When the 2008 financial crisis took hold, Western businesses looked overseas for revenue, as emerging BRIC and MINT economies were seen as the new landscape for exporting success. The reality was that growth in these nations was also stalling, which provided a wakeup call for many and highlighted the need for appropriate due diligence before pursuing international growth opportunities.
Here, we outline how you can fully understand the risks of exporting abroad, and manage them effectively.
Your risk management strategy needs to begin by taking a broad view of your prospect country, to understand the culture, politics and overall economic health. One major consideration will be currency exchange rates, and how fluctuations affect you and your buyers. The volatility of rates means the price to buy and sell can change in the middle of a transaction, so think about currency hedging to protect your interests should a rate change not go in your favour.
Politics will play a large role in currency values, which is why attention to international relations is also vital. How stable or otherwise the prospect country is needs to be explored – the current conflict between Russia and Ukraine is a good example. Russia’s perceived involvement in illegal activities has led to sanctions on how much international capital it can access, which therefore limits the ability of banks to lend to businesses. This means less appetite to import, and a hit to those foreign firms who count Russia as an export destination.
Once you are satisfied that the risk posed from the prospect country can be mitigated, you then need to complete a comprehensive company check of your prospect firm. With credit checks a part of your risk management policy, you can first establish that the company does actually exist, and the contacts you have are legitimate. A company director check will give you a strong understanding of key decision makers, and whether their business past is cause for concern. Do their previous companies have a history of non-compliance or fraud? And will a repeat of this threaten your firm’s own reputation? It would be wise to learn about regulations in the prospect’s country to help you spot actions that are against them.
It would also be worthwhile to look into their payment history, as attempts to tackle overdue invoices - such as the EU’s 2013 Late Payment Directive – don’t guarantee you’ll receive funds when they are due. Has the prospect carried debt in the past? If so, a watertight contract will be needed, while trade credit insurance should also be seriously considered.
The above guidance should be taken onboard for any company that is interested in expanding beyond their domestic market. More expert advice on trading abroad can be heard at this year’s Going Global Exhibition, where our International Key Account Manager, Sean Haywood will be speaking on how to manage the risks of international trade.
Held at the Olympia in London between November 27 and 28, the event will bring together leading business minds, CEOs and other key decision makers to share information on exporting products and services or setting up overseas. You can find out more about Going Global Live here.
You can also download our eBook on mitigating the risks of international trade for free!