Consider this scenario: your boss tells you, the credit manager, that he/she’s just sold a palletload of your company’s widgets to a customer in a foreign country, and that you need to just “make it work and collect the money.” Sound familiar? We hear examples like that one over and over from our clients. So what are the risks that you should look out for? There are three major country factors that we look for that determine foreign risk: economic, political and terrorism.
In a global economy, some countries are connected in a virtual domino effect, some obviously and others not. For example, imagine that your boss asks you to do business with an Australian company. At the same time, you are aware of the political unrest in Greece. If Greece defaults, Germany would be impacted as they are a major economic trading partner and major debt holder. This could impact the company you’re doing business with, as Germany is a major trading partner with Australia. Therefore, if you’re doing business in Australia, you could be impacted by the situation in Greece, even though Greece isn’t a major trading partner with Australia.
Regional country risk could also be a factor. For instance, Venezuela literally has no cash available to pay its creditors, and this would impact your company’s ability to get paid.
Finally, you still need to assess the company risk, based on a number of factors including capacity and character. Some of this information can be obtained through reports and assessments from companies like Skyminder.
Imagine this scenario: You have an agreement in place with a foreign customer, and then a revolution breaks out in their country. Despite their best efforts and intentions, the deal is off, and they may not be able to ship out or pay for those products. Similarly, in other countries, governments have the ability to take over private companies, and there’s very little the owner can do to stop it.
Another political factor is the type and structure of the government. For instance, look at the current stock market in China. Dictatorship controls the market and valuation of yen. Which could be strong (or weaK) compared to U.S. dollars at the time of the transaction. Could your company be left holding the proverbial “bag?”
Finally, the U.S. government could be a factor. In the case of Russia invading Ukraine, will our Congress impose sanctions? If so, is your company prepared?
In a post 9/11 world, terrorism is a huge (and self-explanatory) factor.
How can you make an informed decision?
With all of the uncertainty I’ve been talking about in this blog post, how can you make an informed decision? There are a couple of resources that I can recommend.
- FCIB is an excellent source for country reports, political risk and credit and collections surveys.
- For company risk, no one should use a single source for business information reports. Effective risk management requires access to multiple sources. The preferred solution is to look to providers who can aggregate information from multiple sources. My company, SkyMinder, is able to provide freshly investigated reports for any company in any country in the world.
Mike Lindenmuth is Vice President of SkyMinder, a provider of global company and domestic credit reports. He can be reached at 813-636-0981 ext. 237, email@example.com, or at www.c3bizinfo.com.