Key tips for businesses navigating international trade
By ATB Financial 28 August 2020 6 min read
The search for new markets often encourages business owners to look beyond their borders to seek international sales. Pursuing international markets comes with risk, though, so the more prepared you can be in strategizing your approach to going global with your business, the more your new venture will thrive.
In the wake of our recent economic crisis, international trade has taken a hit, as you’d expect. More than a quarter of Canada’s exports and imports were lost to the shutdowns in April, the Globe & Mail writes.
“International demand could remain weak for some time, with surging unemployment and capacity destruction likely to crimp demand for Canadian wares for a while,” the Globe notes.
But as many regions, especially outside the US, ease lockdown restrictions and invite customers back into their outlets, Alberta entrepreneurs may begin to consider the value of bringing their products to regions such as Europe, Asia and maybe even parts of the US that haven’t been struck as hard by the pandemic as other states.
In order to rebound after a crisis, or to generally extend their product reach outside their localized market, understanding the many angles of international trade is crucial for enterprising business owners.
Questions to ask yourself before going global
It may be enticing to take your business outside of Canada, but you have to ask yourself important questions first, advises Stacey Gordon, Senior Director of Trade Finance at ATB.
“What value proposition is there in the goods and services I’m bringing to this region? Most importantly, why do I want to go international? There’s always the risk of spreading your business too thin, so your entry strategy has to make sense.”
Mike Gee, Director of Business Development, ATB FX, agrees “Some think exporting to Asia is sexy, for example. But it may be outside your strategic boundaries. There’s a curiosity to sell beyond Canadian borders but you should know your product really well, and see if you can figure out if it’ll sell outside Alberta and Canada.”
An additional tip comes courtesy of Marcela Mandeville, CEO of Alberta Women Entrepreneurs: “Understand how international expansion fits into overall strategic plans and goals. With your strategy as your ‘north star’, take a careful look at what resources you have in place and what you will need to grow your business internationally.”
Building relationships to make international trade work
Once you’ve learned the best way to approach the why, what and where of your trade strategy, the how should begin to take shape.
If you want to make an impact and compete in an overseas market, you need a network, which may consist of partners such as agents, distributors or local specialized personnel. A business relationship, like any relationship, is only effective if both partners understand and look after the interests of the other.
“You can’t underestimate the value of building relationships, for all parties,” says Gordon. You can cultivate those relationships in various ways, she adds, noting that the depth of the relationships needed to successfully obtain business is different from one country to the next.
In relationships, you never get a second chance to make a first impression, so you want your business to look its best online, Gee says. By improving your online presence, including social media channels, your business sends a signal to potential partners that you’re taking your line of work seriously, and branding is important to you as a business owner.
Then there are cultural differences to learn about as soon as possible, advises Gee.
“When you build relationships with your partners, you should know the language differences, at the very least. I remember I came across one Texan entrepreneur who referred to everyone as ‘Boy’ but when he dealt with Asian partners, that kind of colloquialism wasn’t appreciated.”
Understanding international trade means staying on top of legal issues
Branching out to overseas markets comes with a host of new factors to consider, such as legal and regulatory framework .
“That’s an area you don’t want to cheap out on,” says Gordon. “Spend money to meet with the right lawyers and accountants on all the legal and regulatory details relating to the country you want to operate in. It will save money, headaches and your reputation, in the long run.”
Businesses should be aware of export controls, which are regulations that “restrict the movement of certain goods, software and technology across borders, regardless of the means of delivery,” as a Deloitte report explains.
“This includes, for example, the provision of technical support or even accessing servers from abroad in cases where controlled technology is involved.”
If you’re found in violation of those regulations, “in addition to financial penalties, corporate violators also face significant business disruption and reputational damage, including loss of contracts and supply chain delays which can significantly impact their ability to compete in the marketplace,” the Deloitte report adds.
Understanding the fine print on regulatory issues is critical, especially if you ship goods (as opposed to providing services). If your label is a bit off from what a certain country requires, Gordon explains, that product may end up coming back to you and you’ll face shipping delays.
Trade finance in a nutshell
Trade finance works by allowing trading intermediaries such as financial institutions (FIs),to oversee and facilitate various financial transactions between a buyer (importer) and a seller (exporter). These FIs work to finance the business transactions between the buyer and seller, which can occur domestically or internationally.
Trade finance can help accelerate payments to exporters and reassure importers that all the goods ordered have been shipped. Also, an FI can act as a guarantor in case the importer or exporter doesn’t fulfill the terms and conditions of the contract.
In trade finance, letters of credit are often leveraged. They act as promises undertaken by the importer’s bank to the exporter outlining that once the exporter presents all the shipping documents as spelled out by the importer’s purchase agreement, the bank will make the payment to the exporter/seller.
Other advice on budgeting, testing the waters, talking to partners
Planning ahead with cash flow forecasting and scenario analysis—which will allow you to build in buffers for unforeseen issues like time delays—is ideal when you decide to expand. List which resources and type of capital will be invested in international trade moves, and don’t forget about the less apparent costs such as marketing and public relations, if your business is more B2C than B2B.
Keep in mind how fluctuating foreign exchange rates can also affect your books. To use just one of many examples, if you contract with an overseas supplier, you open your business to changes in the exchange rate, meaning that if the currency your business operates in depreciates, this can cause uncertainty and risks to your overall profitability. To mitigate this, engage with your bank’s foreign exchange team to explore the best ways to facilitate international payments and explore strategies to minimize the impacts of fluctuations in the foreign exchange market.
You might also want to experiment with overseas sales before diving in headfirst, Gee says. “Ship a bit first to see how a new vendor works out. Find out how that relationship works out before going further.”
He also stresses the importance of engaging with your business partners early on, such as lawyers, accountants and financial institutions.
“It always helps to bounce ideas off your bank [who can suggest] different mechanisms to help customers go international. Those conversations can help mitigate risk and add value to what you’re doing internationally.”
Whatever stage your business has reached, developing an international brand and attracting global clients can be overwhelming, but with a sound strategy and by working with a committed financial partner to integrate those strategies effectively, you’ll be prepared to reap the rewards of going global.