Navigating risks of doing business in unfamiliar jurisdictions

Due diligence is key

Exploring new markets in emerging regions like the Middle East can be enticing for logistics operators looking for growth opportunities. However, expanding operations into unfamiliar jurisdictions comes with risks. Comprehensive due diligence should be completed before making contractual commitments to avoid unwelcome surprises.

Assessing ease of doing business

One key factor to consider is the general ease of doing business in the proposed country. The World Bank's Ease of Doing Business Index can provide high-level guidance as a starting point. However, it should not be the only resource relied upon.

Workforce availability and culture

The availability of a skilled local workforce is another crucial consideration. Businesses may need to relocate key staff or provide training, keeping in mind cultural differences that could impact operations. Local workforce culture, including attitudes towards certain roles and expected compensation structures, should also be evaluated.

Long-term growth potential

It's important to assess the longer-term growth potential in the market. Will there be a need to recruit and employ more personnel over the next five to ten years? If skilled personnel are not readily available, appropriate training programs may need to be established, taking into account local regulations and customs around training requirements.

Legal and regulatory environment

Understanding the local legal system and regulatory environment is prudent. Some jurisdictions have extensive requirements for even simple tasks, which can lead to unexpected expenses. Additionally, many jurisdictions do not provide for the recovery of legal costs for a successful litigant, which can impact the viability of pursuing legal action.

Market structure and stakeholders

The market structure and key stakeholders should be analysed. Some markets may be heavily influenced by multinational shippers, while emerging markets may have a different structure with numerous smaller entities holding influence. Understanding these dynamics is crucial for predicting market conditions and assessing the financial stability of potential business partners.

Performing due diligence on business partners

Conducting thorough due diligence on potential customers, contractors, and local partners is essential. This may involve conducting local investigations, obtaining references, and securing details such as full trading names, director names, banking information, and insurance documents. Formalising contractual arrangements, even for short-term arrangements, is also recommended.

Consulting liability insurers

Finally, businesses should consult with their liability insurers before venturing into new contracts in unfamiliar jurisdictions. This ensures certainty regarding insurance coverage and avoids potential disputes in the event of a loss.

While each business case must be evaluated on its own merits, being proactive in seeking practical guidance from local experts and undertaking proportional due diligence checks can help mitigate risks when expanding into unfamiliar jurisdictions.