New exporters need access to the right information to give them the best chance of success abroad.
In the last 15 years developing economies have produced a generation of new middle class consumers in countries like China, leading to higher demand for energy, food and consumer goods in these markets.
With slower growth at home many Australian businesses want to capture the demand for imported goods in foreign markets by exporting for the first time. Entering new markets brings great rewards for those that get it right, but for many, things don’t go to plan. Which is why reliable intelligence is necessary to support decision makers to craft the right strategy and deliver the best chance of success.
A recent FTI Consulting study found 99 per cent of losses by companies in emerging markets were due to either a regulatory, bribery, fraud or reputation issue and the worst losses are encountered when two or more of these factors converge. A clear understanding of and plan to deal with the risks of doing business in a new market provides the best insurance against being tripped up. A sound, methodical risk assessment process should occur alongside strategy development in three distinct phases that, like good strategy development, move from the general to the specific.
At the broadest level, a country risk assessment considers the overall business risk in a given region, taking into account things like overall level of corruption and the effectiveness of business governance. It also assesses factors such as law enforcement and the judiciary and the enforceability of contracts and other agreements. It should consider the reliability and accessibility of information such as corporate records, litigation records and other information and whether a lack of information could present a risk to good decision making. It should also consider the political and geopolitical landscape of the region. For instance, when two bordering countries have a diplomatic dispute it can quickly affect business through the passage of people and goods across a border.
Then examine industry risks, considering many of the same factors as any industry assessment. For example, where a competing company is state-owned, it may benefit from structural advantages that disadvantage an exporter in the same market. Assessing government policies including government departments and agencies involved in issuing licences, permits or certificates and the respective timeframes and costs involved can help assess the level of transparency and the potential for corruption. It should also consider whether distribution routes for the industry present a risk.
The risk assessment should also assess the business model. Most companies will engage a local agent or distributor when exporting, which presents a different series of risks. For instance, it’s important to ensure distributors and agents won’t engage in product counterfeiting without the company’s knowledge. Undertaking robust due diligence in selecting a partner is the best way to minimise these risks and ensure you know who you’re dealing with. Scrutinising the corporate records, histories and reputations of potential agents can guide the selection of reliable, long-term partners.
Ultimately, a thorough risk assessment involves having the right intelligence at the right time in the decision making process. Risk assessment should receive as much focus as strategy, especially when entering opaque markets where infrastructure and information systems and corporate governance are less developed. A holistic risk assessment allows new markets to be conquered with far greater confidence and control.
This article written for the Summer 2015 issue of International Business Today by Murray Lawson, director, FTI Consulting