What is the Importance of Risk Management in Overseas Operations?

Importance of risk management overseas
Risk of labor and employment problems
Legal Risk
Changes in the political and economic environment
What is the Risk Management Approach for Overseas Expansion?
Preventing Risks in Advance
Summary

Importance of risk management overseas

Overseas expansion has risks different from domestic business development. In recent years, the importance of risk management has been emphasized both in Japan and overseas, but the types of risks to be assumed differ between Japan and overseas.

For this reason, it is necessary for companies planning to expand overseas to establish risk management systems separately from their domestic operations. In the case of small companies, the failure of overseas operations can have a significant impact on the management of domestic operations.

An increasing number of SMEs and venture companies are expanding their operations overseas, but they will need to take sufficient measures to deal with risks.

Some companies that have actually expanded overseas have failed in overseas business and have withdrawn. In particular, there are many cases in which the Company failed to take appropriate measures in the event of a problem, or the Company failed to prepare in advance, resulting in an increase in damage and the risk of withdrawal.

When conducting business overseas, it is important to conduct sufficient risk surveys at the initial survey stage and to conduct regular surveys even after the start of business. In particular, constant risk assessment is essential in areas of social instability and in situations where economic and social environments are undergoing major changes.

Risk of labor and employment problems

The risks associated with labor issues are of great interest to companies both in Japan and overseas, but there are risks that cannot be found in Japan when expanding overseas. When doing business overseas, the laws regarding labor and employment are different, and the culture and environment are also different.

Therefore, it can be said that various troubles are likely to occur. Laws and regulations can sometimes be cleared by the help of local experts such as lawyers and accountants.

However, in terms of employment and training of local employees, there are many delicate issues related to lifestyle and culture. It is also necessary to consider the risks caused by differences or differences in the way of thinking between local employees and employees dispatched from Japan, such as language and communication issues, as well as thoughts on time.

In addition, differences in future career paths and treatment between local employees and employees dispatched from the head office may cause psychological conflict and conflict.

Legal Risk

The principal legal risks associated with overseas expansion include cartels and other illegal acts related to competition laws, provision of benefits to public servants, and insider trading. Some of these activities are considered illegal in Japan, but in order to expand overseas, it is necessary to be aware of management that complies with local laws and regulations.

In order to manage legal risk, it is necessary to understand local laws and regulations and to respond quickly to changes in them.

First of all, it is necessary to thoroughly implement internal rules in accordance with local laws and regulations. By establishing internal rules and conducting employee and business management according to the rules, legal risk can be controlled in a unified manner.

Also, by establishing internal rules, it will be easier to minimize damage and damage in the event of a problem.

Changes in the political and economic environment

In the case of overseas expansion, there are some things that cannot be completely avoided even if they are assumed to some extent. That is the change in the political and economic environment.

Political and economic conditions in emerging countries and other countries may not be stable. Regardless of the area, economic events such as the bursting of the bubble can happen across the country.

Since the security may be threatened due to the deterioration of public safety such as riots, careful handling is required. It is essential to establish manuals and rules at the time of occurrence and to collect information on political and economic situations at all times.

What is the Risk Management Approach for Overseas Expansion?

In risk management, it is necessary for the head office and overseas bases to work in the same direction with a common understanding. First of all, we will determine the objectives and direction of risk management and aim to unify our internal policies. It is also important to have a person in charge of risk management at the head office in Japan and a person in charge of risk management at each overseas base when the overseas business starts, and to promote cooperation.

The development of risk management involves the estimation and discovery of risks, risk assessment (risk assessment), selection and implementation of risk countermeasures. After the countermeasures are taken, we will evaluate residual risk and risk management, which will lead to the next countermeasures.

Ideally, local initiatives should be taken to establish a risk assessment system, if possible. Otherwise, interviews and other surveys will be conducted by domestic sites and headquarters. In order to take effective measures, it is important to determine the responsibility for measures and the departments responsible for them according to the type of risk.

In the end, local initiatives are preferable, but in terms of human resources, skills, know-how, etc., there are cases where it is unavoidable for the head office to take the initiative in the initial stage.

Preventing Risks in Advance

There are risks caused by lack of information when expanding overseas. It is necessary to respond to such issues by collecting information at the preparatory stage and continuously checking the situation after the start of overseas business.

In particular, it is easy to obtain information in advance about local customs, religion, culture, infrastructure and logistics. It is also possible to know the current status of legal and tax regulations such as foreign capital, labor, and commercial transactions.

By conducting research and assuming risks based on the information obtained, we can eliminate risks to some extent in advance.

For risk surveys, it is necessary for company employees to go directly to the site to prepare for market surveys and other preparations. Before doing so, it is possible to conduct a preliminary survey in Japan in order to select a place to advance into, but it is essential to make sure that you see it with your own eyes.

Therefore, it costs a lot of money to expand overseas, but the travel expenses tend to be large. For the preliminary survey, you can use the database of each specialized agency, market report, overseas news, etc.

Summary

Overseas expansion involves risks such as labor-related risks, legal risks, and political risks. These risks must be properly managed from the preliminary survey stage to after the expansion. Risk management is not profitable, so it tends to be neglected. However, it is necessary to clearly decide who is in charge and who is in charge, and to strengthen the protection of the company.