Seven Primary Challenges Foreign Companies Face in Asia
Given its changing economic landscape, trade, and investment liberalization Asia offers foreign companies opportunities for growth and expansion. However, foreign companies in Asia face some challenges that have the potential to affect their productivity and profitability, such as:
#1: Limited financial regulations and enforcement
Some Asian countries offer a less robust financial regulation system, which presents corruption risks and compliance issues for foreign companies. Moreso, American companies must comply with the Foreign Corrupt Practices Act (FCPA).
Wealth ownership in Asia is generally highly concentrated, contributing to the acceleration and agility of domestic business and the economy. However, “this relative economic transformative speed encourages corruption and back-channel methodologies, and American companies operating under compliance protocols may be less competitive in this particular climate” (Chavy, 2015).
#2: Currency conversion and controls
With different trading centers, diverse currency rates, and no single regulator, Asian countries can keep their currencies low to promote export growth. Hence, foreign companies must work with local currencies and multifaceted regulatory systems in business-to-business contracts, which further challenges their profitability and growth.
In addition, to curtail money laundering practices, most countries in Asia require companies to report cross-border currency transactions above certain thresholds, which may differ from country to country. “Local advice is imperative when moving funds between countries, particularly in Asia” (Doing Business in Asia: Common Challenges & Misconceptions | Acclime, 2020).
#3: Different legal systems
Legal systems in Asian countries can heavily restrict the operations of foreign countries. For example, some countries may have foreign ownership restrictions, minimal capital, and local licensing requirements, while others have different laws governing intellectual property protection. “For example, intellectual property protection is minimal as technology theft, and counterfeiting products are common in the region and widely accepted by the authorities” (Chavy, 2015). As a result, foreign companies may have challenges operating in this unstable environment and thriving counterfeit market.
#4: Increased local competition
With the growth in the Asian economies, “local businesses now have more capital and more access to sophisticated advisory services to help them compete against well-heeled Western businesses” (Six Primary Challenges Foreign Companies Face in Asia | GoGlobal, 2019). Therefore, foreign companies need to be prepared to analyze and be prepared for more sophisticated local competition.
#5: Unique business culture
Asia possesses unique business cultures distinct from other countries. For example, the Asian business culture focuses on varying degrees of hierarchical structures and group dynamics over individual autonomy. Also, government interference in the private sector may “impede business contacts, erode partnership stability, and pressure foreign companies to incorporate domestic interests in their partnerships.”
#6 Political challenges
Most Asian countries’ governments are overly particular regarding foreign investments. For example, with the many cases of cyber data misuse, most Asian governments require that the customer databases are maintained in their respective countries only.
Foreign companies must demonstrate foresight when surveying the Asian-Pacific region’s political, economic, and social developments.
Check the following reference articles to learn more about the Seven Primary Challenges Foreign Companies Face in Asia
- Chavy, A. (2015, June 28). Five challenges American companies face in Asia – GRI. Global Risk Insights. (URL)
- Doing Business in Asia: Common Challenges & Misconceptions | Acclime. (2020, August 19). Acclime.com, (URL)
- Six Primary Challenges Foreign Companies Face in Asia | GoGlobal. (2019, August 14). GoGlobal. (URL)
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