Emerging markets can present an attractive opportunity for expansion and growth for some businesses. New technologies and a shrinking economic world have made expansion more realistic even for smaller businesses. As people in developing countries begin to attain higher incomes, new markets are emerging for companies in all industries. However, businesses must minimise the risk involved in moving into these new markets.
The middle class is growing around the world and new opportunities for businesses are cropping up regularly. In the past, the cost and complexity of moving into a new market may have dissuaded many businesses from trying to do this but with a strategic and well-considered approach, businesses can benefit significantly from making the move.
One of the key risks of working with international business partners in emerging or volatile markets is the risk of late or non-payment. When the non-paying customer is located in a distant country, chasing payment successfully can be difficult. And, a heightened perception of global economic, commercial, and political risk means businesses engaged in international trade need to stay on top of payment practices among their customers.
The International Monetary Fund (IMF) attributes nearly 80 per cent of global economic growth to emerging markets and developing economies. Therefore, expanding in this direction remains an attractive option for companies looking to grow.
One tool businesses can use to minimise the risk of doing business in volatile regions or emerging markets is trade credit insurance. Trade credit insurance covers a business if its customers pay late or not at all, protecting cashflow and minimising risk.
Trade credit insurance offers a way to manage risk on the front end of a transaction, giving exporters the confidence to increase export sales and establish a presence in emerging and developing countries. And, the benefits of credit insurance may extend beyond the risk of buyer non-payment.
Usually, when doing business overseas, customers depend on letters of credit which are underwritten by their bank and can block their credit line. With trade credit insurance in place, buyers can purchase on what’s known as an open account. This is a transaction where goods are shipped and received by the importer before payment is due. This frees up the buyer’s cash flow and allows for higher credit limits.
Trade credit insurance facilitates open accounts because it lets the exporter finance the transaction with reduced risk, as the insurance will pay out if the buyer doesn’t pay. Therefore, importers can compete more effectively in the marketplace compared to those that demand letters of credit.
Trade credit insurance, used strategically, can prove a useful sales tool along with managing risk. It lets exporters expand without risk of buyer non-payment, opening up opportunities to expand to international markets while also offering better payment and financing options to clients.
Mark Hoppe, Managing Director ANZ, Atradius