjusting to a different business casual

Smoking in the midst of a meeting isn’t just a faux pas in the United States; in almost half of the states, smoking in public buildings, including workplaces and restaurants, is illegal. But in other parts of the world, lighting up at work is not only permitted, it’s quite common—and it’s one of the cultural nuances that American businesspeople have to get used to when working abroad.

“The rest of the world still smoke cigarettes—at dinner, at meetings, all over the place,” Chastang says. “So if someone asks if you mind, you certainly do not.”

Similarly, taking a cell phone call during an important conversation is a common occurrence in meetings around the world. In Indonesia, Fink says, everyone answers personal calls during meetings—and won’t be offended if you do the same.

“They are even more attached to their cell phones than Americans are,” Chastang says. “It’s not at all uncommon for them to break away midsentence and take a call. They will sit down to dinner and lay out two or three different cell phones next to their forks. And they’ll talk on all of them during dinner, too.”

No. 10: Not doing your homework

Almost all of the above mistakes, and dozens more, can be avoided by careful planning in advance of an international move. That includes reading about both the country and its culture, as well as carefully researching the market for your products or services. It takes time and effort.

Sometimes it also takes professional help from someone with international experience. It’s often worth the expense to seek out a consultant who can look over your business plan, as well as the information provided by international partners and associates.

“It all comes down to doing your homework,” says Chastang. “You have to do the research, and you have to talk to people from that country before you go. Sometimes it helps to hire people from that country to help you.”

The investment in planning and learning shouldn’t end when the international relationship or entity is launched, either. Continual evaluation is critical, Hughes says, to determine whether or not the venture is working out. “Even after studying and committing to go, you should always have an exit plan,” he says. “After so many months or years in country, if we are not making money and the prospects are dim, how do we wind down the operation? Constant evaluation is a must.”

Not all mistakes are disasters

When you exchange cards with businesspeople in Japan, you shouldn’t just stick it in your pocket. The appropriate behavior is to look at the card and then bow to the person who gave it to you. “Most of the time, people make the mistake a few times before they learn,” Fink says. “But the good news is that there tends to be an element of flexibility in most places; they’re often used to doing business with Americans, so they give you a little leeway.”

Each different country has its own unique culture, with its own behavioral expectations. Cultural learning occurs over time, in person, and often by making mistakes—embarrassment provides powerful and memorable learning experiences. And this is one more benefit of doing business overseas—learning. It may not exactly show up on a balance sheet, but a truly broader perspective of people and business may encourage you to bring a more accepting and adaptable attitude back home.