21 Mar Five routes to exporting
Global Opportunity 2015 | Barclays
Barclays reveals five top strategies for businesses with aspirations to succeed in global markets
For a business that is ready to grow, exporting offers a chance to find new markets and new customers on a much larger scale. It allows you to take advantage of benefits you can’t find at home, such as lower costs of production and economies of scale.
The expertise and finance required to make that first move into overseas markets can seem daunting. As the industry saying goes, “An export isn’t an export until you’ve been paid”. But there is plenty of support available to help you put the right foundations in place.
Get ready, go
Timing and preparation is crucial. It is important that you assess whether your business has the resources and capacity to take on the increased workload and complexity that invariably comes with trading overseas.
Preparing to move up a gear by selling goods and services abroad is an intensive process and should not be underestimated.
Whilst there are clear benefits to selling into overseas markets, such as growth and diversification of sales, as well as a potential increase in sales prices, be wary of concentrating on overseas markets at the expense of your UK operations.
From the inception of your international strategy Barclays is able to provide help and will signpost you to the professionals and external agencies dedicated to supporting UK Exporters.
Barclays works in close liaison with UK Government agencies, such as UK Trade & Investment (UKTI) and UK Export Finance (UKEF) in order to guide exporters along the right path early in the process.
When you find a new trading partner and reach the important contract negotiation stage, we can also provide guidance on how to structure payment terms in a way that can help you to mitigate the risk of non-payment.
Questions to ask when deciding whether your business is ready for international trade include:
- Is your management team committed to trading overseas?
- Does the leadership team have the capacity, or bandwidth, to step away from day-to-day operations and focus on an exporting strategy?
- Have there been in-depth discussions about the challenges?
Find the right partners
Exporting means you need to find the right trading partners in the right countries. You can make this process easier by working with a UK Government agency such as UKTI. For example, UKTI’s Overseas Market Introduction Service (OMIS) puts you in touch directly with their staff in over 100 Overseas markets.
It can help you access the right international contacts or partners, find the best way to do business in a market and achieve a successful market entry strategy. UKTI-organised trade missions can also be a sensible route to meeting potential trading partners.
Once you have decided upon an appropriate overseas market for your goods and services, you will probably discover that there are buyers and competitors who are already trading there.
So how can you be sure you are dealing with respectable and reputable companies which are capable of delivering on their promises, so that you can deliver on yours?
Undertake thorough due diligence on suppliers as well as end buyers. With suppliers, check that they have the capacity to deliver the goods and services they have promised, in the quality and quantity they claim is possible.
Verify that your potential business partners have appropriate financial strength, and that they are legitimate and reputable, for example through a credit record search or trade & credit information (TCI) enquiry through your bank.
Barclays can support an exporter during the due diligence process, by conducting a TCI enquiry through its extensive overseas branch network. Barclays’ in-country staff have an invaluable understanding of local territories and industry sectors.
A key part of getting ready to export is to assess and manage potential risks. Buying and selling across borders can mean navigating complex foreign exchange controls. Fluctuating currency rates of exchange can also be treacherous for the unwary.
When trading margins can frequently be as thin as 4% or 5%, such margins can be wiped out by a sudden adverse currency movement. Most risks associated with currency volatility can be managed.
Foreign exchange risk can, for example, be mitigated by putting a forward exchange contract in place at the time of sale, thereby locking in the sales value and underlying profit of your export sale.
Most companies are in the business of providing goods and services, not in speculating or taking a view on currency movements. Therefore, in general, Barclays will suggest businesses who plan to export should consider protecting against exposure to foreign exchange rate fluctuations.
Sending your goods overseas without receiving payment from your buyer exposes your business to the risk of non-payment. Although you may be able to negotiate payment up front from your end buyer, very often winning export orders means giving an extended period of credit.
It’s important that you speak with your bank early in the process of negotiating the sales contract, and that you undertake the due diligence mentioned earlier, so that the right terms can be agreed with your buyer – giving you both the comfort you are looking for.
A range of solutions are available, from Letters of Credit and Documentary Collections through to Credit Insurance cover, all designed to safeguard against the risk of non-payment by an end buyer.
The UK Government has also ensured that assistance is available through UK Export Finance (UKEF). UKEF provides a range of structures to support exports. For example, if you decide you want to protect your debtor book through credit insurance but this is not available from a private underwriter, then UKEF will seek to provide cover to enable the export to proceed.
Concentrate on cashflow
Global trade takes time and with that comes cashflow risk. Cashflow can be a major concern for an exporter. Exporters are usually required to manage a
longer trade cycle than those businesses focused solely on the domestic market.
This generates cashflow challenges as an exporter’s cash conversion cycle becomes extended. This is often underlined by the need for earlier purchases of raw materials through to offering longer credit terms to end buyers.
The often-seen higher working capital requirement usually means that increased financial support is needed. Barclays can work with you to provide a range of working capital solutions to meet the needs of the extended trade cycle.
An example of a working capital solution is a trade loan facility. This provides a valuable source of cashflow to bridge the gap between an exporter’s purchase of supplies, conversion into the end product and receipt of sales proceeds from the end buyer.
Russell Grazier, Trade and Working Capital specialist from Barclays, points to a recent business proposal he assisted with: “We have supported the 40% growth aspiration of a medium sized business that produces goods for the DIY market.
Our solution of a trade loan alongside an invoice financing facility has supported previous years’ growth and an extension and increase in these facilities will now enable the business to push itself to the next level of its growth strategy”.
One solution to consider is Letters of Credit (LoCs), which are often used to guarantee payment of an exporter’s goods and services, as long as the correct documentation is provided by the exporter.
There may be an option to provide pre-shipment finance, which can be raised upon the submission of an export LoC opened by a reputable financial institution.
A further way of arranging finance is to provide payment early in instances where an export LoC has a usance term, i.e. it is not payable at sight but only after a stipulated number of days after shipment.
Barclays can accept the risk of the LoC issuing bank and discount the LoC. This can serve to mitigate payment risk and allows a business to receive sales proceeds earlier. The export sales strategy of a London recycling business has risen steadily to more than £15m through using this as part of their strategy to finance growth.
Logistics remains a key issue for both buyers and sellers; the process of moving goods between the two parties has strong implications for risk, cost, and insurance.
For example, if your buyer decides they no longer want to accept a shipment of your goods or services that have already been despatched, it may result in managing a complex logistical situation in a country you are not familiar with. Logistics should, therefore, also be part of the initial export planning process.
Transport and Logistics issues to consider:
- When exactly will the title of the goods be transferred?
- Customs and Excise requirements in the UK and destination countries
- The types of transport required and the companies to be appointed
- Details of documentation required by authorities in the UK and in those countries where an exporter is shipping goods
- How to ensure your carriers’ compliance with local port regulations
- Whether sanctions or embargoes are in place in the countries through which your goods are moving.
Barclays is committed to providing guidance to exporters and to signpost them where and when needed so they get the right support from the right people at the right time. Through discussions with their bank and key professionals and agencies such as UKTI, UKEF and the Chambers of Commerce, a would-be exporter can move into the world of international trade with genuine confidence.
 House of Commons Library – Trade: Key Economic indicators, 2015 researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02815#fullreport
 Office for National Statistics, 2014 – www.ons.gov.uk/ons/index.html
 British Chambers of Commerce, 2015 – www.britishchambers.org.uk/2014%20Int%20trade%20survey_Market%20opps%20and%20barriers%20report.pdf]
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