By Alex Vavilov, commercial director for Sten International
Statistics suggest that approximately 65% of new businesses fail within their first ten years, underscoring the importance of planning for growth, especially among businesses navigating the difficult transition to international markets.
With that in mind, Alex Vavilov, Chief Commercial Officer of Stenn International, explores the four key considerations for a successful transition from domestic to international trade.
A tariff is basically a tax on goods and services imposed by one country on another. These taxes are generally imposed to promote domestic businesses by reducing the demand for foreign goods. While this can be beneficial for local businesses, the pricing can be a challenge for a company looking to expand its business overseas.
Tariffs will need to be factored into any international trade because they increase a company’s costs and decrease its profits. This will likely have a greater impact on smaller businesses as they have lower margins and may not be able to absorb the additional costs. Small businesses may also have fewer resources to devote to finding new suppliers.
The global health pandemic has also highlighted the need for businesses to mitigate the effects of unexpected events. One of the best ways to manage this risk is to maintain an adequate pool of capital. Invoice factoring is one way to ensure that your business has capital available when needed. A well-resourced business can weather financial storms more effectively.
Effectively analyzing your company’s competitors is crucial when preparing to target new markets. It offers a better understanding of the market and allows you to take advantage of areas that your competitors do not have.
Additionally, understanding the differences in regional and cultural regulations can provide insight into standard practices there and indicate which ones may help or hinder your business operations.
Not adapting to local markets is a mistake made by many large companies. Retailers such as Tesco, Starbucks and Walmart have all failed in some international markets.
Starbucks, which enjoys incredible popularity in the United States, has attempted many international expansions with varying degrees of success. In Australia, for example, the expansion of Starbucks was a failure and led to the closure of two thirds of its stores in 2008. There are several reasons for this, the first being that Australia already has many retailers of independent cafes and local residents. enjoy a diverse coffee culture. But Starbucks ignored this and failed to adapt its menu and offer something new to locals. Thus, customers continued to support existing retailers.
The importance of understanding cultural nuances was also demonstrated by the failure of Walmart in Germany. One of the factors mentioned for Walmart’s failure was its inability to understand German customers. Chatty hosts and staff packing groceries may be common in the US, but this behavior has proven off-putting to German customers.
Researching your favorite markets to discover the opportunities available to you is key to a successful transition to international business. Consider employing local marketing firms to enable you to better understand local customers and outsource certain tasks, such as payroll, to ensure local laws and regulations are followed.
Legal and logistical considerations
Brexit has impacted the export of goods, and those looking to trade overseas should have a thorough understanding of the evolution of international trade agreements.
The Trade and Cooperation Agreement between the UK and the EU is one of the results of Brexit and came into force on December 31, 2020. This trade agreement means that UK goods no longer enjoy free movement and that UK producers wishing to serve both the UK and the EU must comply with both sets of standards and regulations. There are also more customs formalities and checks on UK goods entering the EU, leading to delays.
It is important to understand the impact these new regulations will have on future business plans. The Institute of Administrators conducted a study six months after the deal was implemented and found that 17% of companies that previously traded with the EU ceased, either temporarily or permanently, from the start of 2021.
Companies should also be aware of the wider implications for supply chains and the workforce. The workforce in the UK has already been hit by labor shortages, as evidenced by the shortage of HGV drivers. However, on a larger scale, there are growing concerns about labor shortages within the EU as a whole. A report found that the pandemic had caused increased unemployment in some sectors, but labor shortages in others, such as health.
Although bureaucracy cannot be eliminated, employers should try to ensure a consistent workforce by offering permanent contracts to workers whenever possible.
Supply chains around the world have been disrupted by the pandemic and many industries have been affected. Diversifying your suppliers and manufacturers can protect you from even the slightest of these disruptions. To insure against larger disruptions, it is prudent to maintain a good cash flow forecast. This lets you plan for contingencies and gives you the capital to buy last-minute inventory.
Export receivables financing
Invoice financing (also known as “invoice factoring”) is short-term financing that a business can access by using its unpaid invoices as collateral. It is often easier for relatively new small businesses to obtain on-bill financing compared to other forms of financing.
Invoice financing allows businesses to access most amounts owed on an invoice within 48 hours of signing the documents. This gives businesses a more predictable cash flow because they know the invoice is guaranteed to be paid. In the longer term, strategic financing like this can allow companies to take on bigger projects, like expanding into international trade, without stretching cash flow too much.
It also allows a business to offer a line of credit to its loyal customers and pay its own suppliers on time, reducing the risk of supply chain issues.
For businesses with ambitions to expand, having the extra capital quickly available to prepay new suppliers will be a great advantage. For those starting to trade in countries where longer refund times are the norm, invoice financing can provide ready funds instead of waiting up to 120 days for those international invoices to be refunded.