Operating via online marketplaces and auction sites can put you in touch with customers across the globe. These marketplaces often sort the regulatory, currency and customs issues on your behalf. But when it comes to dealing with a new business outside of the UK, how do you set up a more formal and long-lasting agreement?
Let’s not beat about the bush: overseas expansion is tough. Trade shows, marketing campaigns and foreign travel can be expensive and seem out of reach, making breaking into the big retailers nigh on impossible. Therefore, online marketplaces have given millions of small businesses a glimpse through a window to new customer bases.
To go further, you need to find out about the different country or jurisdiction you’re interested in trading with, so get good local advice. “Talk to someone from a strong international network and find a good, local adviser who can help you make sense of the local laws, legislations, taxes, and ways of doing business,” says Gareth Magee, a partner at accountants Scott-Moncrieff, with expertise in international expansion.
But do your homework – which will involve researching the political, economic and cultural differences. Appreciate that there will be differences, but try not to let that get you in a spin. “Don’t let differences become barriers,” says Magee.
If there’s a particular company you’d like to work with, then run some proper credit checks and undertake some due diligence – know who you are talking to. Ask for references too. “Do a Google search, call them,” says Magee. “It may sound old-school, but a call will give you a really strong sense of how they do business.”
Avoid limiting working relationships one-to-one, engage with several people from the outset and build a network of connections.
Then there’s managing risk. You should understand local bribery and corruption rules – don’t fall foul or offend. Get advice in terms of what your foreign exchange exposure might be and about how you can mitigate against this. Consider whether you will need export finance or protection against overseas bad debts. And be prepared to travel – not just once. “There’s absolutely no substitute for face to face. Virtual just won’t do it,” reckons Magee.
Gabriela Castro-Fontoura is a director at export consultancy Sunny Sky Solutions, and is experienced in doing business in Latin America. She says you must never rely on emails as contractually binding. Contracts need to be signed by a ‘public notary’ – a recognised third-party with some power to authentic documents and agreements.
“Either build relationships strong enough to trust each other, or if you need to put something valuable at risk – such as stock – make sure you’re legally protected in that country,” says Castro-Fontoura.
On distribution, she says you should never give exclusivity to an overseas distributor, excited as you might be about accessing their market, until they’ve proved themselves.
Also, be careful what geographical area you assign to a distributor. “I have seen UK SMEs give a US distributor free rein in Latin America, a region of 600 million people and 20 countries, when in general there is no chance they could cover it.”
Currency strategy is also vital, says Castro-Fontoura. Latin American firms will be happy to trade with you in US dollars, but “might be very reluctant” to engage in sterling, a currency most hardly know or understand.
Another issue is currency fluctuation. If foreign currencies devalue, it becomes much more expensive to pay you. “Invest more in online marketing when the exchange is favourable to your client – even if you put a lot of money into marketing.”
Finally, she warns you to think carefully about customs. Some countries don’t have an issue but others can be a nightmare – even if simply transporting samples. “Make sure you communicate with your client to understand what information they need on the invoice and if there’s any documentation you can send while the goods are being shipped to speed up paperwork when the goods finally arrive,” Castro-Fontoura explains.
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