There are many rewards to expanding business globally. Increasing global exposure, market share and profitability are just a few of the many good things that can happen.
One major roadblock preventing organizations from growing their businesses in a new export market outside of their home country is the inherent risks involved.
Political, financial and legal risks impact how and where international trade professionals do business.
Through the FITTskills training program, students are able to learn how to identify many of these risks and take certain proactive, and in some cases reactive, approaches to dealing with them.
1. Protecting your business from political change
The current global economy has been undergoing significant changes that have had major effects on international business. In 2014, a new government was elected into office in India. Prior to the election there were certain changes to legislation that prevented certain companies from exporting materials from the mainland due to bans.
This dealt a significant blow to supply chains. The new government has since made significant strides to remove these bans and allow trade to flow smoothly.
The global war on terrorism and the crisis between Ukraine and Russia have also led to embargos and armed conflict which has minimized opportunities for trade in these regions.
Most recently, we’ve seen U.S. President Barack Obama veto legislation to create the Keystone XL pipeline between Canada and the U.S.
When you plan to take your business internationally, having multiple sources and supply chains is a beneficial strategy to help alleviate any pressures caused by political risk.
Should your main source no longer be available to supply product (i.e. a mining ban in India in 2014 shut down exports out of parts of Southern India), having a secondary source will ensure that there are no disruptions to your customers’ orders or your own inventory supply.
2. Planning for shifts in currency value
Over the last year we have seen the U.S. dollar, Canadian dollar and Euro (just to name a few) all change substantially in value. Some of these changes are beneficial to organizations, while others are detrimental.
Over the last six months, reduction in oil prices and continued economic uncertainty has significantly impacted the Canadian dollar, while strengthening the U.S. dollar. Canadian companies who wish to purchase from the U.S. now face significant reductions in their buying power, while Canadian manufacturers are finding it easier to export their goods across the border.
It is important to consider the currency risks when buying and selling products around the world through international trade.
Companies need to continually monitor and adjust their costing and selling prices to ensure they can reduce the impact of currency fluctuations.
Some organizations will take steps to use a currency average, or peg their currency, whether it is on a weekly, monthly or a quarterly basis. There are different methods of doing this, some of which include monitoring currencies by adding an artificial additional percentage to account for the fluctuations, or hedging rates by buying spot contracts.
Each of these examples present their own element of risk, so companies must consider which if any of these or other options to take.
3. Identifying and avoiding corruption
Companies entering certain regions may be confronted with unorthodox ways of doing business. In several nations, bribery is required in order to complete trade.
As a best practice, businesses should make themselves aware of these situations in their international markets of choice and try to avoid any conflicts that can arise.
Doing business in such a fashion is both unethical and potentially illegal. Companies can use resources such as the Trade Commissioner Service in order to gain information about certain illicit behaviors that exist.
As we continue to progress through the 21st century, many of these risks will continue to evolve. Global organizations need to be proactive to identify these risks and find ways to combat them. In some cases, it could be the difference between success and failure in the global arena.
What kind of precautions have you taken to mitigate risks before entering a new market?