Every entry into a new market offers producers not only an opportunity to increase exports and profits, but also risks that depend on the specific destination. An exporter can minimize these risks through thorough preparation and by eliminating potential pitfalls. One of the key recommendations is finding the right foreign partner, who can contribute significantly to a successful business venture.
Verification of Contacts
This is precisely the topic we’re covering in the August installment of the series “I Want to Be an Exporter,” which HN is producing in collaboration with Eximbanka. “When establishing business relationships abroad, it is essential to conduct a thorough due diligence of the business partner and also to analyze the political and commercial risks of the country that could jeopardize the export itself,” says Gabriela Brtka, a specialist from Eximbanka’s financing department, in an interview with HN.
You can find partners and contacts, for example, by attending trade fairs and exhibitions in person. Such events are often attended by company representatives seeking potential foreign investors or exporters. You can also take advantage of the Enterprise Europe Network (EEN), a global support network for small and medium-sized enterprises. Through your local contact point, you can access valuable information and advice, or search for partnership opportunities online.
The EEN also organizes events focused on networking for specific industries. Events organized by chambers of commerce can also be a rich source of new potential partners.
Once you have obtained suitable contacts, it is necessary to verify the creditworthiness and reliability of your business partner. A wide range of sources can be used for this purpose, such as banking and credit information, business and tax registries, as well as local partners and institutions.
You can verify a business partner’s financial standing through audited reports or references from other clients. You can also obtain the necessary data from credit agencies, companies, and experts in business information analysis, commercial or political risk assessment, as well as export insurance companies and banks. Such institutions include EXIMBANKA SR, as well as companies such as Dun & Bradstreet, Coface, Allianz, Credendo, and others.
You can also verify a company in its domestic commercial registers. It is advisable to focus, for example, on the company’s legal form and ownership structure, or to check whether it is in bankruptcy.
Within the European Union, you can verify the validity of a company’s VAT ID number using the VIES online search tool—the VAT Information Exchange System—which draws on national databases.
If you are interested in local institutions, it is recommended that you contact local chambers of commerce, embassies, or economic diplomats.
Risk Mitigation
Export success also depends on conditions in the country where the business partner is based. Therefore, it is important to focus on assessing the commercial and political risks that exist for the exporter in that economy.
Commercial risks include problems with business partners’ payment discipline—such as failure to pay invoices—as well as economic recession, high inflation, exchange rate fluctuations, and similar issues.
Political risks are a separate matter altogether. Political stability in a country is crucial for any export. Armed conflicts or sanctions can pose a serious obstacle, as we are seeing today in the case of Ukraine on the one hand, and Russia or Iran on the other. However, it’s also true that wars and sanctions can deter a large portion of exporters—that is, your direct competitors. This opens up opportunities for bolder exporters.
Changes in government policy in the destination country also pose a risk. Any exporter will tell you that clearly defined rules—ones that don’t change with the arrival of a new government—are absolutely essential. Here, too, political and economic stability is a necessity. Very few people want to commit to a market for several years where no one knows what will happen in a month or half a year.
Country risk assessment also includes restrictions related to currency convertibility. A few years ago, Uzbekistan implemented fundamental reforms in this area; previously, foreign companies had serious difficulties repatriating profits from their businesses—specifically, converting them into dollars or euros and sending them back to their home countries. As a result, they were often forced to reinvest their profits in Uzbekistan. Today, there are no such problems in this country.
Author Pavel Novotný
Source: Hospodárske noviny