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Firms should look before they leap into foreign markets

By Song Wei | China Daily | Updated: 2019-04-15 07:42

A clerk counts yuan bank notes and US dollar bills at a branch of the Industrial and Commercial Bank of China in Huaibei, East China's Anhui province. [Photo/IC]

Chinese enterprises have gone global thanks to the rapid economic development of China over the past decades. They now occupy a vital place and enjoy certain advantages in the global industrial chain and marketing network because they have optimized worldwide resources and trade mechanisms such as the Belt and Road Initiative, which is aimed at improving connectivity between Asia and Europe and Africa.

But due to their lack of sufficient security risk awareness, some Chinese enterprises have suffered setbacks in overseas projects, including the abandoned high-speed railway project in Venezuela.

Security risks occur due to a variety of political, economic and social reasons.

Generally, companies venturing into overseas markets take precautions against economic risks by analyzing their strengths and weaknesses, and studying the local markets they decide to operate in. But such analyses and studies are not enough for a company to avoid or cope with all the risks that might emerge in the future, especially the risks that emerge due to politics-influenced policies of exchange rate and income remittance.

Besides, very few companies can be expected to overcome the risks that occur due to local laws, political instability, ethnic conflicts, public security, religious conflicts and terrorism. As a result, some companies end up losing huge amounts of investments and assets in foreign countries. For example, in 2011, hundreds of Chinese nationals were evacuated from Libya thanks to the Chinese government's efforts, but that didn't stop some Chinese companies from losing large sums of money in the abandoned projects.

Without being guaranteed special security, Chinese companies should not invest in high-risk countries-countries that are embroiled in ethnic, religious or political conflicts, or countries where terrorism poses a grave threat-to avoid suffering unnecessary losses.

Countries that have a history of political instability, social unrest, corruption, or loose labor, land acquisition or environmental protection laws are high-risk investment destinations. Inadequate understanding of local laws, culture and natural conditions could also cause losses to Chinese investors. For instance, cultural differences can create difficulties for a company to deal with local employees. A Chinese company investing in a foreign country should follow that country's laws but at the same time should be cautious enough not to break international laws.

Security risks can emerge in different countries in different forms and can even develop differently. Therefore, Chinese companies should improve their security risk awareness, and say no to projects in high-risk countries. And before investing in a foreign country, they should carry out a comprehensive study of the situation on the ground and be ready with a foolproof response mechanism to deal with any threats that may emerge in the future.

The Chinese government, on its part, should conduct long-term in-depth studies and devise follow-up measures to give early warnings to Chinese companies operating or preparing to operate in foreign countries. And Chinese companies should learn to seek help from international and nongovernment organizations to avoid security risks.

The author is a professor at the School of International Studies and researcher at the National Academy of Development and Strategy, Renmin University of China. The views don't necessarily represent those of China Daily.

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