A significant amount of entrepreneurs in South Africa are getting comfortable with the idea of doing business across borders, be it sourcing goods and services to even looking for strategic partnerships with foreign entities. The African continent has become more accessible and opportunities abound for entrepreneurs and small and medium enterprises. What’s more, African businesses have been partnering with the relatively unknown East.
Social media exposes business owners to opportunities they would not otherwise have access to. This is exciting. Those who have done cross border business will tell you that in so much as the potential for business synergies is there, the risks are equally matched. Take for an example a recent case that came to my attention for assistance.
A South African business owner (who we will call James to protect his identity) in the commercial real estate industry got the shock of his life when it turned out that the Chinese businessman he had an ‘in principle agreement’ with (which was later deleted from the email correspondence) was nothing but a fraud. Mind you, James had incurred large costs in setting up partnerships with other businesses and even going as far as paying for elements of the agreement.
You might think, ‘that’s not smart!’ and I would have to agree with you. However, the need to acquire first mover advantage sometimes propels us to make an early commitment for fear that someone else may snatch the lucrative opportunity from us. In the process, we tend to skimp on due diligence with disastrous consequences for our livelihoods and credibility.
Stories abound of orders that were never delivered or were of a cheaper variant. These occurrences are not unique to South Africans and Chinese businesses; they happen throughout the continent with potential partners across various regions. Like in any business relationship, proper due diligence is of paramount importance in conducting trade or investment relations.
As more people take the entrepreneurship route, it is important to know that doing business across borders has inherent risks and one needs to be smart to avoid frustrations. Doing your homework can mitigate risks and help you make informed decisions.
Below are some considerations I take into account when I’m dealing with prospective cross border relations:
Seek out word of mouth referrals
Nothing is more comforting than finding good partners/suppliers. Like with anything these days, word of mouth goes a long way and in most cases save you a lot of hassle.
However, reviews by themselves cannot substitute for verification. Speak to those who have walked along the same path as you and where possible, speak to their associates as well.
A traceable track record is key
When you are in the early stages of your business, the last thing you need is to deal with amateurs who will promise you heaven and earth and deliver nothing. If you’re a novice, you need to ensure potential partner has a proven record for quality service.
Invest time in establishing the authenticity of such a claimed record. It may be tedious, and possibly costly, but it will spare you losses further down the line.
Courtship is the way to go
Just as when you meet a prospective life partner, you need to take your time to get to know your business partner before committing. Don’t go on impulse, court first!
Don’t be like James and fall prey to pressure tactics. Solidifying business relationships takes time so don’t rush things!
Get samples beforehand and VISIT premises where possible
Too many people have relied on assurances from a seller about the quality of their goods. Too many people have taken letterheads as proof of existence. You can make no bigger mistake as a small time buyer than to buy goods you have not sampled or not visiting the premises of your manufacturer.
You would be amazed the things some conmen will do to dupe you into buying their non-existent goods from their non-existent premises. Nothing can ever substitute for checking out the premise yourself.
If this is not physically possible, there are trade agents who can do the leg work on your behalf for a small fee. Do invest in your future success.
Trust your gut (first listen to it)
We all have that little voice that tells us from the moment we meet someone whether you can trust them or not. Most of the time we ignore this voice and many a times, we wish we had listened to our gut.
I have dealt with a number of entrepreneurs who allude to feelings of ‘something not feeling right’ and yet go ahead and invest their time and money, blaming themselves when things fall apart. Learn to entertain your inner voice and debate with it a bit. It will serve you well. Trust me!
Whether you are contemplating local partnerships or across borders, due diligence is key. Even more so for non-local partners due to the prohibitive costs of enforcing your rights. Do not be pressurized into early commitment as this may leave you occupying a reactive position and a trip down crisis management.
And if you are not sure about cross border regulations that govern your business, ASK. The Department of Trade and Industry (The DTI) in South Africa (and relevant in-country departments that deal with trade and investment issues) can save you from making costly mistakes!