Managing the risks of expanding overseas 

Today’s business environ­ment is complex and busi­nesses are finding them­selves having to navigate their way through a plethora of risks. When working across bor­ders, these risks increase significantly.

Overseas Risks

Selecting the right supplier, cus­tomer, joint venture party or acquisi­tion target is a critical decision.  Many of the overseas territories that businesses are expanding into are, by their nature, less well understood and less exposed to Western business culture. This makes the assess­ment of risk more crucial but also more complex.

We are accustomed to considering financial viability, but there are many other risks inherent in expansion:

• Bribery and corruption;
• Political uncertainty;
• Data risk;
• Protection of IP;
• Corporate and personal tax risks; and
• Risks such as emissions, conflict minerals and water scarcity.

Bribery and Corruption Risk

With the Bribery Act in force, businesses need to ensure they are abiding by the regulations. From our experience, organi­sations are still underplaying the importance of this law and policies and training alone may not constitute the “adequate procedures” required by legislation.

Successor Liability?

One specific area of concern, yet to be tested in the Courts, is whether the law creates a concept of ‘succes­sor liability’, i.e. whether the new owner of a company becomes re­sponsible for any offences that occurred before its acquisition as is the case under the US regulations.

It is therefore imperative that appropriate due diligence is carried out prior to expansion to ensure that all risks are identified and action taken.

Ongoing Compliance

Management of bribery and corruption risks is not just about complying at the time of investment –  the firm must en­sure that compliance with the Bribery Act becomes ‘business as usual’ with:

• Effective firm-wide policies, systems, and controls in place;
• Ongoing monitoring of compliance; and
• A mechanism to identify and respond to allegations of bribery and corruption within the organisation.

Balancing the Risk

UK plc needs to grow into new and unfamiliar territories, and this inherently brings with it a greater degree of risk than many smaller, regional businesses are used to.

It is therefore vital to only make investment decisions once there is a full assessment of the risks faced, and the action to be taken to min­imise them.

It is very much a case of ’buyer beware’.