The global trade landscape is changing, both politically and economically, which leads to challenges when entering new markets.
Opportunities still abound, even in emerging markets like Russia, China and Latin America, but businesses must be careful when looking to work with new buyers and suppliers, said David Huey, president and regional director, NAFTA, for Atradius, a global trade credit insurance firm.
“Our advice for when you're looking to enter new markets, whether it's in New York or Philadelphia, let alone countries like Vietnam or China, is dig in the weeds, kick the tires if you can. If not, get local knowledge," Huey said.
He spoke at the AFP 2018 conference in Chicago about managing supply chain vulnerabilities in new markets.
Huey said there are a few points businesses should keep in mind when entering new markets.
- Monitor the credit cycle.
- Understand government policy changes.
- Keep tabs on the financial conditions of each supplier.
- Be flexible with your business plan.
Ten years after the global financial crisis, central banks are starting to ease back from their extraordinary monetary policy. In the U.S., the Federal Reserve is raising interest rates. Huey says it’s important to monitor credit conditions and insolvency trends, but not let that dictate what a business does.
"The changes in government policy are important, whether there are changes in trading conditions, such as new tariffs enacted, or if a country has put economic sanctions on another. Both of those actions can affect how buyers or supplies can pay. Keep up with economic sanctions as those are being used more often," he said.
The biggest trap we find customers get into is they don't know when to say no. If things start to change, you need to know when it gets to be too big a risk to continue to do business.
–David Huey, president and regional director, NAFTA, for Atradius
It's critical to understand how business is done in the local culture. Since the global financial crisis, businesses have learned that transparency is important, and that just having references are not enough.
“You need to be upfront with what's happening in your business. Be in the details, know what's going on at any point of time," he said.
When learning about business practices in a new country, ask about the payment culture, which differs from country to country. That's key to keep cash flow going. For example, Huey said, in Germany, terms of trade are 30 days, with payment in 28 days. In Italy, terms of trade are 90 days, and payment is 110 days.
“If you're a domestic business and are used to getting paid in 30 days and you start to sell to Italy, you're bankrolling them for 110 days. Understand the local market,” he said.
New technologies like blockchain are promising to make payments more secure and faster, yet that doesn't mean buyers will be able to pay any faster or easier. “It won't change that people will need time to get the cash and pay the cash," he said.
When businesses know where the country is in the credit cycle, insolvency trends, and have become familiar with how business is done there, the next step is to keep financial tabs on your customer, in case their financial situation has changed, he said. What happens if tariffs are enacted, or if sanctions are placed on the country. How will it affect your partner? Businesses need to have a Plan B, or a Plan C—some sort of alternative buyers or suppliers if economic situations change, he said. It's why flexibility is so important.
"The idea of having Plan B is critical. The biggest trap we find customers get into is they don't know when to say no. If things start to change, you need to know when it gets to be too big a risk to continue to do business. The signs are there if you're prepared to look," he said.
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