Financial crisis hits expat entrepreneurs: What's next?

  • stressed entrepreneurs
Published on 2023-09-11 at 14:00 by Asaël Häzaq
Strong words like "surge", "wave" and "avalanche" are being used in the international media to describe a worrying phenomenon. Entrepreneurs' businesses are not as flourishing as they used to be. This is mainly due to the health crisis, but it's not the only cause. This is an even more delicate situation for many small business owners. What solutions are available for expat entrepreneurs in difficulty? 

More and more businesses are going bankrupt

Can we call this a "global shock"? Business bankruptcies are on the rise in a world still affected by the economic crisis and inflation, especially in countries like Switzerland, France, Canada, the United States, the United Kingdom, Japan, Morocco, Italy and Germany. The Canadian federal agency announced 31,224 insolvencies between April and June, an increase of 23% compared to last year. The situation is less alarming in Switzerland, where 2,998 bankruptcies have been recorded since the start of the year. But, according to a recent study by Dun & Bradstreet, the number of insolvencies dropped in August. The business information specialist had observed a rise in bankruptcies since the start of the year.

In April 2023, a study by Allianz Trade, a business credit insurance company, noted an increase of 2% in 2022 and 23% in 2023 in business bankruptcies worldwide. The study forecasts an improvement in 2024, with only a 4% rise in bankruptcies. Such situations are common in most countries. With an estimated 13,000 business insolvencies, Morocco has seen a new record, with a 5% rise compared to 2022. Overall, the study found +53% of business bankruptcies in Morocco since 2019. Allianz Trade forecasts a 16% increase in insolvencies in the UK, 22% in Germany, 24% in Italy and 41% in France. The estimated figures for China (a barely 4% increase) are very low but call for attention. The country is still hit by an unprecedented real estate crisis, undermining many local and expat entrepreneurs.

What are the causes behind these bankruptcies?

According to the study, these bankruptcies are partly due to the pandemic, but not only. In France, for example, the number of bankruptcies has been at its highest since 2016, according to a report by Altares published in July 2023.

Indeed, other contextual factors must be considered: the current economic downturn, weak economic growth globally, the risk of recession, inflation, etc. The situation is particularly worrying for micro-enterprises and small and medium-sized enterprises (SMEs). Despite sometimes full order books, these businesses may be forced to close due to a lack of finance. They suffer from the failures of larger companies, lack of timely payment from clients, supply problems, and so on. This domino effect is challenging enough to make them vulnerable to another financial crisis.

Besides, many small and medium-sized enterprises are drowning in loans, especially those contracted during the pandemic. In Japan, for example, 80% of micro-enterprises and SMEs are soliciting credit associations to repay loans (according to figures from Nikkei). In Canada, businesses are suffering from additional pressure from hikes in interest rates.

What are the solutions for expat entrepreneurs?

What should expat entrepreneurs do when their business is no longer flourishing? The first thing that comes to mind is radical solutions: closing the business and returning to your country, considering a move to another country, or a career conversion (being employed, for example). But before adopting these extreme measures, we need to look at the causes of the downfall.

Understand the cause of the problem

Has business been slow for a long time, or has it suddenly dropped?

Have your business activities declined due to the pandemic?

Have you encountered difficulties due to a loan that cannot be repaid or funds that cannot be collected? Has there been a decrease in consumption? Are you facing a lack of customers?

Answering these questions is essential for defining the right strategies to implement. For example, a lack of customers may mean that you need to relaunch prospecting, develop new marketing and communication strategies, review your target area, or rebrand your product in relation to your target customers. 

Customers' needs in a particular city abroad will not necessarily suit the needs of others. The target area may have changed due to the pandemic, the energy crisis, the housing crisis, and so on. It may be a pricing issue. What are your competitors doing? How can you reposition yourself in the market to win back customers? These considerations, which are somewhat like a new business plan, will allow a more in-depth study of the company's situation in order to find appropriate solutions.

Finding help

Similar analyses should be carried out depending on the problem(s) encountered by the expat entrepreneur. But self-evaluation can be challenging. In addition to the potential difficulties of being in a foreign country, expat entrepreneurs may also be facing a personal shock. For example, they may feel weakened by their situation in terms of finances (no longer being able to secure a salary), family, relationships, etc. If they are accompanied by their family, the company's situation also affects the other members of the household. It is, therefore, essential to seek help.

First of all, strictly from a business point of view, having professionals who understand the local market can help you better understand why your business isn't going well and find solutions. Enquire whether any financial aid scheme is available for expat entrepreneurs in difficulty. Governments made loans available to struggling businesses during the COVID-19 pandemic, but many of these grants are no longer available, and repayments are sometimes made very difficult because of the enduring hardships.

Consider all eventualities, including the possibility of receivership or bankruptcy. What does the host country's law say about setting up a business or ceasing operation? What can be done when a company is in debt? What is the company's legal status in such cases? Could personal assets be seized? Seeking help from a legal advisor will help establish the best plan for the company, depending on its status.

It is equally helpful to join groups of expat and non-expat entrepreneurs who can provide psychological support and valuable advice to cope with the situation.

When closure becomes the last resort

If it is impossible to turn the business around, you must dare to cease operation in order to start over. Again, the assistance of a local legal expert is recommended, as is their advice on how to bounce back. Closing a business abroad does not mean that you have failed. On the contrary, the experience gained from failure will make it easier to consider a new business or career venture overseas.