Trading with new markets: Common challenges and how to overcome them

With a growing number of businesses looking further afield for trading partners, Bank of Scotland’s Head of SME and Mid Corporate Trade, David Weatherhead, discusses the opportunities out there for businesses, and how to make the most of them.

Technology and the speedy delivery of goods have made the world a much smaller and more connected place. Recent years have seen increased demand for British goods and services from Asia, America, the Middle East and beyond, giving businesses the chance to branch out into new markets.

This development offers a number of benefits to businesses, for example enabling them to boost their bottom line and mitigate risk by widening their customer base and diversifying into new areas. Bank of Scotland’s Head of SME and Mid Corporate Trade, David Weatherhead, takes a closer look at some of the key questions businesses have about trading further afield, and the steps they can take to ensure they are making the most of exporting opportunities.

How do we decide which new markets to trade with?

To maximise the benefits overseas trading can bring, you need to pick the right markets. This can get trickier as you look further afield, to countries you perhaps don’t know as well and which have different ways of working. So, the key is research, research, research.

Is there demand for your products? Would you need to make any adaptations before they were brought to market? Is the culture the right fit? These are all questions businesses need to ask themselves.

Sometimes companies will opt for an English-speaking country as it feels a safer option. But don’t let language barriers put you off, especially if a country meets all your other criteria as a trading partner. Often, you’ll find business is conducted in English, or you can use a translator.

"While trading overseas, particularly further afield, does bring various challenges for business, there has never been a better time to start looking to new markets."

David Weatherhead
Head of SME and Mid Corporate Trade, Bank of Scotland

 

What help is there available for businesses looking to explore new trading markets?

There’s a huge amount of help available from the Government to help companies find the right trading partners. In particular, the Department of International Trade, the Scottish Chambers of Commerce and the Institute of Export and International Trade offer some great resources and are on hand to provide advice and guidance.

Our International Trade Portal can be a useful tool to help businesses identify the right markets and learn more about countries’ trade profiles.

What steps can we take to mitigate the risk of working in a new market?

Doing your due diligence is essential. The more you know and understand about the new markets you are operating in, the easier it will be to make sure you have the right solutions in place to deliver the goods and, ultimately, get paid.

Once you know what you are dealing with, there are plenty of tools which can help minimise risk. Negotiating payment up front, even in part, or getting a Letter of Credit from your customer’s bank can help provide reassurance that you won’t be left without payment.

You can also insure against non-payment, either with a specialist provider or by arranging for your bank to take over the risk, for example by discounting your export sales ledger.

How can we reduce the logistics risks that come with trading further afield?

While certain regions of the world bring brilliant trading opportunities, they also come with various challenges that can make shipping goods difficult. For example, piracy in Iranian waters or extreme storms off the coast of America can result in journeys taking much longer than anticipated or alternative routes being needed. Sanctions and border controls can also prevent or delay goods getting into certain countries. It’s important to have a clear schedule of shipment dates in place, with plenty of buffer time, particularly for seasonal goods.

The other logistics challenge relates to documentation. You need to be able to provide any paperwork you’re asked for in a timely manner, or else risk delays.

Chambers of Commerce offer advice and training on everything from choosing modes of transport to understanding the paperwork needed to move goods. They are also the designated authority for issuing EU certificates of origin, which are often needed to meet customs requirements.

It’s also advisable to get marine insurance to protect your goods against damage or loss while in transit.

Will our working capital needs change as we start exporting further afield?

Good working capital is essential for successful trading, and as you start to trade further afield you may see your working capital needs increase due to different payment terms and longer delivery periods for goods. It’s normal to see your working capital cycle increase from 30 days to 90-120 days, and if you’re not prepared it can have a serious impact on your cash flow. Our Working Capital Tool can help you assess how trading overseas will impact your working capital and identify opportunities for accelerating your cash flow through the trade cycle. Speak to your Relationship Manager for more information.

There are also steps you can take to manage cash flow risk. Letters of Credit, Documentary Collection and credit insurance can all offer an extra layer of comfort. Keeping a close eye on your trade cycle – checking whether payments have been received and goods delivered – will help ensure any issues are flagged up early.

What finance options are there for funding our exporting efforts?

Trading further afield typically comes with some upfront costs, and it’s important to have the funds in place to be able to make the necessary investments in your operation and set yourself up for success. However, every trade transaction is different and there isn’t one finance solution that fits all businesses, so it’s worth having a conversation with your bank. There can be a temptation to use an overdraft, as that’s what you’re used to having. But that won’t always be the best-value route compared with some of the other funding options available.

There are some businesses that are keen to establish trading without any additional financial support. If that’s the case it’s worth looking at products that can help you mitigate risk, like Letters of Credit and guarantees.

Do you need to re-evaluate your supply chain for trading overseas?

Entering new trading markets often necessitates a re-evaluation of your supply chain. Perhaps you need different materials to meet the needs of your new customers, or maybe you want to diversify your risk rather than rely on one supplier to fulfil new and expanding opportunities?

Or again, perhaps the entire reason you are entering a new market to begin with is as an importer seeking new suppliers who can help you boost your bottom line? Finding new suppliers in new markets can take time and effort, especially if you don’t already have connections in the country. Here again, research is key to getting it right. The International Trade Portal can help identify and put you in contact with suppliers of either raw goods or services in various markets to help you diversify your supply chain and mitigate risk.

How do you see the outlook for businesses looking to trade further afield?

While trading overseas, particularly further afield, does bring various challenges for business, there has never been a better time to start looking to new markets. There’s so much help and support available.

UK-based companies have won some really exciting contracts in recent months that are real game-changers for them and there’s the potential for plenty more companies to follow in their footsteps.

Thinking about trading further afield? Find out more about how Bank of Scotland can help you.

David Weatherhead Head of SME and Mid Corporate Trade, Bank of Scotland

While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by Bank of Scotland for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances.  Specific advice should always be sought in each instance.