Choosing the right business partner abroad
For many new companies in foreign trade, the learning curve can be long and difficult, especially when negotiating loans.
According to Dean O’Brien of Euler Hermes Ireland, the potential for bad debts or late payments in business is a reality, but there are livelihoods to mitigate the risks.
Foreign trade has always been the cornerstone of the Irish economy. As a result of economic growth, Ireland is the standard vehicle of reforms and post-recession progress. Due to the increasing confidence of the companies, the number of export companies is increasing.
According to recent figures from the Central Bureau of Statistics, the Irish export trade reached a record high in April. Foreign trade offers many opportunities to increase business and profits, but exporting is not without risk. Euler Hermes Ireland has taken out commercial insurance worth 15 billion euros. Two-thirds of the claims come from exports.
Considering the following four factors, you can pave the way for long-term, profitable business partnerships abroad:
1. Master the basics
While many entrepreneurs have fantastic services to sell and search for their products, markets and competitors, it’s amazing how many of them have virtually no information about potential foreign customers when they sign up. a contract and open credit lines for the delivery of goods and services.
When you do your homework, protect yourself from future problems. Find out as much as possible about the companies you want to do business with. In many markets, important financial and business information is easily accessible through sources that are easily accessible to the public.
When you create a profile of your new prospective client, you can make a more informed decision by offering credit terms. Your research should focus on:
Create a country risk profile for the partner
The risks of the industry
The financial health of the company itself and its main customers.
In short, ask questions until you get the answers you need.
2. Geopolitical and economic risks
Political issues can have a significant impact on businesses as landscape changes often disrupt or even prevent the conclusion of export contracts. The crisis in Ukraine has led a number of countries / regions, including the United States, the United Kingdom and the European Union, to impose sanctions on Russian and Ukrainian individuals, businesses and civil servants. In return, Russia imposed reciprocal sanctions and import embargoes, which in our own experience had an impact on Irish exporters of food.
A possible “Brexit” is another imminent political risk. The impact of the EU’s exit from the EU would have both positive and negative effects on Ireland. In the short term, the supply chain will suffer from painful upheavals as the two close trading partners adapt to the status of a country other than the European Union and Ireland opens up new markets. Ireland could attract significant investment flows from the UK in the long term, especially in the financial, chemical and pharmaceutical sectors.
Economic trends such as growth, debt, bank lending, payment trends and bankruptcies are important in order to get a clear picture of the risk levels in a particular market and the risk of payment disruptions. Despite the strengthening of the economy, seven out of ten export countries still have higher levels of insolvency than before the crisis, posing a potential risk for those wishing to expand abroad.
3. The legal and economic environment
One important area that many companies fail to consider when looking at new markets is whether it is difficult to do business there.
What is the difference between licensing laws and distribution agreements?
How are the quality standards different?
What new procedures and costs are required to ensure that your product or service is ready to be marketed?
How long does it take?
The answers to these simple questions must be evaluated before signing the contract.
It is important to consider the large differences between the laws of different markets, and it is necessary to understand how this may affect certain products and services, the payment or the recovery of arrears. Always ask for advice.
4. Evaluate information
Credit insurers can help companies enter new markets, assess risks and minimize potential problems. Euler Hermes can help companies with the assessment:
Comprehensive reports on the global economy and country risks
A 10-point risk assessment system evaluates potential buyers and helps companies build a profile of potential business partners.
With this kind of information, exporters can make more informed decisions about where and with whom to trade. Having a credit insurer that helps control and mitigate risks has many other benefits. It can reassure lenders and their banking partners, provide more working capital flexibility, offer more competitive credit terms abroad and improve the quality of internal credit management.
The observation of export markets, sectors and potential companies can be a major challenge in contractual decisions. However, by taking the right steps, you can significantly reduce your risk and build long-term, profitable business partnerships.