All That Glitters Isn't Gold

When doing business abroad, many things may appear to be glamorous, outsized, and profitable, but will lead you nowhere fast. In many developing countries, there’s talk of fast money from scammers, promoters, crooks, gangsters, dreamers, and time wasters. These characters pop up in booming markets and are no different than the fast-talking stock promoters of the Gold Rush, the railroad boom, or the Internet bubble. So, how do you prevent these people from wasting your time with a lead that will get you nowhere fast?

Here are a few proven tactics that will help you avoid time wasters. 

Be more skeptical about projects abroad than you would be evaluating similar projects at home. Do not be dazzled by official-looking letters with seals and winkwink promises that would have you believe potential partners have everything under control. Ask to see all the due diligence upfront. If it is not available to your satisfaction, walk away. Understand each of the parties involved and their role in the deal. If it sounds remotely too good to be true, don’t just walk away, but run as fast as you can. 

Develop a broad, in-country network of contacts and run all potential projects by them. You will be surprised at how small most emerging markets can be and how well-informed the people there are. Although everyone’s network varies, it is important to build relationships with a menagerie of local and expat contacts. Cultivate relationships with local business owners, attorneys, accountants, US commercial service specialists, investment bankers, and hotel managers, along with members of local AmCham (chamber of commerce). It takes a long time to develop trusted contacts, but such a network is vital to successfully operating abroad and avoiding pitfalls. 

Analyze who your business transaction will affect and how. Do your own gumshoe work or hire someone who can travel to the project sites and meet the people involved, for example, the officials purportedly supporting the project. Also, analyze the implications of negative press. I found out the hard way that opponents wouldn’t hesitate to use yellow journalism and engage in baseless smear campaigns to destroy someone’s otherwise stellar reputation. There isn’t much that can be done about this afterward. The question becomes how to proactively guard against such an attack and how to manage it in the aftermath. One way is to maintain an ongoing publicity effort that continually tells your story. This will add to your own positive image in the foreign market and help you establish a trustworthy voice in the press. Then, establish long-term relationships with local businesses and government elite. And finally, establish a strong relationship with the local US Commercial Service and the local US Embassy. Earn your reputation on an ongoing basis and it will serve you well in times of crisis. 

Scour the Internet for scams and poll your contacts. Find out from those doing business abroad about typical scams that are prevalent in foreign countries. Learn how they work and avoid them like the plague. As you are building your network of contacts, plug into the expat community in your chosen country or countries. Local AmCham, US embassy, and business councils have active social and professional calendars, as well as online communications to allow you to connect with other American companies doing business abroad. I also found LinkedIn to be a very good resource for finding highly focused interest groups. 

Avoid the “funding through a global bank” scheme. I cannot tell you how many times I heard about dubious projects looking for funding that claimed to have collateral and guarantees for hundreds of millions of dollars from prime international banks. My question would always be the same: “If such a respectable bank is willing to guarantee it, why wouldn’t they just give you the money?” The answer is because it’s a scam. Yes, in some cases it does pay to borrow money at low cost in the US, Japan, or Europe and get guarantees from banks in emerging markets because it lowers the cost of financing, but these are advanced cases that should be approached with the assistance of professional advisors. 

Walk away from “offshore funding promoters.” Another popular scam is an offshore “fund” with billions of dollars that will finance an opportunity, but you, of course, need to show that you are serious and make a substantial advance payment. I can go on and on, but the lesson here is to be diligent, pragmatic, and very careful. It will save a lot of time and aggravation.