Imagine you’ve been exporting to a country for a few years, with both currencies at par, and then, all of a sudden, there’s a 10 per cent difference in their value. Losing a dime on the dollar could slice away your entire profit margin, leaving you in a rather vulnerable position.
Currency fluctuation was one of many considerations discussed in an Export Development Canada (EDC) webinar Dec. 3 titled “Export challenges: How to overcome them and succeed.”
Dominique Bergevin, Senior Underwriter at EDC, spoke about currency fluctuation.
“When you’re doing business internationally, your contract will likely be in another currency,” Bergevin said. “You need to know you’ll be exposed to currency risk.”
Fellow panellist, Philip Turi, General Counsel and Director of Global Business at Canadian Manufacturers & Exporters, said one good way to minimize that risk is to set up a clause on currency fluctuation in your contract.
“In any contract with a foreign buyer, you need to establish when ownership of goods transfers, the manner of payment, the ways to minimize risk,” he said, and added that currency could also be included in the contract, with a sliding scale. “A lot of these things can be managed within contracts.”
Bergevin also raised several other considerations when moving into international markets. “When you’re selling in Canada you understand the institutions and the rule of law,” she said. “When you’re going outside of Canada, the risk profile is heightened. As much as there are many opportunities to seize, it’s important to realize the risk profile is different.”
For example, when a buyer isn’t paying up, or accepting your goods, it’s harder to knock on their door, if they are two continents away. “You don’t have that ease of access to them,” she said. “Out of sight, out of mind.”
To mitigate that, she suggested having a local presence — an agent who has handle on the legal environment, regulatory environment and bankruptcy laws — in every export destination. Turi said officials from EDC and the Canadian Trade Commissioner Service can be helpful in putting Canadian operators in touch with reputable agents and other resources on the ground.
Political instability is another important consideration. Not long ago, the Middle East was considered a stable market, Bergevin said. Clearly, things can change overnight.
“Geopolitical risk can also translate into another type: economic risk,” she said. “If you’re doing business in a market and your buyer is generating local currency and then they need to pay you in U.S. dollars, they’ll need to access those dollars locally, but if the country has economic woes, it may not have hard currency to convert.”
Labelling standards, intellectual property and procurement rules, export controls and visa-requirements are other items to consider, Turi said. “It’s really important for companies to understand that they need to consult with local government when doing business internationally,” he said. “Often the [local] ministries of commerce or economic development will have good information on their website.”
Turi said it’s also worth finding out if your export destination is a member of the WTO or if Canada has a trade agreement with the country, whether multilateral or bilateral.
Jeff Keats, senior financing manager at EDC, enumerated the ways EDC can help exporters, including partnering with their banks on loan guarantees; lending directly to companies by funding such projects as facility expansions; and insuring accounts receivable.
Wrapping up the webinar, Benoît Hubert, president of PGF Consultants, spoke about his experiences exporting his business management services to countries such as Burkina Faso, Romania and Iraq. He said it’s essential to agree ahead of time on deliverables and a timeline, and added that he’s found it beneficial to go and meet his prospective clients in person to iron out those details.