Unraveling the Top 4 Risks in International Business
Shielding Your Global Ventures: How Trade Credit Insurance Mitigates Key Risks in International Business
Expanding into the international market can be a great way for 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 organizations should be aware of.
- Unknown trading partners - The first risk that comes with expanding outside is having to deal with unfamiliar companies. This can be challenging for several reasons, ranging from language barriers to simply not knowing whether a particular organization 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 business information on potential trading partners before signing any agreements (particularly with state-owned enterprises), in order to ensure your organization understands exactly who it’s dealing with.
- Cultural Variations - 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.
- Political and financial instability - With COVID 19, the world market has been unstable. There has been a to huge impact on trade from country to country, so it’s always worth to analyze a particular political situation in a country to ensure stability before signing any agreements, to avoid any unwelcome surprises.
- Difficulty collecting invoices - Finally, due to the simple increase in geographic distance involved in international exports, collecting unpaid invoices becomes difficult. 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 the factors mentioned above and ensure each trading partner is stable and reputable.
How Coface Trade Credit Insurance Can Help?
By understanding each of these risks and challenges, 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.
Furthermore, our newly launched Urba 360 tool revolutionizes risk assessment for businesses. This innovative platform provides instant risk profiles of companies, granting access to exclusive data and practical insights from Coface, a global leader in credit insurance. Leveraging precise and comprehensive information, coupled with expert credit risk analyses from our specialists, Urba 360 offers an extensive overview of over 130 million companies across 190 countries. With this tool, you can effectively evaluate and keep track of your customers, suppliers, and business partners, ensuring a smarter and safer business environment.
To find out more about the benefits of TCI and the Urba 360 tool, get in touch with the Coface team today.
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