Reducing foreign risks

By Patrice Roy, Senior Manager, International Services
As you know, to be in business means to accept a great deal of risks. This is particularly true on the international scene. Thankfully, it is possible to reduce these risks.
What are the risks? There are four main categories if international risks:

  1. Currency risks
  2. Tax and legal risks
  3. Cultural risks
  4. Political risks

These risks can occur whether you are selling or buying a foreign product, and even when negotiating with a foreign supplier.
Currency risks What would happen to your profitability if the U.S. dollar depreciated by 10% before you had a chance to receive your U.S.-denominated payment? And what if the Canadian dollar declined just as you had to pay your suppliers in euros or U.S. dollars?
Between the signed agreement, delivery and payment, there’s usually a time gap that can often be quite significant. Sufficiently long for the applicable exchange rate to wreak havoc on your financial projections, endangering the profitability of a transaction… and even the company itself.
To turn a blind eye to currency variations is pure speculation. Is it really your speciality, your strength?
Steps to reduce this risk:
To protect yourself against these risks, you must first identify the currencies that will come into play in your commercial activities. Then, consult an expert at your financial institution. He/she will recommend solutions that aim to reduce your risk by setting an applicable exchange rate right away.
Tax and legal environment Each country possesses its own tax and legal regulations. Not knowing them can hinder your efforts… and your profit.
This is true for Asia, Africa and Europe, but it is also the case for the United States. It’s not because we are neighbours that we’re one and the same. Quite the contrary: each state possesses its own rules, which you cannot afford to ignore, because there are many obstacles.
Steps to reduce this risk:
It is essential to seek the help of experts, including tax professionals, who can inform and advise you for your particular situation. It is also important to know your product thoroughly in order to understand how it will be treated in each of the states where you conduct business. It’s crucial, once again, to seek the help of experts, including tax professionals, who can inform and advise you for your particular situation.
Cultural differences Sensitivities differ greatly from one country to the next. For instance, what’s important to protect with pricing regulations in one country may have no significance for another.
Another facet of cultural risks concerns the way to do business and negotiate. Our approach is very North American: we are straightforward, and humour can play an important role to build relationships. Elsewhere, that’s not always the case. In some countries, commercial trades must be conducted with the utmost seriousness and complete decorum. In other countries, it’s important to invest considerable time in getting acquainted before getting down to business.
Steps to reduce this risk:
Gain insights! Read about the country and regions in which you wish to do business. Consult those who have experience in the area. Ask for help from a local representative who can help you in your negotiation process. Your bank or export assistance agencies can guide you in your search for resources.
Politics When we think of political risks, we often think of war or revolution. Yet, those aren’t the only political risks out there. For instance, try to imagine what would happen if the United States decided to include your product in its Buy American Act list, which promotes local producers?
Steps to reduce this risk:
To protect yourself against political risks, you need to be well prepared. Obtain all the information you need, and stay abreast of any change.
Tools to safeguard your transactions Every one of the risks I have mentioned can influence and impact the profitability of your foreign activities. Once we’ve implemented what is required to limit these risks, it’s then time to get paid!
Several tools allow you to protect the security of your transactions, from credit letters to documentary cash-ins. Each of these tools has its advantages and suits distinct situations. Consult your banker to find the best tools for your specific needs. He/she will recommend certain products or discuss those made available to you through export assistance agencies.
Information provided in this text is for informational purposes only and is not exhaustive. For any advice regarding your personal or corporate finances, or for any question about foreign risks, please consult your National Bank advisor or, if applicable, any other qualified professional (accountant, tax expert, lawyer, etc.).


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