Four risks for exporters – and how to overcome them
Andrew Watson, Executive Director, Export Finance, Efic
Exporting can be a risky business. Operating in an unfamiliar, foreign market will always throw up new challenges to navigate, however established a business may be in its domestic market.
The difference between success and failure when doing business overseas is being prepared. There will always be risks when entering a new market, but identifying those risks ahead of time and putting measures in place to manage those risks can help to minimise their impact on the success of your business overseas.
Export risks can be quite different depending on which country your business is exporting to. However, there are four common risks all Australian small business should be aware of when doing business in international markets:
- Political risks. An uncertain political environment can hamper export operations in a number of ways. A trade embargo could affect delivery of goods, civil war or political violence could affect the safety of your staff and partners. Political instability could result in defaults on payments, confiscation of property and assets, and blockages in transfer of earnings.
- Legal risks. Legal requirements and processes can vary significantly across different markets, so conduct research and receive legal advice to understand your legal position. Some common areas of difference include: local contract law, patent registration and IP requirements, product liability laws, dispute resolution processes and operational health and safety laws.
- Operating risks. Exporters need to become familiar with the operating environment of new markets, as this can be very different to the Australian operating environment. Some important things to look out for are industrial relations policies and practices, permitting rules and import requirements.
- Currency risks. Adverse movements in exchange rates are an inherent risk of doing business overseas and can lead to a loss of earnings or profit. You can protect yourself by quoting only in Australian dollars or taking out a foreign exchange facility which will allow you to lock in exchange rates and hedge your currency exposure.
While there are no quick short cuts to avoiding risks when exporting, as with any other business risk, you should follow a robust process of risk management to ensure your business is in the strongest possible position to cope with whatever risks you may come up against. Here are four key steps to take to manage export risk:
- Do your homework. The first thing you need to do is identify the potential sources of risk in your chosen export market. Efic’s Country Profiles are a good place to start. The World Bank publishes a range of data on individual country risks and the Australian Department of Foreign Affairs and Trade (DFAT) continually monitors the effects of political changes on Australian businesses.
- Seek advice. Your bankers, lawyers, insurers and accountants will be able to give you advice about the risks you may encounter in overseas markets. It is also a good idea to try and find someone who has dealt in the country before so you can learn from their experiences – you may be able to find such an organisation through your industry association or business chamber.
- Make an assessment. While it is impossible to predict the occurrence of specific risks, it is possible to make a reasonable assessment of the likelihood and impact of most scenarios that could affect your business. You should also rank the likelihood and importance of different risks to identify critical areas of focus.
- Develop risk management strategies. As with any other business risk, you then need to identify the steps you can take or measures you can put in place to avoid or mitigate the risk, or minimise its impact. Ensure your risk management strategy is as clear and simple as possible, and that everyone in the business is aware of what they need to do. It’s also important to regularly monitor the risks that have a potential to affect your business, as the likelihood of impact may change over time.
Risk is an inherent part of doing business overseas. Different countries will have different risk profiles and it is important that you fully understand the risks associated with the markets you are operating in, and plan for them. A solid risk management strategy will help you mitigate risks and minimise the impact they are likely to have on your business.