If you’re considering exporting or breaking into new markets abroad, you may be concerned about the risks. Is dealing with the economic, political and social hazards of exporting really worth all the time, energy and expense? While we believe that Canadian companies should be diversifying, only you can really answer that question.
But we can say one thing with total confidence: a well-executed global business strategy is a proven path to success.
Responding to a fast-changing world
The world is changing quickly. Risks can emerge unexpectedly and take companies off guard. We need look no further than the U.S. election and the Brexit referendum for recent examples. The outcomes of these votes were very hard to predict. How can you protect yourself from such out-of-the-blue events?
Diversification is one mitigation strategy that can be effective against unexpected risks. Given the shifting political, social and economic factors in play, this might be a good time to start looking beyond the Canadian, U.S. and EU markets. Right now, exporters may well be feeling less comfortable in these former comfort zones.
One of the major benefits of exporting to multiple global markets is that you don’t put all your eggs into one basket. Instead, you can diversify to reduce the risks that come with doing business in one particular place. If you have risk exposure in 10 different markets and one of them goes sour, you still have nine to keep you going.
The importance of having a strategy
Diversification is good, but your risk mitigation strategy shouldn’t end there. You need to know what you’re getting yourself into, and consider the best- and worst-case scenarios—your success in international markets may depend on that knowledge.
When you go blindly into a market, you risk losing the potential benefits of international trade.
Let’s face it, all markets have their risks, but knowing whether they’re surmountable—and whether the benefits outweigh the hazards—could be the defining factors of a successful venture. If you don’t understand how your business could be hit and how your company could be affected by adverse events, then the worst-case scenarios are scary. The local economy could contract or a currency could fluctuate, so you don’t get paid. Or regulatory changes could cause you problems such as delivery delays, or civil disturbances such as strikes could shut down whole sectors of the local economy. If these happen and you’re unprepared, you could end up losing some or all of your business. At best, you’ll be strapped for cash flow.
If you don’t understand the risks, encountering one can be quite shocking. But if you have a risk mitigation strategy, recovering from the problem may just be a matter of submitting your insurance claim. If you already have a buyer, foreign exchange hedging and credit insurance can protect you against nonpayment or currency fluctuations causing cash flow constraints. These and similar tools can protect your cash flow so you can continue doing business.
