#insurance #riskanalysis #scm #importexport #brand
How do you analyse the risk when entering the new export market?
The key to successful international business is to understand where export risks can arise, and having a risk management plan to deal with them. Doing as much research and analysis as you can on your suppliers or partners, the products, your markets and what financial and legal liabilities you’ll be facing will help to minimise some of the risk.
Product risk is anything to do with the product you’re exporting. It covers demand for the product, your competitors, pricing sensitivity and even packaging of the product.
If you are exporting, assess what demand there is for your product in the overseas market you’re targeting, and whether you need to modify your product to suit the new market’s needs; you can’t necessarily rely on replicating exactly what works at home.
Do some market research to identify what your target market wants and then compare your findings to your existing product. You also need to be aware of any restrictions that may exist in your target market for the product you’re selling.
Make sure you’re actually allowed to import or export the product you want to trade. Many products are restricted or prohibited in some countries, but not all, so make sure you know the rules set out both in New Zealand and in your target market.
Keep an eye on what your competitors are doing in your target market. Visit your competitors’ websites and keep up-to-date with who they’re selling to, and any innovations they might be making. Be ready to alter your product or price to remain competitive.
It’s important not to price yourself out of the market, so it’s a good idea to do some research on what price customers might pay for your product.
Don’t underestimate the cost of exporting, you need to make sure your business will be profitable once you’ve factored in all the associated costs. Factor in additional costs such as freight and insurance, tariffs and customs charges, regulations compliance, and exchange rate fluctuations.
Packaging, design and brand name are other potential risk areas. It pays to research your brand name before launching it in an overseas market, and check that the colours and imagery you use don’t have any negative or inappropriate significance in the local culture. Make sure that the packaging and labelling you use on your product complies with country-specific rules and regulations. Product packaging and labelling regulations in most countries are designed to protect the consumer by providing essential information on the product, so make sure you know what’s required for the countries you’re trading in.
Make sure you’re aware of import duties and tariffs, and any quotas that may exist. Most countries are very strict on import documents being accurate, and if your paperwork isn’t complete or correct it may result in delays or even confiscation of goods. Check with the customs or border control agency to find out what documents you need to file and take the time to fill in all the paperwork properly.
Political, or country risks are things like non-tariff barriers to trade (NTBs), sanctions, central bank exchange control regulations or goods that are prohibited in some countries, for example products from threatened animal species.
Many developing nations operate exchange control regulations which regulate the flow of money to and from their country. Find out if these are in place in the country you are trading with, as they could delay payment to you. (ASB)
What are the ways to cover liability with global export?
When you’re trading overseas you’ll most likely be using a foreign currency, which exposes you to currency and exchange rate risk. Fluctuations in the exchange rate can affect the final amount you pay or receive. The ways you can reduce your exchange rate risk is by transferring the risk to your supplier by asking them to quote in your currency. Protect yourself from fluctuations in the exchange rate by taking out forward foreign exchange cover. This is a foreign exchange contract whereby you can agree to exchange your foreign currency at an agreed rate on an agreed date in the future. Cover the risk yourself by adding an exchange rate risk to your margin. (ASB)
If you’re exporting goods, particularly to a buyer you haven’t worked with before, non-payment is a significant risk. Trade credit insurance helps mitigate credit and settlement risk, enabling an exporter to recover up to 90% of the sale or invoice value of goods if the buyer defaults or there is a contract dispute. This includes protracted defaults – where debt remains unpaid for some time and contract repudiation – where the buyer refuses to accept your goods without just cause.
In some overseas markets, piracy and counterfeiting are a problem, so it’s usually best to register your IP in the countries where you intend to trade. Be prepared, and take steps to protect your intellectual property.
Take out product liability insurance and make sure you’re covered for your target market. Product liability risk is harm to people or property caused by your product. You must be aware of potential product liability issues in your target market. Some countries are more litigious than others, so make sure you take appropriate measures to counter this risk.
Reduce the risk of someone copying the design of your product by registering your design. Register your trade marks; include brands, slogans, logos, smells, colours and sounds. Patents protect concepts, inventions and ideas, and can give you patent monopoly to commercialise for up to 20 years.
