Whether you are importing or exporting, the challenges of doing business internationally are many, and they are in constant change. What are the realities and risks to consider? Benoit Marcoux, Director of Derivatives, and Nicolas Dupuis, Senior Advisor, Businesses and Financial Institutions, both with National Bank’s International Products Group, share their views.
There are several categories of risk in international transactions,
such as foreign exchange risks, delays or non-payment, quality-control
and logistics issues, not to mention tax, customs and legal
regulations, cultural realities and political situations. These issues
are present whether you’re selling or buying.
The risks associated with currency fluctuation stem from the fact
that a lot of time can go by from the signing of an agreement to the
delivery and payment. This can adversely affect your financial
forecast if, during this waiting period, the exchange rate fluctuates
significantly. Even historically stable currencies can go through
periods of volatility. “Too often, this risk is underestimated. We’ve
noticed that many businesses are needlessly exposed to market
volatility, and they fail to consider the potential consequences. A
movement of just 10% on a currency, which is not at all uncommon in
recent years, can completely erase expected profits,” warns
“Getting paid is one of our clients’ main concerns, and getting paid
on time is another,” says Dupuis. “Some payment delays can have
disastrous effects. The first step—and it’s a crucial one—is to
contact your banker to establish a clear plan for the operational
issues ahead. Our teams offer solutions that guarantee payments, for
instance through invoice factoring, a strategy that covers potential
payment delays or missing payments,” he explains. The company’s goal
should be to focus its cash flow on value-added production activities
rather than on weathering long delays in payment.
Other proven financial products, such as letters of guarantee,
letters of credit and documentary collection, are also available.
Although these tools have been around a long time, they are being
modernized for the digital era with electronic delivery methods.
“Even though from a legal standpoint Europe and the United States
have many similarities to Canada, that doesn’t necessarily mean that
business will be easier to conduct there compared to elsewhere in the
world. In many cases, free-trade agreements actually add certain
complexities,” says Marcoux.
In this context, it is important for companies to have the right
support. The team of legal, financial and accounting advisors
generally grows in number when a company goes international.
“Some companies mistakenly believe that they merely need to reproduce
their business model from one country to another to achieve the same
success as in their home market. But be forewarned that international
business can be full of surprises,” says Dupuis. “In Canada, we have a
very North American approach: straight to the point, sometimes with a
touch of humour. In other countries, particularly in Asia, business is
conducted with greater decorum, while elsewhere, devoting a great deal
of time to developing an agreement can lead to an eventual signing.
For these reasons, it’s important to deepen your knowledge of the
culture of the countries you want to do business with.”
“The geopolitical landscape has a direct influence on business
transactions, and it can shift very quickly,” says Dupuis. “A country
that was easily accessible can suddenly become very problematic. These
changes can have a significant impact on exchange rates, interest
rates or a company’s ability to meet payments,” he adds.
In addition to cultural considerations and geopolitical shifts, other
political realities need to be considered. For instance, when it comes
to customs or tariff policies, a country’s decision to subject your
product to new protectionist measures can have an impact on your
company’s competitiveness. To guard against these risks, knowledge and
preparation are crucial.
A company’s leaders should always be up to date on issues associated
with these risks. This underlines the importance of being
well-supported. “Our teams of specialists constantly analyze the
evolution of exchange rates,” says Marcoux. “The markets move so
quickly; it’s very unwise to take this reality into account only at
the end of the process. So, as soon as you enter into a new
transaction, or sign a sales or purchase contract abroad, you should
talk to your advisor about immediately adjusting your hedging
portfolio – this will ensure optimal risk management.”
Both experts agree that business leaders should focus on what they do
best, which is to look after their day-to-day operations and develop
their markets, and turn to specialists for help when considering
international business transactions.
Neglecting this aspect means taking significant risks that are
actually completely avoidable. “It’s amazing to see that experienced
management teams often overlook fundamental elements, such as dealing
with exchange-rate fluctuation,” says Marcoux. “When it comes to a
company’s future, the key to success in international transactions is
planning and discipline,” he adds.
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