Risky Business: In These Tough Economic Times Globally, It Pays to Not Rush into Uncharted Trade Waters. Randolph Ramsay Looks at How Exporters Can Minimise Their Risk Exposure. (Cover Story)
Ramsay, Randolph, Business Asia
A slowing global economy, exacerbated by the events of 11 September last year, has made the world a riskier place to export to.
For exporters, the equation is simple--a depressed world economy equals more companies struggling or going under, leading to an increased risk when trading with new customers or markets. And it's not just emerging or war-torn markets that exporters need to look out for, but the usually safe havens of the world's largest economies as well.
Export Finance and Insurance Corporation (EFIC) general manager credit insurance Geoff Hickey says there is now more export risk in the world than there was two years ago.
Hickey blames the downturn in the global economy, plus the continuing weakness of the US, as the main contributors to the adverse risk situation.
"A lot more companies are going bankrupt in the US--there are a lot of companies going to Chapter 11 bankruptcy in large numbers," he said.
"I think probably 11 September doesn't directly affect the credit insurance business, but to the extent that it exacerbated a downturn in economic performance, it could have had a bearing on risk. Remember, we were already in a downturn when that happened, and there were already problems in the world economy on the back of the US."
Markets to watch
As well as the US, the ongoing economic malaise of Japan has made it a market to watch in terms of export risk. Hickey says exporters are becoming more wary of the problems Japan is having.
The rest of Asia, however, seems to have avoided increases in its export risk profile, despite the region's high exposure to the US economy.
Hickey says Asia has held up well, but still needs to be monitored closely.
"To the extent you get a downturn in the US, a lot of Asian markets are going to have trouble," he said. "Having said that, most of our problems haven't been in Asia--they've been elsewhere.
"I think we're still watching very closely to see what happens in the next couple of months with the US economy. Certainly they're not easy times in terms of risk."
In these uncertain economic times, the importance of adequately managing risks when exporting, particularly to new markets or with new customers, is becoming paramount.
Commonwealth Bank of Australia's (CBA) senior executive, Business Financing Products, Peter Corben, has one simple piece of advice for first-time exporters: research, research and more research. Corben identifies six different types of risk to be aware of--credit, exchange, non-performance, non-delivery, transfer and country. "Don't agree to anything until such time as you have addressed each risk factor," he said.
EFIC's Hickey says exporters should assess each country's risk, weighing up both economic and political factors.
"See if there's anything in the make-up of the country, such as the way it's governed, that might make it inherently more risky," he said. "You want to look at the legal and regulatory environment you're working in, as well as the cultural and commercial aspects of the company you'll be dealing with, and try to understand if there are any significant differences there.
"You should also look at whether the guy you're selling to is an experienced buyer in that industry."
CBA's Corben warns exporters to look out for those deals that seem too good to be true--as they usually are.
"Be alert to transactions that discuss huge amounts of money, that make reference to official sounding documents (for example, `prime bank instruments'), that have a lack of any substantial evidence of the existence of the goods, and that have a lack of track history for the relative parties in their international trade dealings," he said.
"Do not over extend yourself in the hope that you will achieve significant market share in the market--walk before you run. …