12/10/10

By Stewart Blake is Chief Executive of Global Reach Partners www.smart-fx.net

The uncertainty surrounding the stability of the global economic recovery is accentuating the unpredictable face of international demand for UK exporters’ goods and services. This is far from welcome when it comes to planning strategies for future growth on the part of the exporter community.

Against this backdrop, research conducted by the business representative group Forum of Private Business (FPB) and Smart FX, a real time foreign exchange platform, revealed that two third of UK firms are reluctant to pursue exporting as a route to increasing their revenue stream. Meanwhile two fifths stated that they would rather focus on cutting overheads than investing in overseas sales growth as a business and financial strategy.

This reluctance to expand via exporting owes in no small part to a lack of readily available information relating to entering foreign markets. Indeed, thirty-five per cent of companies surveyed cited this as a critical barrier.

Meanwhile, currency fluctuations were also found to have had an effect on business decisions. Nearly half of the companies surveyed who were trading abroad reported that their finances had been negatively impacted by volatility in the currency markets during the last year.

This has led to more than two thirds of companies placing responsibility for managing currency risk firmly at the door of senior managers, and this is consuming time they would otherwise spend overseeing the day-to-day activities of the business. A balance thus needs to be struck to ensure that this does not impinge upon productivity.

Another insight garnered from the research cites that 72 per cent of companies willing to export were staying close to home with the EU their chosen avenue for growth. This seems counter intuitive at a time when general financial instability across the Eurozone and governments’ fiscal tightening policies are likely to stifle demand.. It is more understandable, however, when the issues surrounding a lack of information on other foreign markets and potential business partners are considered.

The UK is battling hard to reaffirm its position as a global economic force during this time of economic decline. Government representatives are actively and publicly travelling to emerging markets around the world to promote the UK as a centre of excellence. Until, however, the global economic recovery is sustained, many potential trading partners will not have the cash flow to buy UK goods and services and UK businesses will not have the comfort of operating in low risk markets.

There are multiple means by which firms can spread the financial risk associated with breaking into new markets. Companies can protect themselves against market volatility by taking advantage of some strong opportunities which exist currently in the global market place such as buying currency in bulk to hedge against fluctuations. Further, financial and risk managers should monitor closely opportunities presented by changes in global currency trends.

These opportunities have become far easier to spot since the e-commerce revolution. Not only can currency rates be checked frequently and accurately but this tool can be used for the marketing and distribution of products, helping businesses export across the globe in areas they might not have reached otherwise.

It is also important that firms run credit checks when exporting to clients outside the UK and issuing them with credit. Commercial credit referencing agencies can provide this information as well as country risk reports. They can also help to protect businesses against fraudsters and those who have a history of late payments.

Consider other financial strategies such as factoring, which allows the business to sell its accounts receivables to a factor company. This can help businesses to decrease the market risk they are currently faced with, although it’s worth bearing in mind that this may decrease a business’s revenue stream and so must in turn provide enough security to increase sales and help growth.

Finally, talk to your advisors. Speak with your bankers, currency providers, local UKTI representatives and network with your peers. By speaking to contacts already operating in your target market you can gain first hand information of current market trends