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How to start trading overseas: A guide for small and medium businesses

By: Roberto Simone, analyst at Xenia Broking

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It takes confidence and ambition to begin trading overseas. But the potential rewards are huge, with the less acquainted destinations often having the most potential for maximising growth.

However, there are also a number of risk factors to consider. There are often major differences between countries – such as legal frameworks, business etiquette and market conditions – which need to be prepared for in advance.

Working with companies with different cultures and trading standards is a challenge in itself. On top of that, there may then be issues with local laws, government instability, bureaucracy and currency fluctuation. 

Following Russia’s brutal invasion of Ukraine, meanwhile, the geopolitics of doing business abroad are becoming ever more complicated.

Therefore it’s good to know – now more than ever – what to look out for when trading overseas. This way, risks are mitigated, and opportunities maximised.

 

Here are some key considerations to take into account before exporting…

  1. Understanding the market. Is the market characterised by bureaucracy, high currency volatility, infrastructure limitations, economic barriers and uncertainty?
  2. Manage currency exposure. Foreign exchange management should be built into financial planning to ensure margins are protected from the effects of volatility.
  3. Consider local market partners. Can objectives be achieved more efficiently with the support of a third party with local knowledge and expertise?
  4. Get the basics right. Using the correct Incoterms and documentation protects your business from damaging legal disputes and helps protect your rights. By undertaking due diligence you negate the risk of failure in this area.
  5. Build trust. Building strong relationships with buyers and sellers is crucial. Reputation is key to maintaining trade activity across borders in the long term
  6. Choose a supportive and experienced financial partner. This should be someone who will work to understand the business and provide solutions to support its export plans.
  7. Implement a credit insurance facility. A trade facilitator which can certify a strong risk management approach alongside a support mechanism to fuel growth ambitions
  8. Research! Although it sounds obvious, it’s important to do your homework before deciding to trade overseas. You can never do too much research. From culture to currency, you’ll need to know the ins and outs of the foreign market you want to break into

However, even following extensive research, trading overseas is not an easy process. There are a series of practical measures businesses then need to take…

  1. Ensure quality of stock. A reduced quality of product can lead to returns, and a significant increase in costs. Evaluate the balance between cut-rate suppliers and delivering a product with value.
  2. Analyse country particulars. What works in the UK may not translate well abroad. For example, if a heavy-duty marketing strategy is employed, it’s important to get the basics right as an insensitive marketing campaign could lead to reputational damage.
  3. Benchmarking.If competitors are already operating in the market, it suggests there is already a demand. This presents an opportunity to scrutinise and evaluate what’s working for them, and more importantly what isn’t.
  4. Visit the region. Visiting your chosen market in person is key to building robust, long-lasting relationships.
  5. Translation and communication. Although people in many regions will have the ability to communicate in English, problems can still occur due to miscommunication or misinterpretation. Therefore, it would be a savvy move to employ a translator (preferably bilingual) to help conduct business.
  6. Be familiar with legislation. Laws vary across the globe. It is not only that region’s business and accounting laws that need to be studied, but those involving employees and their rights. Without knowledge and understanding of these, there is a risk of encountering legal challenges, which will only have a negative impact on operations.

Recent years have seen a sweeping wave of instability for UK businesses, from leaving the EU’s single market to ongoing supply chain constraints and rising input costs.

But export trade remains a viable strategic method for continuous growth, and in itself is an opportunity to mitigate against severe domestic challenges and economic obstacles. This is because it brings market diversification, thus reducing dependence on one or a few economies.

However, export ventures should be pursued with caution given the unstable global context and especially since the wave of COVID-19. Having realistic expectations for growth, as well as understanding which geographies and sectors hold the most potential, are crucial elements to the equation. 

Those businesses which prepare properly for those markets, evaluating and mitigating all the possible risks, will be best placed to take advantage of the opportunities ahead.

 

About Author:

Roberto Simone is an analyst at credit insurance broker Xenia Broking.

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