Global trade is big business, amounting to nearly 20 trillion U.S. dollars per year. Despite a 2019 slowdown in growth due to stalled trade talks and political tensions, global trade is here to stay, and more and more companies are exploring the world of export and import.
Before expanding your company overseas, we encourage you to be aware of the additional risks in the foreign trade market. Trading internationally has higher risks than doing business in your own country, and so be connected to our global tribe to learn more.
Also attend our upcoming discussion March 18th in London on risk with Trevor Jones of Lynx Global Intelligence, more HERE.
The risks of conducting international business can be segmented into four main areas: country, political, regulatory and currency risk.
Country Risk
It’s important to balance the benefits of your company doing business abroad against the potential pitfalls. Poor infrastructure such as roads, bridges and telecommunications networks can make it expensive to operate a business in another country. Economic conditions such as high unemployment or a largely unskilled labour force can be barriers to entry. Rogue nations may have untapped potential, but can also pose risks such as terrorism, internal conflict and civil unrest. Anti-foreign sentiment among citizens, workers and government officials may also make doing business abroad especially challenging. Other country risks include crime and corruption.
Political Risk
Determine the political climate of the country you hope to enter. An unstable or ineffective government will be unable to protect your business interests. The lack of a strong foreign trade policy means that your company will have to steer through the challenges of allying with government officials who may fall from power. An incoming government may not be business-friendly and may decide to increase tariffs or impose quotas.
Regulatory Risk
A sudden change in trade laws or a poor legal system exposes your business to regulatory risk. For example, a country without clearly defined intellectual property laws can make it difficult for foreign software companies to protect their investments. Changes in banking laws may limit your company's ability to repatriate money to your home country or may limit access to funding. Having reputable and experienced lawyers and experts on the ground can be invaluable when trading in a new market.
Currency Risk
Fluctuations of a foreign country's currency can diminish profits when converting back to the home currency. Analyse the risk and rewards of making an investment in another country. The currencies of stable governments are less volatile than those of less-developed countries. Hedging strategies could mitigate some of the currency risk; however, your business is still at the mercy of the vagaries of the local currency market. Sudden changes in monetary policy will also affect currency rates.
How best to manage risk when conducting international trade?
There are many ways to manage and mitigate risk but one of the best ways is to use the latest technology.
Global Chamber® has teamed up with Lynx Global Intelligence to bring our members and guests a seminar in London on how to look at the world across a whole spectrum of risk and to view the information in real time.
Trevor Jones, CEO of Lynx Global Intelligence will present the seminar on March 18th. Trevor is a highly experienced global intelligence expert whose company has pioneered a unique approach to identifying risk from multi-level perspectives and presenting user friendly information in real time. He will demonstrate how the Lynx dynamic Mapping Tool provides a unique perspective on any country or territory in the world to give powerful insights into potential risks.
To book your place follow the link HERE.
Paul Vousden
Executive Director, Global Chamber® London
Originally published at https://www.globalchamber.org/blog/2020/02/27/global-chamber/mitigating-international-business-risk-with-technology/
