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There is no question that globalization is occurring and at a remarkably rapid rate.
But operating in foreign markets may create situations that vary dramatically from
those found only in domestic markets. Considerations about risk, legal standards,
and ethical behaviors can be vastly dissimilar between and among different foreign
markets.
RISK CONSIDERATIONS
Numerous risks exist in any business environment. But when a business decides
to enter markets outside its domicile, it needs to carefully evaluate the potential
risks. Some of the risks depend on the level of economic development of the country
in which operations are being considered; these risks often include political and


currency risks. Political risks include the potential for expropriation or nationalization
of assets and the potential for change in business, legal or tax treatment under
new political leadership.
Currency risks can cause widely unpredictable results. For example, ABN AMRO
acquired 40 percent of Banco Real, Brazil, for $2.1 billion; Brazil’s currency devaluation

three months after the purchase caused two situations. First, depending
on the depth of the recession, there may be a significant level of loans that “go
bad.” But, second, the devaluation made the acquisition much less expensive for
ABN AMRO.6
Risks relating to cultural differences are more subtle. The business must assess
whether product names and slogans will translate correctly, whether gender issues
(such as female supervisors) will create labor problems, and whether products reflect
the lifestyles or product preferences of different global customers. To illustrate
this latter point, consider that diet cola comprises about 25 percent of all
Coca-Cola and PepsiCo beverage brands sold in the United States. However, these
companies, which have just begun selling diet colas in India, forecast a maximum
long-term market share of only 3 percent of that country’s sales. Diet foods are a
new concept in a country where malnutrition was a recent phenomenon. “There
is a deep-seated feeling that anything labeled ‘diet’ is meant for a sick person, such
as a diabetic or someone with heart problems.”7
Exhibit 1–6 provides numerous considerations in a business risk framework.
These items must be evaluated whether a business is operating domestically or internationally.
The difference in the evaluation process is often the greater depth of

knowledge necessary and the greater potential for change when operating in foreign
markets. The corporate implications of many of these items can be minimized
or exploited depending on the business’s ability to respond to change and to manage
uncertainty.
LEGAL CONSIDERATIONS
Domestic and international laws and treaties can significantly affect how an organization
legally obtains new business, reduces costs, or conducts operating activities.
Laws represent codified societal rules and can change as the society for which
they are established changes. For example, Communism’s fall resulted in new laws
promoting for-profit businesses in the former Soviet Union. Britain, in the face of
budget troubles, changed its laws to allow privatization of some utility companies.
China, in pursuit of a more open international trade position, altered its laws to
allow some foreign banks (including ABN AMRO) to have full-fledged branches in
Beijing. These examples represent a small proportion of how laws regarding business
activities change as society changes.


Most government regulations seek to encourage an environment in which businesses
can succeed. As indicated in the accompanying News Note, regulatory agencies
monitor business practices for activities detrimental to healthy commerce.
Many early U.S. laws relating to business were concerned with regulating certain
industries on which the public depended, such as telecommunications, utilities,
airlines, and trucking. With substantial deregulation, American laws are now
more concerned with issues such as fair disclosure of corporate information, product
safety, and environmental protection. Companies might even be held “liable
for human rights abuses against indigenous people in foreign countries, even if
the companies are not directly involved” if the abuses took place near company
operations.8 Freeport-McMoRan Copper & Gold and Unocal Corp. both have been
sued in the United States because of alleged military abuses in, respectively, Indonesia
and Myanmar.
Organizations are becoming more active in defining responsible corporate behavior,
and this trend is likely to continue. Irresponsible behavior tends to invite
an increase in governmental monitoring and regulation. For example, after many
American companies were found to have given bribes in connection with business
activities, the United States passed the Foreign Corrupt Practices Act (FCPA) in
1977. This law prohibits U.S. corporations from offering or giving bribes (directly
or indirectly) to foreign officials to influence those individuals (or cause them to
use their influence) to help businesses obtain or retain business. The act is directed
at payments that cause officials to act in a way specified by the firm rather than
in a way prescribed by their official duties.