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Risk Management Key to Overseas Investing

Companies need to weigh risks before investing in foreign business opportuniti

Many corporate executives may argue that the world in shrinking, thanks to technologies that make communication and doing business easier and more efficient. As a result, they look to other markets around the world as a way to expand their operations and grow their revenues.

Yet as John Napolitano writes for Accounting Today, there are a number of risks inherent to moving beyond your home shores, not the least of which are the lingering Euro Crisis and the foreign exchange (FX) market.

He points out that not only do companies have to engage in FX risk management, they also need to stay up-to-date on various countries' rules for compliance, liquidity, inflation and transparency. Although they may be manageable as standalone risks, the investment can fall apart if they combine a perfect storm of risk, Napolitano warns.

The current regulatory environment in India is a prime example of how unexpected risks can threaten the viability of a business venture. As Reuters reports, a coalition of more than 250,000 companies, represented by industry trade groups, spoke out against the country's retrospective tax proposals. That measure would enable the tax authorities to scan over 50 years of overseas deals and enforce retroactive claims. The letter said that the government's decision had "undermined confidence" in its policies and "the very rule of law, due process and fair treatment in India," as quoted by Reuters.