Opinions on foreign investment in a business tend to be split between those frightened of a loss of control or increased outside input, and those exhilarated by the possibilities and eager to scale rapidly into new markets. While there are pros and cons to using foreign investors to expand your business internationally, it’s worth taking the time to understand its potential benefits for yourself.
Foreign investment is, of course, an option for your business whether or not you’re looking to expand internationally. If you offer quality goods or services that already sell well and need an injection of funds to really reach their full market potential, or have an unusually compelling pitch or market disrupting angle, it makes sense to consider all potential sources of investment. Your local or regional investors may specialize in a different sector or have different criteria for their portfolio, and opening up the doors to investment from further afield can create opportunities that aren’t available in your home market. Alternately, you might achieve greater success by moving a portion of your business overseas—splitting up administration and production, for instance.
However, for many business owners, the most exciting part of the foreign investment is the potential to unlock international markets. If your product or service meets a need outside of your home market, the right foreign investor does more than provide funds for expansion. They bring much-needed knowledge and connections to your business—and instead of you paying for a local partner, they’re supporting your enterprise! Understanding the psychology, preferences, purchasing motivations, and needs of a new market are critical to your expansion success, and the right investor can guide your efforts and inform your strategy for exponential success.
While there is undoubtedly great potential for international growth with foreign investors, it also pays to tread cautiously. A lack of knowledge of a foreign market and its ways of doing business may be a bigger barrier than you anticipate, and you’ll need to be prepared to take feedback, intelligently and proactively respond to it, find a partner you can trust and learn the best way of working with them, and be open to pivoting and changing strategies if progress stalls. Another issue can arise in working with people outside of your network if you don’t know someone who can vouch for their integrity and effectiveness. Take extra precautions by preparing rock-solid legal and financial documents, move slower than you think you need to, and study social and business practices and communication norms of your foreign investor’s home market. Those measures will help you to understand where they’re coming from and what unspoken realities may be affecting your interaction and progress.
There are logistical challenges to doing business across borders as well as legal ones. The right foreign investor might bring more experience in international business to the table, but if not, you’ll want to spend extra time on your business and financial planning to take into account these extra costs and administrative burdens and allow for more of a financial buffer to cushion against them. Transferring currency, paying international fees or taxes, and having the correct paperwork for employees that move between locations or work outside of their home country are just a few of the logistical challenges you might face.
If you’re ready to move forward with soliciting foreign investment, you should research likely markets and potential investors. Different regions have varying requirements for foreign-owned expansion and may offer exceptionally good—or exceptionally challenging—terms to businesses wanting to enter their market. For instance, the Philippines offers a growing market, start-up-friendly policies, and a favorable exchange rate, while Nordic countries like Finland tend to have less favorable exchange rates, higher tax rates, and more restrictive business terms.
While foreign investment and international expansion can be risky, there are success stories of those who have taken a chance and achieved rewards. Chinese companies have invested so heavily that they own part or managing shares in many businesses around the world. Foreign investment may be partial or full, including a complete buy-out of foreign businesses. The Icelandic investor Sigurður Bollason is known for successful investments in multiple sectors. He’s worked with fashion businesses, hotels, investment banks, and construction companies, among others, to grow, become more successful, and reach new markets. Some investors specialize in particular areas, while others speculate widely.
If you’re looking to expand internationally, the right international investor could help you better understand and connect to new markets while financially supporting the expansion. Looking outside your home region for investment may unlock new sources of funding while connecting you with much-needed expertise and insight.