Observing regulations in international markets

More often than not, we hear of businesses blaming difficulties in international markets on cross-cultural differences.

Cross-cultural challenges will not go away, so we have to accept these differences, and recognise how they impact on business transactions.

Proponents of globalisation want to believe that it is possible to achieve more standardised regulatory systems across the world. Such systems will ensure that the boundary of operations is easily understood across borders.

In doing so, they will take out one of the many cross-border challenges that firms have to face during the course of internationalisation. Regulatory challenges for New Zealand organisations

In recent times, however, the more explicit regulatory frameworks are presenting a greater challenge to New Zealand organisations doing business abroad.

Why is this?

Three major factors seem to be contributing. The first revolves around comparing regulations.

To that end, some widely acknowledged indicators of regulation have been created. For example, the World Bank produces a large set of indicators on the ease of doing business in 189 economies.

Similarly, the International Monetary Fund produces all sorts of documentation relating to regulations.

Yet, despite the abundance of indicators available, it is hard for businesses to use the stand-alone figures, as the picture might change depending on their choice of indicators (although of course, broadly speaking, we expect developed economies to be more open than developing ones).

The second factor is the difference between the regulatory frameworks of two countries.

New Zealand's regulatory institutions set some expectations of our organisations as they trade but these expectations often only apply until the goods cross New Zealand borders.

By the time the goods reach their destination, another set of regulatory frameworks comes into play.

It is likely that a host country's regulatory framework is significantly different from the one in New Zealand. The onus is on businesses to perform due diligence on the regulatory framework of the destination country.

The third factor relates to the level of transparency in regulation in actual practice.

For example, if you spend enough time on the website of a foreign country's regulatory institution, you will probably find only limited materials. They are often written in local languages, with no English version available.

This presents uncertainties that we do not normally associate with regulations and is not often not taken into account as organisations make the dangerous assumption that the rest of the world is similar to them.

Institutions to provide regulatory guidance

Our New Zealand regulatory institutions could perform a role in helping New Zealand organisations in dealing with some of the challenges.

They are better placed than individual businesses to get more information from foreign regulatory institutions — and every bit counts.

It is imperative for businesses to find ways to gain more knowledge instead of ignoring the risks when information is not readily available.

Of course the caveat is that the practice in the host country itself may deviate from what has actually been documented.

New Zealand regulatory institutions should be proactive in trying to reach out to their foreign counterparts and to New Zealand businesses.

Rapid changes can alter our understanding of regulations overnight

There are bound to be regulations that are generic to New Zealand organisations trying to do business internationally, and there are certainly some industry-specific ones such as the license to operate or quota.

It is important for New Zealand organisations to identify and incorporate regulatory challenges into their plans when considering doing business abroad.

Recent experience concerning our meat and kiwifruit exports to China was a painful reminder about paying attention to regulatory differences across countries.

Particularly in developing markets, the pace of changes can be spontaneous, unhampered by a consultation process like the one that we have to go through in New Zealand.

While there is a call for regulatory institutions to facilitate the process of ensuring that businesses are aware of all developments, businesses themselves also need to keep an eye out on changes.

Trying to comply with local institutional expectations is just the tip of the iceberg in trade. The host country's institutional expectations can turn out to be a deal breaker.

Published on stuff.co.nz