Springboard to global trade

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Springboard to global trade

Global Opportunity 2015  | Barclays

Whilst global markets offer tantalising opportunities to upscale your business and sales, you must first ensure you have done your homework. The good news is that help is at hand, says Russell Grazier, Barclays Regional Head, Trade & Working Capital, London

Entering into international trade could potentially help you to access a larger customer base and expand sales of your products and services in a way that is not possible by focusing on the UK alone.

However, it is important not to underestimate the risks that come with these opportunities.

To succeed in overseas markets, your business must have a robust and informed trading strategy, the right management team and the operational capacity in place.

You can help to ensure you are ready to make the most of opportunities by tapping into the UK Government’s support programmes, and drawing on the funding and risk-management expertise of your bank.

In-depth market research and due diligence processes are also essential when dealing with contacts you have never met in unfamiliar jurisdictions.

A recent report by the British Chambers of Commerce[1] shows that many businesses are reactive exporters.

Taking up an unsolicited order from an overseas buyer may appear to be tempting, but rushing into a sale could cost your business dearly, as one manufacturer discovered.

When a UK-based fencing materials producer received an unexpected international online order, it seemed like an ideal opportunity to grow their business in new markets.

The manufacturer was contacted directly online by a US-based company and decided to fulfil the order without fully considering all issues and risks involved.

What followed were considerable shipping and logistical difficulties, which proved to be a considerable challenge for the company.

Fortunately, with expert support, the business was able to recover and went on to successfully build an export division, which increased sales by 50% over the next two years.

Finding overseas opportunities
The UK Government has stated its commitment to helping small-to-medium enterprises (SMEs) and large-to-medium-sized businesses tap into exporting and importing potential.

Its agencies, such as UKTI, provide a range of programmes designed to facilitate successful entry into overseas markets.

One of the initiatives available to businesses is the High Value Opportunities (HVO) Programme, which helps companies gain direct access to large projects around the globe, offering opportunities to both SMEs and larger enterprises.

UK businesses are eligible to tender for part of, or even whole, projects. Barclays works alongside UKTI to help clients develop the right exporting strategy for their business.

The Bank’s input ranges from assessing risk and ensuring a business has adequate working capital through to discussing the negotiation of appropriate trading terms.

UKTI offers guidance at all stages of the trading process and can provide access to wider government support.

Both UKTI and Barclays can also provide access to advice from UK Export Finance.

UKEF is the UK’s Export Credit Agency, providing a range of financial products to support exporters.

Alert to opportunities
Another UKTI offering aimed at helping British companies succeed overseas is the Business Opportunities Programme. This offers a free alerts service for companies looking for relevant sales leads.

Businesses set criteria for the sector and types of tenders or opportunities of interest, and receive regular alerts highlighting high-potential contracts that match their capabilities.

Commerce at a click
With UK retail exports expected to reach £60 billion by 2018 , the UKTI’s e-Exporting Programme focuses on making sure UK businesses take full advantage of the online marketplace.

Barclays is keen to help ensure businesses maximise the opportunities provided through the digital market place and seeks to promote the e-Exporting programme to businesses which may benefit from it.

Recognising that selling online also has its risks and practical difficulties, UKTI has identified over 400 e-marketplaces.

The challenge for businesses is to filter the gamut of opportunities worth pursuing and UKTI is well-placed to help businesses form a robust digital commerce strategy.

Preparing for change
The British Chambers of Commerce[1] survey shows that a lack of commercial knowledge is leaving many businesses with untapped opportunities.

It highlights that 68% of companies with the potential to become successful exporters believe they are held back by not having the right product or service for international markets.

Having better data and analysis can shine the spotlight on opportunities which are not immediately obvious.

We work closely with UKTI and UKEF to give you access to the expertise you need.

By doing your research and having a comprehensive plan in place, you will be in a much better position to identify and act on any overseas opportunities.

Managing risk
Having made a commitment to overseas trade, management teams need to identify and mitigate risk at every stage of the export cycle.

Involving your bank early in the process means you can assess your capabilities and finances, and identify where you may need support in delivering your trade strategy.

From a banking perspective, the two biggest concerns are usually about mitigating risk and financing increased working capital requirements.

During the supply or purchasing stage, a business needs to reduce the risks associated with supplier performance and related costs.

As a business agrees terms for the overseas sale of their end product, their attention turns towards ensuring they get paid.

Payment in advance is ideal as you get paid (either partially or wholly) before goods are dispatched.

However, this is not easy to negotiate as it means the buyer takes on all the risk.

An often-used option to protect exporters against the risk of non-payment is a letter of credit (LoC), which is a conditional guarantee that you’ll get paid as long as you meet the terms of the LoC.

This LoC provides the exporter with a conditional guarantee of payment from the buyer’s bankers.

An LoC can make doing business more appealing to exporters and end buyers by providing both parties with confidence: for the exporter that they will receive payment promptly; and for the buyer that they will receive the goods and services ordered.

Alternatively, a documentary collection may be used in place of the LoC, where the exporter’s bank liaises with the buyer’s bank to arrange payment.

It gives the exporter a greater level of control over the goods until payment, or guarantee of payment, is received from the buyer.

This allows for more confidence in trading and a better overview of cashflow.

Flow of funds
Trading overseas requires accounting for longer timeframes. In the UK, a typical trade cycle could be between 30-90 days, but when exporting this can increase to as much as 120-240 days or even longer.

A trade loan is one solution that could help a business with its cashflow needs, as it can be used to bridge the gap between payment to your suppliers and the receipt of sales proceeds from your end buyers.

As a manufacturer, for example, a trade loan can be used to offset the period of time where you have paid your raw material suppliers and made your product, but are still awaiting payment for a sale.

This means that you will have the finance available to continue production and fulfill your other orders.

Open account trading represents 80% of world trade[3], where payment is made upon the presentation of an invoice following delivery of the goods or services.

However, it comes with a risk of non-payment, particularly when dealing with a new client in an unfamiliar country or market.

Most commonly used when an established relationship has developed with a buyer or a raw materials supplier, open account trading allows a business to offer credit to its customer, thereby paving the way for increased sales and negotiation of higher sales prices.

Depending on the terms negotiated, Barclays has banking products and services available to protect your business and to help ensure that you make a success of your overseas trading.

[1] British Chambers of Commerce 2014 annual trade survey –
‘The Engine of Growth’ – www.britishchambers.org.uk/2014%20Int%20trade%20survey_Market%20opps%20and%20barriers%20report.pdf

[2] International Omni Retailing Markets Association (IORMA), 2014 – ‘Going Global through e-Exporting’ – http://www.iorma.com/reports/going-global-through-e-exporting

[3] *Working Capital & Trade Solutions, 2015 – www.barclays.pk/corporate/corporate-solutions/capital-trade-solutions/index.html

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