Expanding into the international market can be a great way for Australian companies to grow their profits while also accessing of new customers. However, the process isn’t without its challenges. Overseas exporting comes alongside all sorts of different international business risks, some of which can have a substantial impact on overall cash flow if not accounted for.
Fortunately, these challenges can be countered by going into the export process with a thorough understanding of what the dangers are, as well as the right trade credit insurance policy to provide protection in the event of the worst.
Here are some of the risks of doing business internationally that Australian organisations should be aware of.
The first risk that comes with expanding outside of Australia is having to deal with unfamiliar companies.
1 – Unknown trading partners
The first risk that comes with expanding outside of Australia is having to deal with unfamiliar companies. This can be challenging for a number of reasons, ranging from language barriers to simply not knowing whether or not a particular organisation is reputable. In worst-case scenarios, this can lead to unpaid invoices, bad debts and severe impacts on cash flow, all of which can cripple a business.
To avoid these situations, it’s vital to collect as much expert information on potential trading partners before signing any agreements (particularly with state-owned enterprises), in order to ensure your organisation understands exactly who it’s dealing with.
2 – Cultural barriers
Similar to language barriers, cultural differences between countries can add complexity to the trading process. A few great examples of this are the emerging markets of Asia, where it takes a long time to build up trust and develop close ties between companies. The upside, however, is that once these bonds have been formed, they’re usually very strong, leading to long-lasting, profitable business relationships.
For a small business looking to export, cultural barriers can be particularly tricky, as there may not be room for somebody on staff who has experience with a particular country and its way of doing things. Again, the best way to get around this problem is by doing your research, and possibly engaging the services of a foreign country specialist during the initial phases of international expansion.
3 – Political and financial instability
While Australia’s market has remained incredibly stable over recent years, the same can’t be said for other parts of the world, where political risk, tariffs and fluctuating exchange rates can result in sudden changes overnight.
This can have a huge impact on trade from country to country, so it’s always worth analysis of the particular political situation in a country to ensure stability before signing any agreements, in order to avoid any unwelcome surprises.
4 – Difficulty collecting invoices
Finally, due to the simple increase in geographic distance involved in international exports, any unpaid invoices are much more difficult to collect than if they were in Australia. For companies, this presents a real issue, especially if large volumes of product are involved, and can lead to severe cash flow difficulties.
The best way to reduce the chances of having to collect an unpaid foreign invoice is to consider all of the factors mentioned above, and ensure each trading partner is stable and reputable.
By understanding each of these risks and challenges, Australian companies can protect their cash flows, intellectual property and assets while exporting to an unfamiliar country. In addition, trade credit insurance (TCI) provides a safety net in the form of indemnification of any unpaid debts. This security makes it possible for businesses to operate with confidence, while also having access to the in-depth credit expertise that TCI providers can offer.
To find out more about the benefits of TCI, get in touch with the Coface team today.