All glory is fleeting.
— George S. Patton Jr.
Had an interesting conversation with a client the other day. To protect identities, I am going to change a few unimportant facts and be somewhat vague, but here goes.
The Unpredictability of Government-Dependent Business
This company is in an industry very much related to government. By this I mean it pretty much cannot avoid working with governmental authorities in just about everything it does in whatever country it conducts business. They told me they are pretty much winding down their Malaysia business because their main (and pretty much only) government contact recently became persona non grata. When this contact went on the outs with one governmental entity (I am being intentionally vague here too), pretty much all governmental entities started wanting to have nothing to do with our client. Within weeks, its thriving Malaysia business was tanking.
Concrete Examples of Government Risks
My law firm’s international lawyers hear stories like this often, and the below are just some of them:
1.A long time ago, we represented an American company on a massive deal to sell paint to the Korean navy for all of its ships when the person with whom the deal hinged (the son of the President) showed up on TV doing a perp walk. No son of President, no deal.
2. A long time ago and for quite some time, my law firm was totally dialed in to a particular Russian province because one of our paralegals was the daughter of a very powerful vice-governor (which had nothing to do with our hiring her). But when the vice-governor was murdered we started being treated just like every other foreign law firm.
3. We had a client with a thriving business in a Latin American country, in tandem with the son of a high level military official there. The high level military official ingloriously retired and things went from super-easy for this business to so tough that it eventually shut down its operations there. Again, this company was not treated worse than other foreign companies, but it did cease to be treated considerably better than other foreign companies.
4. We had a client in a big city in Mexico that was thriving until its government connection retired and was replaced by someone with whom our client had “had issues for years.” All of a sudden it found itself being held to various compliance standards it had always seemed to skate by in the past. Interestingly enough though, one of the lead figures in this company told me that “overall, I think this will prove best in the long-term for us and will actually force us to do the sort of diversification in business scope and locations within Mexico that we have been delaying.”
Mitigating Government Risks in International Business Relations
I am not saying never do business in a foreign country because of “connections.” But I am saying that if some or all of your business overly relies on your “connections” you should start now to plan for what happens when those connections evaporate, because eventually they will.
It is important that your business develop strategies that mitigate the risks associated with heavy reliance on government connections. Diversification of business relationships is a key tactic. This means cultivating a wide network of contacts across different sectors and levels of government, as well as with non-governmental entities and local businesses. This approach not only spreads risk but it also provides a more comprehensive understanding of the market. Additionally, businesses should invest in understanding the political, legal, and economic landscape of the countries in which they operate. This includes staying informed about potential changes in government and regulatory policies, which could affect their operations. Such knowledge enables businesses to anticipate shifts in the business environment and adapt accordingly.
It is important that you not rely just on your in-country people for this as their interests do not always fully align with yours.
Integrating sustainable business practices can safeguard against the volatility of political changes. This includes adhering to international standards of compliance and ethics, regardless of local norms or immediate benefits offered by government connections. Establishing a reputation for integrity and reliability can make your business more attractive to a variety of stakeholders, including potential local partners, international investors, and customers. Over the long term, these practices contribute to building a more stable and sustainable business model that is less susceptible to the whims of political changes.
What are you seeing out there?