a persistent creep in these regulations and business practices. Included are purchasing agreements that favour domestic over foreign suppliers and joint venture “IP for market access” requirements that have forced the transfer of technologies from business processes and trade secrets to software codes, patents, and copyrights. IP Theft. China is famous for this and the automobile industry offers a number of examples of blatant copying. BMW, Rolls-Royce, GM, and Mini-Cooper all have experienced launches of lower-priced copies of their better-selling models. Often, SME and tech companies, influenced by seemingly trustworthy partners, let down their guard, only to find that their Chinese partner has appropriated their core technology. Raider-style tactics. In Russia, when a business is prosperous enough to be on the radar screen, it is vulnerable to being pressured by hostile competitors, sometimes in coordination with local authorities; the weak rule of law offers little recourse. Local and foreign players alike are at risk. Ikea suffered a multiple-year delay in opening its Mega Mall in a regional city due to fire and building code violations, at least some of which were widely suspected to be fabricated to postpone the opening and which inured to the benefit of the region’s governor, who was known to be the owner of the city’s existing major shopping centers. Entering New Markets Confidently Still, despite the challenges, there is a legitimate opportunity for businesses and investment within these markets if planned for. Consider these steps before entering a hostile market: Install best-practice processes. Country-specific risk analyses should precede a market entry decision. From there, be sure you have in place a monitoring process that tracks local and global legislative, regulatory, and political developments relevant to your markets. Rigorous and realistic scenario analyses should be paired with matching contingency plans that undergo routine updating. While few could have predicted events such as the Arab Spring, Russia’s annexation of Crimea, and Turkey’s failed coup d’état, careful monitoring will enable you to anticipate and respond
proactively to many other changed circumstances in a timely and nimble fashion. Update your force majeure clause. Most international business agreements have force majeure clauses. These clauses can limit downside risk by excusing a party from performance if some unforeseen event beyond its control prevents the performance of its contractual obligations. But they are narrowly interpreted. Careful drafting to specifically list the type of event can improve the chances the clause will apply. Review your force majeure clause so that it is specific to the risks of each of your markets. Consider political risk insurance. Insurable events can include government actions such as sanctions, embargoes, contract repudiations, export license cancellations, and confiscations or expropriations of assets. Government sanctions may result in financial damage to the company, as for example happened to many companies doing business in Russia either as a result of the post-Crimea Western sanctions or the responsive Russian food embargo. And while financial damage flowing from sanctions is not an event likely to benefit from force majeure application, the company’s damages may be covered under a broadly written political risk policy. Outsource the risk. If you are an exporter newer to difficult markets or don’t have the resources, you can outsource these challenges and risks to an export agent. These companies have market-specific experience and undertake a range of exporting activities, usually for a commission. It can be an excellent way to get started and up your learning curve in a problematic new market. You will sacrifice some margin but lower your risk. Hostile markets rank near the top of the list in degree of difficulty. They pose risks that can blindside an unprepared company but offer opportunities and rewards for those who can raise their game to meet them. Robert W. Courtney is an American lawyer and business executive with over 25 years’ experience as a principal in or advisor to the development and management of new ventures in Russia, the CIS, Eastern Europe, Scandinavia, China, Taiwan, and Japan.
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