A strategic approach to risk can lead to a leap in profits - not into the dark
19 April 2017
Cautious optimism about Global Britain
As UK businesses begin to look beyond the EU following Brexit, the wider world of trade can seem a daunting and risky place to do business. The last decade has seen much talk of emerging and high growth markets – especially the BRICS (Brazil, Russia, India, China, South Africa) and the less discussed MINTs (Mexico, Indonesia, Nigeria, Turkey). There is good reason to believe that UK businesses have much to do in order to be export-ready for to sell into these markets though.
In our recent Export Optimism Survey, respondents showed caution for trade opportunities with India and China, whilst 21% indicated that they saw no optimism for opportunities in Russia. While there was plenty to be optimistic about from the recent survey, 87% of participants did say that they believe there will be a loss of trade when we leave the EU and a lack of resource and understanding about how to do trade with countries outside of the EU is undoubtedly a contributing factor to this.
For all the talk of Britain becoming more ‘global’ as a result of Brexit, the reality is that many British businesses selling into the wider world will need to manage new risks and challenges when selling into non-European markets for the first time.
4 risks to be conscious of when selling into emerging markets
While markets including the BRICS and MINTs come with growing populations of young and urban consumers, and therefore increasing demand for UK products and services, there are definitely risks involved in selling into these countries for the first time.
Exporters need to have risk management plans in their global strategies. Here are 4 risks they’ll need to factor into their plans for starters:
1. Political risk
There is social and political unrest in many markets around the world – take Turkey from the MINTs as an example – and this can have an economic impact on the market’s consumers as well as a political impact on the country’s likely approach to trade.
2. Threat of protectionism
Linked to the first risk is the possibility for new heads of state to set a protectionist agenda for their nation, introducing new tariffs or quotas that could make selling into this nation more costly or difficult – there has been a fear this could happen in the USA under Donald Trump, for example
3. Currency fluctuations
As we’ve seen in the year following the EU referendum last year, the currency in a market can be significantly affected by economic and political concerns – China, in recent years, has had issues with Renminbi, for example
4. Different business cultures and ethics
Corruption remains rife in many markets outside of the EU and UK businesses have to be very careful to ensure their international dealings comply with the strict standards set by legislation like the UK Bribery Act
What you can do to manage risk in emerging markets
Brook Horowitz, a consultant in international trade and CEO of NGO IBLF Global, tells us that ‘there are many different cultures of business based on age-old traditions and ethical norms, which are very different from our own’. He adds, ‘there is a bewildering array of legal and enforcement regimes’ for UK business to untangle and comply to.
To make the most of the opportunities of emerging markets, UK businesses will need to deeply research the new markets they consider entering, choose which ones to enter carefully, gain a deep understanding of how doing business in these markets works, and ensure all the while that they are complying with the UK’s and the new market’s regulations and standards.
In business, risks are there to be taken, but the UK businesses that approach new markets with a clear strategy for managing them will be the ones that take a leap into profits rather than into the dark. It is of the utmost important that businesses come up with a strategy that maps and identifies geopolitical risks, ensures compliance and understanding of different business cultures and standards, and allows the business to make informed decisions with a full awareness of the risks and opportunities at hand.
Brexit itself was a risk voted for by the UK population. It’s now up to UK businesses to approach the risks of this new era in world trade with a positive but diligent approach.
How we can help
The Institute of Export & International Trade is running webinars and courses to help UK businesses learn how to manage risk in emerging markets and create strategies for global growth.
This summer, we are running an Open to Export webinar on ‘Managing corruption risk in emerging markets’ (May 9) before running a day course in London on ‘Managing risks and opportunities in emerging markets’ (May 25).
We are running both of these sessions with Brook Horowitz and they are a great opportunity for both business people new to exporting or for those who have worked in high growth markets before and are keen to share their experiences.