Operational risk is any other kind of risk. It includes breakdowns in internal processes and procedures, human error and imperfect systems. There are operational risks both in the actual production of your goods and in the paperwork and documentation you’ll have to produce. You can manage operational risk in the actual production of your goods by having an emergency and business continuity plan, having a continuity plan will help reduce potential risk to your business after an emergency. Have a long-term business strategy or business plan. (ASB)
How to minimize the risk in SCM?
Supply chain risks can be managed more effectively when applying the Supply Chain Risk Management Process (SCRMP). The structured approach can be divided into the phases of risk identification, risk measurement and risk assessment; risk evaluation, and risk mitigation and contingency plans; and risk control and monitoring via data management systems. (Tummala & Schoenherr 2011)
Supply chain risk management (SCRM) is becoming a top priority in procurement, as organizations lose millions because of cost volatility, supply disruption, non-compliance fines and incidents that cause damage to the organizational brand and reputation. (Lamoureux 2016)
Bribes to shady government officials, salmonella in the spinach and forced labor in the supply chain can all result in brand-damaging headlines that can cost an organization tens of millions in sales and hundred of millions in brand damage. And while reputation may only be important for name brands, cost volatility and supply disruption affect all manufacturers. In the 2015 study by the Business Continuity Institute, supply chains had 14% losses from supply chain disruptions (e.g., natural hazards, labour strikes, fires, etc.) that cost over €1 million, and these disruptions can easily go up to nine figures. (Lamoureux 2016)
You Need to ‘Cost the Risk’ and Also Get It in the Contract. Once you have prioritized your supply (and supplier) KPIs, and have analyzed the biggest risks that threaten those KPIs, you must then analyze your options for risk mitigation (e.g., complexity reduction, early warning detection, faster recovery time, financial insurance policies, etc.) and then estimate whether you or your supplier (or a third party) has the lowest cost to treat and mitigate those risks so that you can plan for your supplier negotiations and contracting appropriately.
You Must Design a Monitoring System That is Part of Onboarding. Most procurement professionals understand that savings are not realized during sourcing, but rather, are accrued during the execution process, with automated and fail-safe monitoring being the goal to create transparency for all stakeholders. The same, however, goes for risk. Unless you have a means to automate the most important risk monitoring activities, and provide immediate transparency and alerting to key stakeholders, the costs of such monitoring will lead to poor or no monitoring and increased risk. And this will eventually come around to bite you financially. (Lamoureux 2016)
How do you keep your brand valuable in a global market?
The physical value of your products may be easy to calculate, but your consumers’ perceptions are what really determine the value your brand and products have in the marketplace. Because of this, your ability to build value into your brand and communicate that value to customers through your marketing is essential to the long-term success of your company.
The mindful consumer is willing to buy – but craves value. In the search for value, they consider factors like:
Research. 67% of the buyer’s journey is completed digitally meaning the mindful consumer wants and has a lot of information on their side about which companies have what they want.
Social proof. Having a great product isn’t enough. The mindful consumer looks to online reviews, peer recommendations and social media profiles for evidence of a well-liked product.
Identity and preference. Customers are mindful of a relationship between their purchase decisions and their identity. They are looking to make a purchase decision which suits their personal brand.
These factors all play a part in a purchase decision and all are about more than just the product. At the core of their search, customers are looking to form a bond with a brand they perceive as high in value.
- Work from the inside out
‘The world is full of boring stuff – brown cows – which is why so few people pay attention,’ Seth Godin writes. ‘Remarkable marketing is the art of building things worth noticing right into your product or service.’ To be perceived as valuable, your brand has to stand out from the herd -be a purple cow. A strong brand is about superlatives: the best customer service, most innovative, the happiest employees.
- Target your brand message
‘You have to find a group who really desperately cares about what you have to say,’ according to Seth Godin in his TED talk. How to get your ideas to spread. Godin asserts that building value means finding the crowd that would find your brand and products valuable in the first place, rather than just casting a wide net. This means: Find the marketing channels your ideal audience is on. Tailor your brand message to that marketing channel
In the 2014 World Cup, Nike and Adidas, who share a target audience, each created a campaign. While Adidas went for the ‘win or lose’ sentiment, Nike appealed strictly to football fans with inside jokes only enthusiasts who follow the sport would understand. Nike’s message was stronger-more valuable-because it was more specific to its audience.
