4 Major Operational Risks and Preventive Measures for Enterprises Going Global (Valuable Insights) | Overseas Expansion Practical Training Camp
Under the shadow of the tariff war, moving the supply chain overseas has become one of the irreversible trends. The countries along the "Belt and Road" are becoming increasingly important as destinations for overseas factory construction and investment. According to the data from the Department of Commerce of Zhejiang Province, in 2024, Zhejiang Province invested in 861 overseas enterprises in countries along the "Belt and Road", a year-on-year increase of 37.54%; the record-filing amount reached 10.322 billion US dollars, a year-on-year increase of 4.35%, accounting for 57.38% of the total in Zhejiang Province.
The new trend also brings about many new problems. For example, the cost structure of the supply chain in overseas regions is unstable, and misunderstandings may arise due to religious and cultural differences. Facing the potential risks behind these challenges, enterprises need to conduct pre - risk assessment and prevention during the process of "crossing the river by feeling the stones".
01 Risks of Sanctions and Export Controls
In addition to the ban on exporting high - tech products to certain Chinese enterprises, which has trapped Chinese - funded enterprises, neglecting the "long - arm jurisdiction" of foreign countries can easily lead to compliance risks. For example, secondary sanctions are a typical means of the United States' abuse of "long - arm jurisdiction".
Secondary sanctions are based on the primary sanctions of the United States. Through the "minimum contacts principle" and the "effects principle", the United States requires governments, entities or individuals of third countries not to have specific economic relations with the countries or entities sanctioned by the United States and imposes penalties on violators. There are no clear legal provisions and definitions for US secondary sanctions, which are usually imposed on third - country entities that carry out specific activities such as significant transactions with the sanctioned targets.
If an enterprise conducts import and export trade with an entity included in the "Specially Designated Nationals and Blocked Persons List" (SDN List) of the US Office of Foreign Assets Control, it needs to pay special attention to the risk of US "secondary sanctions". Once the secondary sanctions ban is violated, it will face extensive trade and investment bans, export controls and re - export controls, restrictions or bans on financial services, etc. For example, after the United States tightened sanctions against Russia, the businesses of many Chinese enterprises were also affected by secondary sanctions.
In this regard, enterprises should not take chances. When doing business with the entities on the sanctions list, they should try their best to separate the risks between the company and the trading entities.
02 Foreign Investment Review and Safety Standards
1 Requirements for Localization Rate of Production in Southeast Asia
01
Vietnam requires foreign - invested enterprises to meet the localization ratio (such as the local procurement ratio of components, including at least 30% local added value in Vietnam) and obtain relevant certifications (such as ISO, CE).
02
Indonesia requires the localization production ratio for some industries (such as automobiles and electronics) and needs to pass government certification (TKDN, mandatory ratio + non - mandatory ratio type, step - type local procurement ratio).
03
Thailand has strict localization requirements for the automobile and parts industries (FTA certification requirements, 40% of the material, labor and overhead costs come from the local area). It needs to obtain the certification of the Board of Investment of Thailand (BOI) and import products that meet the TISI standard test (trading companies have one year to apply for registration of this standard).
04
Cambodia provides tax incentives for the textile and footwear industries, requiring enterprises to meet the localization production requirements (70% of the material, labor and overhead costs need to come from the local area).
2 The EU Strengthens Investment Restrictions on Key Technologies
The EU's "Regulation Establishing a Framework for the Screening of Foreign Direct Investments" came into force in October 2020, aiming to strengthen the EU's security review of foreign investments and safeguard the EU's security and public order. The main purpose is to balance the needs of an open economy and the protection of key industries and national security through strengthened foreign investment review. Just three years after the "EU Foreign Direct Investment Screening Regulation" came into effect, the EU issued the "European Economic Security Package" to revise the regulation, further strengthening the review of foreign direct investment.
