How to be a savvy overseas investor

After having been the top destination of inward foreign direct investment for decades, China's investment orientation has become increasingly outward looking. In 2014, China's outbound FDI surpassed inbound FDI for the first time. Last year, the country became the world's second-largest source of outward FDI. And in the near term, its overseas investments are expected to grow 10 percent a year, and exceed $2 trillion by 2020.

While Chinese companies are benefiting by taking advantage of emerging opportunities around the world, the rise in Chinese outbound FDI is occurring at a time of unprecedented risks, familiar and unfamiliar both. According to the China Global Investment Tracker, more than $250 billion in Chinese investments abroad have failed since 2005, mainly because of a lack of overseas investment experience, especially in risk management.

Chinese companies tend to over-rely on externally generated country risk analyses, which more often than not are produced generically and thus not entirely appropriate for specific transactions. This is perhaps the most common mistake international businesses make. They believe that because they may have information about the general political and economic profile of a country, they have a true understanding of the real nature of the risks associated with doing business there. Too often, companies get caught in an "investment trap": They commit long-term resources to a country only to find the bill of goods sold to them are completely different from what they expect.