- Maintain high standards for design
Design is visual communication. How you use colour, shapes and font or organise elements on a website page, email campaign or even a product package will dictate whether or not your brand is perceived as valuable. How you package your brand affects how your brand is perceived and interpreted. A ‘strong visual branding system’ can make a small company seem more powerful or demonstrate a large company’s strength. Bad design has the adverse effect – just watch this insightful spoof:
- Give your brand meaning
In the same way beauty is in the eye of the beholder, all value is perceived value. To give meaning to your brand: Make it a status symbol. In Rory Sutherland’s TED talk, he tells the story of a king who, to prevent famine, decreed the potato a royal crop and put guards around the fields to make the previously rejected vegetable desirable. The king changed the perception of the crop’s worth, not the crop itself. He advises that ‘anything worth guarding must be worth stealing.’
Make it symbolic. Connect to emotions. According to Nielsen’s VP, ‘emotional preference is important: while services may be similar, that emotional connection can create the perception that the “connected” brand exceeds customer expectations.’
- Provide thought leadership and valuable information in your content
Buyer stories. Again, to create brand equity, the buyers have to realise the value. So content can’t correlate to your marketing goals. It must correspond to the content leads and customers are looking for.
- Build loyalty
Tailored content is the start of a long-term relationship. If you continually produce content that interests and leads customers, you can keep them coming back to your brand and build loyalty.
Content on social media is a way to delight customers and put them back into the sales funnel for future purchases. Learn what channels your customers are on and the type of content they want to see and then put consistent, tailored content on those channels.
Once you’ve built value into your brand from the product to the campaigns, it’s important to understand where your brand falls on the value scale and to continually adapt your marketing strategy to suit. (Piontek Katelyn. 2018)
ASB. Managing seven key risks when trading overseas. https://www.asb.co.nz/international-business/risks-of-trading-overseas-guide.html. Accessed on 25.11.2018.
Lamoureux Michael. 2016. 5 Critical Supply Risk Mitigation Principles for Your Sourcing Processhttp://spendmatters.com/2016/05/09/5-critical-supply-risk-mitigation-principles-for-your-sourcing-process/ Accessed on 25.11.2018.
Flash Global. 2018. 4 Key Areas for Managing Supply Chain Risk in the Global Supply Chain. https://flashglobal.com/blog/supply-chain-risk-mitigation/ Accessed on 25.11.2018.
Piontek Katelyn. 2018. How to strengthen your brand with your marketing strategy. Articulate Marketing. https://www.articulatemarketing.com/blog/strengthen-your-brand/ Accessed on 25.11.2018.
Cooper Lou. 2010. Five strategies for a successful global brand. Marketing Week. https://www.marketingweek.com/2010/07/01/five-strategies-for-a-successful-global-brand/ Accessed on 25.11.2018.
Tummala Rao & Schoenherr Tobias. 2011. Assessing and managing risks using the Supply Chain Risk Management Process (SCRMP). Emerald Publishing Limited. 2018. https://www.emeraldinsight.com/doi/abs/10.1108/13598541111171165?fullSc=1&journalCode=scm/ Accessed on 25.11.2018.
Figure 1. The Institute of Export and International Trade. Turning Risk into Opportunity in Export Markets beyond the EU. https://www.export.org.uk/page/EmergingMarkets. Accessed on 28.10.2018.
Figure 2. Pace University. Departmental Business Continuity Plan Template. 2018. https://www.pace.edu/security-emergency-management/business-continuity-planning. Accessed on 25.11.2018
Figure 3. Interos Solution. 2014. http://www.interos.net/approach.php. Accessed on 25.11.2018
Figure 4. Wilson Kathy. 2018. Brand Guidelines Help Protect Your Most Valuable Asset. ETMG. 2018. https://wedomarketing.com/blog/brand-guidelines-help-protect-your-most-valuable-asset/Accessed on 25.11.2018