Risks to Companies Investing in Emerging Markets
Issues to spot and steps to take
In recent years, American corporations have stepped up their investments in foreign markets in order to take advantage of the more rapid growth rates and industrialization movements often found abroad. To be sure, there have been significant opportunities to be seized in foreign markets and many American companies now generate as much revenue and profit from their international operations as they do from the U.S. market.
However, this trend has not come without its risks. For example, multinational companies are now facing a fast-changing environment in financial governance of their non-U.S. based operations. The Foreign Corrupt Practices Act of 1977 (FCPA), coupled with increased U.S. government scrutiny and the implementation of the Sarbanes-Oxley Act, is making it more important than ever that corporate executives enact tighter controls on their financial practices in foreign markets.
This creates a serious challenge today for companies to successfully monitor and control the financial practices of their own offices around the world, as well as the activities that take place from subsidiaries in places that are far removed from corporate headquarters. It is absolutely incumbent upon corporate leadership teams - especially the in-house legal department. the audit committee of the board of directors, and the CFO - to address this difficult task head-on.
The purpose of this white paper is to review some of the risks associated with companies making investments in foreign markets, then to explore some of the mitigating steps that can be taken by corporate executives and board members to try to limit a company's exposure to those risks.