No doubt there are a myriad benefits that accrue to your business when you opt to take it online and serve a larger customer base from across the world. But served in the same plate of international business are a number of challenges that you need to be aware of before delving full-throttle into buying and selling goods across borders.
This does not, however, mean that you should shy away from online business. On the contrary, you should ensure that your business gets online very soon and cast your net wider to reach more diversified customer segments in different geographical zones.
E-commerce is taking over the business world, and you do not want to be left out. However, you need to be prepared as you venture into this new territory of selling to customers you might never meet physically in your lifetime.
Exposure to cross-border customers
When dealing with a small number of customers within your locality or your country, business transactions are in most cases well organized and payment systems well streamlined and integrated. This changes when you venture into international trade, where you sell your goods to customers from across the world. This category of customers makes orders anytime of the day since your online presence gives them access to your shop at all times of the day.
Dealing with the large number of customers from different countries with different currencies can be frustrating if you do not have a proper plan on how you will be managing your payments. On top of the payments challenge is the currency conversion issue that can dent your profits badly if you end up using money transfer companies that charge exorbitant forex rates. It is therefore prudent to use a business foreign exchange guide to ensure that you iron out issues to do with foreign currency transfers and get the right forex company to build a long-term relationship with.
From the customer perspective, you will have less influence when they can make their orders and process their payments, especially when you are running a retail business. In terms of having control over your currency exchange rate in this case, you can choose to convert only your received payments when the forex rates do not depreciate your earnings in your local currency. This helps you to ensure that your profits are not eroded by the exchange rate and also reduces the foreign exchange loss booked into you financial statements at the end of the financial year.
Dealing with international suppliers
Besides receiving payments from your clients abroad, your business will grow to a level whereby you will need to import some of the raw materials to produce your goods or services. Several factors can lead to the decision to import rather than using locally available production inputs. You could be getting a better deal in terms of inputs prices from a supplier abroad, or maybe the supplier abroad has the best quality of raw materials that your customers demand must be used in the production process of your goods or services.
Luckily, you can have full control over your production schedules each month or annually. In this regard, you can plan in advance on when you will do your purchase of production inputs and how much of the raw materials you will need. Capitalizing on this flexibility, you can then get into a forward contract with your raw materials suppliers in order to hedge yourself and be protected from the fluctuating currency exchange rates.
Planning for market uncertainties and fluctuations
Uncertainty in the global financial markets always results to jitters that cause random fluctuations in currency prices, and you want your business to sail through all of them safely without experiencing huge shocks. In 2017, there are a lot of geopolitical realignments going on that are also linked to the new economic trends. Most of these changes are more inclined to populist ideologies in the US and in Britain. In the US, Donald Trump’s rise to power has been controversial, and there are many people opposed to his proposed policy changes. On the other hand, Brexit created a sense of distrust between the UK and the EU, threatening any possibility of smooth economic ties going forward after the UK finalizes the exit process. With UK leaving and being one of the largest contributors to the EU budget, and with France election campaigns also appearing to be influenced by populism, the economic stability in the EU seem to be at stake too.
The above escalating uncertainty in major economies across the world sets a stage for fear to reign in markets globally. Negative sentiments drive volatility in forex markets, and if you are caught up in the turmoil, you might end up losing all your gains from your international business. You could either have your profits eroded by foreign exchange losses or have your input costs shoot beyond the roof, hence increasing your production costs and eventually eating into your profit margins. It is therefore recommended that you adopt the use of forward contracts in such uncertain economic times in order to prevent your business from the volatile shocks that might drown it in the short run.
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