Here Are Few Aspects To Consider...
Whether you are importing or exporting, the challenges of doing business internationally are many, and they are in constant change. What are the realities and risks to consider?
1. What are the risks to consider?
There are several categories of risk in international transactions, such as foreign exchange risks, delays or non-payment, quality-control and logistics issues, not to mention tax, customs and legal regulations, cultural realities and political situations. These issues are present whether you are selling or buying.
2. Foreign exchange risks
The risks associated with currency fluctuation stem from the fact that a lot of time can go by from the signing of an agreement to the delivery and payment. This can adversely affect your financial forecast if, during this waiting period, the exchange rate fluctuates significantly. Even historically stable currencies can go through periods of volatility.
Too often, this risk is underestimated.
Many businesses are needlessly exposed to market volatility, and they fail to consider the potential consequences. A movement of just 10% on a currency, which is not at all uncommon in recent years, can completely erase expected profits.
3. Risk of delay or non-payment
Getting paid is one concern but getting paid on time is another.
The first step—and it is a crucial one—is to contact your banker to establish a clear plan for the operational issues ahead. The company’s goal should be to focus its cash flow on value-added production activities rather than on weathering long delays in payment.
Some payment delays can have disastrous effects.
Other proven financial products, such as Letters of Guarantee, Letters of Credit and Documentary Collection, are also available. Although these tools have been around a long time, they are being modernized for the digital era with electronic delivery methods.
5. Business culture
Some companies mistakenly believe that they merely need to reproduce their business model from one country to another to achieve the same success as in their home market. But be forewarned that international business can be full of surprises.
For instance, in Canada, there is a very North American approach: straight to the point, sometimes with a touch of humour.
In other countries, particularly in Asia, business is conducted with greater decorum, while elsewhere, devoting a great deal of time to developing an agreement can lead to an eventual signing. For these reasons, it’s important to deepen your knowledge of the culture of the countries you want to do business with.
6. Political factors
The geopolitical landscape has a direct influence on business transactions, and it can shift very quickly. A country that was easily accessible can suddenly become very problematic. These changes can have a significant impact on exchange rates, interest rates or a company’s ability to meet payments.
In addition to cultural considerations and geopolitical shifts, other political realities need to be considered. For instance, when it comes to customs or tariff policies, a country’s decision to subject your product to new protectionist measures can have an impact on your company’s competitiveness. To guard against these risks, knowledge and preparation are crucial.
7. What are the best habits to adopt? Stay tuned!
A company’s management leader's should always be up to date on issues associated with these risks. This underlines the importance of being well-supported. The markets move so quickly, it is very unwise to take this reality into account only at the end of the process. So, as soon as you enter into a new transaction, or sign a sales or purchase contract abroad, you should talk to your advisor about immediately adjusting your hedging portfolio – this will ensure optimal risk management.
8. Surround yourself with the right people
Focus on the leading your company and let your managers do what they do best, which is to look after their day-to-day operations and develop their markets, and turn to specialists for help when considering international business transactions.
Neglecting this aspect means taking significant risks that are actually completely avoidable. It’s amazing to see that experienced management teams often overlook fundamental elements in risk management. When it comes to a company’s future, the key to success in international transactions is planning and discipline.
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