In recent years, the EU's review of foreign investments has become more stringent and covers a wide range of fields, especially in key and innovative technologies such as solar photovoltaics, energy storage, batteries, and new materials. The EU links foreign investment review with the national security of the host country, which will bring many obstacles to transactions. Access to certain fields will be restricted or even excluded. These reviews have increased the risks for enterprises investing in Europe and the difficulty of getting investment projects approved. Enterprises need to conduct detailed legal and market research to ensure that their investment projects comply with the regulations of the target country and the EU.
Location Selection for Overseas Expansion
03 Induction of Risks and Experiences
During the long - term internationalization process, enterprises cannot avoid the issue of selecting the location for overseas expansion. There are 7 general risk judgment criteria involved:
01
Pay attention to cultural integration and inclusiveness, avoid anti - Chinese incidents, and promote folk and cultural identity.
02
Comprehensively consider the comprehensive cost - performance ratio of production factors such as land prices, rather than simply focusing on low prices.
03
Give priority to countries and regions with less foreign exchange control and stable exchange rates to avoid transaction risks, and preferably choose countries with free currency convertibility.
04
Attach importance to the local social and economic growth potential to ensure medium - and long - term investment returns and reduce opportunity costs.
05
Pay attention to the industrial foundation and supply - chain synergy ability, which is related to cost - effectiveness and the play of local advantages.
06
Efficient, convenient and low - cost local logistics directly affects the success of "going global" for Chinese manufacturing.
07
Consider the local policies and service environment to help enterprises finance independently or relieve the financial pressure on the parent company.
04 Overseas Disputes and Responses
1 Types of Overseas Disputes
1) Disputes over Product Quality: There are differences between the buyer and the seller on whether the goods meet the contract requirements, which usually involve testing standards, inspection procedures and liability division. The key lies in clarifying the inspection agency (such as SGS), the objection period and the liability attribution (before/ during transportation).
2) Disputes over Delivery Time: Due to transportation delays, customs clearance problems or the liability of the carrier, the delivery time does not meet the requirements. It is necessary to define the risk transfer node according to international trade terms (such as CPT/FCA). The focus of the dispute is often "who bears the transportation liability" and "the proportion of the delay loss sharing".
3) Intellectual Property Disputes: Chinese trademarks are preemptively registered or infringed overseas, which may affect market access, brand reputation and the cost of legal rights protection.
2 Difficulties in Responding to Overseas Disputes
1) Disputes over Product Quality:
The Anglo - American legal system relies on case law, with complex procedures and long litigation cycles. Enterprises lacking a professional legal team are likely to miss the opportunity to respond to the lawsuit. The enforcement of cross - border arbitration awards needs to meet international rules such as the "New York Convention", and the nested procedures increase the cost.
2) Lack of Evidence
Overseas judicial organs have strict requirements on the form of evidence (such as a high proportion of witness testimony). Chinese enterprises often lose lawsuits due to non - standard evidence collection. Cross - border data transmission needs to meet regulations such as GDPR. Non - compliance may lead to invalid evidence or fines.
3) Communication Barriers
Enterprises in non - English - speaking countries have low communication efficiency with local lawyers. Language differences may lead to misunderstandings or delays in evidence transmission. In the litigation process, links such as "cross - examination" take a long time, and the non - English environment increases the time cost.
4) Complexity
National enterprises or projects involve multiple legal jurisdictions, and legal conflicts and jurisdiction disputes increase uncertainty.
3 Strategies for Responding to Overseas Disputes
1) Selection of Applicable Law: Give priority to choosing member states of the "New York Convention" (such as Singapore and the UK) as the arbitration location to improve the enforceability of the award. Clearly specify the governing law (such as UK law, Singapore law) in the contract to reduce the risk of legal conflicts.
2) Lawyer's Letter: A lawyer's letter from the United States has coercive force, and ignoring it may lead to punitive damages; a lawyer's letter from China only has a warning effect and needs to be combined with subsequent actions.
3) Evidence Provision and Data Compliance: Keep complete transaction records (such as inspection reports, contract terms) to avoid losing the lawsuit due to lack of evidence.
This article is from the WeChat public account "Hangzhou Qiantang Enterprise Overseas Expansion Service Base", author: Zhejiang Enterprises Going Global. It is published with authorization from Qiantang.
