By Sean Haywood, International Key Account Manager, Graydon UK
With the UK bouncing back from recession so confidently — the IMF puts it in pole position among the world’s leading economies in 2014 — more and more companies are stepping out of their comfort zones and looking to foreign markets for further growth. However, when you combine geographical distance, language barriers, fluctuating foreign exchange rates and variations in business culture, there are certain risks you need to be prepared for.
Embrace cultural differences
If you’re meeting with a potential client or partner from abroad, do some research about his or her business culture in advance. Some Western customs may cause offence to people accustomed to a different way of life. For instance, Chinese business people treat business cards with great deference, exchanging them with both hands and taking care to study them for several seconds. Leaving a business card on the table or jotting notes on it could herald the end of your export arrangements.
But while you should certainly respect cultural differences, you should also find out whether anyone in the company speaks fluent English. The best way to develop a lasting business relationship is by having a proper conversation, in which both parties can be completely clear with one another.
Run checks on your customer
Unless you’re visiting the foreign market in question, it can be difficult to really know whether you’re talking to the right people, or even whether the company is genuine. Translated business names can produce subtle variations and inaccuracies, which fraudsters may take advantage of to persuade you to extend them some credit or share valuable information. Even if you’re certain you’re talking to the right business, there could be lingering doubts as to whether your contact has the right authority to make key decisions.
While using a respected credit ratings agency to gather some financial data may help, it’s also important to remember that the credit-reference industry is less developed in many countries. Graydon is one of the UK and Europe’s leading credit reference agencies, providing detailed information on companies in 190 countries worldwide. And if you’re interested in working with a country whose financial details we can’t verify, you should take this as a sign to proceed with caution.
Never make assumptions
You may be used to doing business according to UK or European law, but don’t expect a foreign business partner to be prepared to do things your way. Often enough, in countries such as China, there is substantial pressure for the foreign law to apply. Legal requirements may come as an unwelcome surprise if you’re not prepared, but knowing the circumstances in advance ensures you can make allowances and even claim tax deductions.
Make ground rules for payment
To eliminate uncertainty, it’s crucial that you include payment terms on all your contracts and invoices, with a clear explanation of interest charges on late payments. It’s also wise to request that new customers make at least a part pre-payment to cover some of your costs before your work is underway. Late payments can be pursued with a Letter of Credit from a financial institution and trade credit insurance can help protect your interest in the unpreventable circumstances of international economic or political turbulence.
Be politically astute
While taking out political risk insurance as part of your trade credit plan can help if the customer is unable to pay due to currency issue or civil unrest, your first defence should always be careful consideration of a country’s political ramifications. Just by reading the news and doing a bit of research, you’ll learn that Venezuela has banned currency trading, Argentina is aggravated with British activity in the Falkland Islands as well as facing national protests against high inflation and taxes, and Turkey’s political unrest is cancelling out its recent economic gains.
Steer clear of corruption
Business transparency is not always a priority for non-Western nations, so investigating the anti-corruption legislation in a new market is essential. Russia and China are introducing their own legislation to mirror The Bribery Act in the UK, but branch out into more unchartered territory and you should be asking a lot of questions about the legitimacy of the business in question and whether their credit history stands up to your standards. Other signs of corruption include the sole use of mobile phones and web-based emails rather than corporate accounts. Think about how you first came in contact with the company, and ask questions earlier rather than later.
With these precautions in place, there is a lot of healthy growth to be gained from international trade. Building your international presence is an exciting next step for many companies and no business should be afraid of the barriers between them and a new market. With the right tools and advice, and up-to-the-minute market insights from credit reference agencies, you can steer a confident course to global success.