The erratic nature of US President Donald Trump has brought a legitimate reaction from other players on the global economic chessboard. The European Union also reacted almost immediately to the hostile actions of the White House and began to look around for partners in various parts of the world. In January, the EU signed a historic trade agreement with the South American association Mercosur, and is also strengthening economic relations with India, Indonesia and other countries. Just last week, European Commission chief Ursula von der Leyen, together with Slovak Commissioner Maroš Šefčovič, concluded a trade agreement with Australia. Šefčovič then flew to Cameroon for a World Trade Organisation conference, where he sought to strengthen the Union’s relations with Africa.
All this offers huge opportunities for Slovak exporters who are looking around for new markets. Strengthening relations with countries in South America, Asia and Africa opens the door to new opportunities.
The question of why to export and what risks to prepare for in new markets is addressed in the first part of this year’s edition of the series I Want to be an Exporter, which HN is preparing in cooperation with Eximbank.
Export brings savings
There are several advantages associated with exporting products and services abroad. The first is diversification of markets – thanks to exporting, companies will have new foreign opportunities that significantly expand their customer base. This eliminates the risk of dependence on domestic demand during cyclical fluctuations. “Selling in different regions helps to offset seasonal fluctuations in demand and mitigate regional sales declines,” says Branislav Pristáč from Eximbank’s Funding Department.
New export markets also contribute significantly to revenue growth. Higher purchase volumes improve the company’s bargaining position vis-à-vis suppliers. At the same time, increased production volumes for export often bring quantitative savings and unit cost reductions. Higher margins can also be an opportunity.
Exporting also strengthens your company’s competitiveness. Confrontation with foreign competitors and customer requirements stimulates technological improvements. At the same time, success in foreign markets can lead to increased market share and a stronger brand reputation, which opens up further business opportunities.
In order to take full advantage of these benefits, a company needs a systematic approach, including an analysis of the target markets and the potential risks associated with exporting. There are specific territorial risks associated with each country. It is important to take into account its economic situation – inflation, unemployment rate, GDP per capita or purchasing power of the population. You also need to assess its legal and regulatory environment, differences in laws or customs regulations, as well as the infrastructure itself, so that you are not surprised by inadequate transport networks, limited port capacities, undeveloped terminals or transhipment points.
Next, you should consider the buyer risks that relate to the foreign partner itself. These risks include in particular insolvency, bankruptcy, refusal to pay, fraud such as falsification of documents or purposeful delays in payment, lack of business experience or poor reputation and low credibility of the partner.
Foreign currency payments also give rise to currency risks. For example, there may be exchange rate losses if the currency weakens. It is important to take into account the volatility of the currency, in particular large fluctuations in its exchange rate over a short period of time. Restrictions on convertibility also make doing business more difficult. In some countries, there may be problems in converting your profits into a freely convertible currency.
Minimise threats
Other risks are related to political developments in the importer’s country or in transit countries. Supply or payment may be restricted or banned altogether in the event of war or unrest. Restrictions on capital transfers are also a risk. A country may impose a limit or ban outflows of foreign exchange altogether. The imposition of international sanctions or a complete trade embargo on a country or sector is also a threat.
Logistics risks relate to the physical flow of goods itself. Here it is important to consider the possible damage, loss or theft of the shipment during transport, which can cause complications, especially if there is insufficient insurance. There may also be delays in shipments due to customs delays, strikes or natural disasters.
Risks can be minimized by a thorough analysis of partners and countries before entering a foreign market, choosing the appropriate payment instrument or insuring export credits.
Author Pavel Novotný
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