Jan 17 2018
Getting real about risk in the post-Brexit world
More than 50% of UK business involves trade. And when the dust finally settles on Brexit, one thing seems certain: more of it will be with non-EU countries. So what does it entail from a risk point of view? And how should small businesses plan for this brave new world?
We put this to a panel of leading business people at our recent International Business Round Table hosted in association with Bluefin Insurance, Milsted Langdon and Royds Withy King. They broke the risk down into two areas – financial risks and physical risks.
For small businesses without big legal departments, international trade can feel like a minefield of changing compliance and regulations. Getting paid and protecting IP can also be challenging.
As Jason Matthews, CEO Lifecycle Technology, says, “You’ll trip over some international trade compliance you weren’t aware of – for us, the dual taxation or dual use of technology rating from the US and UK governments. It’s getting harder and harder to avoid fines for doing something you were doing perfectly legally last year.”
Even the ‘small’ details can carry big risks, as Ian Sandham from Bluefin Insurance pointed out: “Regulation in the Gulf is constantly evolving. Saudi Arabia brought in some protectionist regulations which makes it compulsory for individuals seeking a temporary working visa to purchase travel insurance via their Embassy – even if you already have international travel insurance. To add to the complication, changes in regulation are often communicated retrospective to its implementation – we were informed six months after on this occasion. Expatriates who are locally sponsored in Saudi Arabia and have an Iqama ID will have to source locally compliant medical insurance.”
So what’s the answer? Rob Sinton, Head of Supply Chain at TasteTech, notes that even finding the right expertise can be hard. He recommends using local agents who know the laws. “We have quite a large technical department, but even they struggle to keep up with international regulatory changes. We therefore deal with agents and distributors all over the world – having someone on the ground who is close to the market is the best way to overcome this.”
With the complex state of global politics, sanctions can be a real nightmare – knowing which countries, which industries etc. ““Compliance with the sanctions policy for Russia, for example, is horrendously complicated, as sanctions apply to individuals or companies not the Country as a whole,” says Ian Sandham. And the legal ramifications of slipping up start with steep fines.
It means more than just added hassle and stress, as one delegate discovered: “We had to give up dealing with Iran. Not because we were breaking sanctions, but because the banks were so frightened of the Americans that they wouldn’t accept the cheques.”
One solution came from David Love, Managing Director at Kleeneze-koti: “We use credit insurance and they tell us the law.” But it’s always best to double-check with lawyers or the Department of International Trade. You can also check the list of useful sites at the bottom of this blog.
Intellectual Property (IP)
EU regulations are a great thing when it comes to protecting your IP. But it’s far less straightforward in many countries beyond the EU – including two of the UK’s biggest trading partners, China and India. As David Love says, “We’ve actually taken the view that we’ll protect in Europe, but nowhere else because it’s pointless.”
There’s even the possibility that competitors steal your ideas from your patents. “We don’t patent our processes,” says Rob Sinton. “In order to patent a process we would have to tell people our secrets – and patents are not also respected on the international stage”
So this is where innovative businesses have to be even more innovative. As Lawrence Rosedale, Director, UK Business Development at Volaris Group suggested: “In the software space, licensing and patents provide limited protection as, ultimately, most functions and features can be imitated or recreated. So the real protection comes through continually evolving your platform.”
Another solution is to leverage your customer’s reputation in any disputes. As Beverley Ford, MD at RotaVal says, “If a Chinese company wants to copy our valves, they’ll do it. But we take Chinese patents out just so we can say to the big multinationals, ‘Well, if you buy from them, we’ll sue them and your name will be involved.’ And it works.”
There’s also the approach of selling through local channels. As Jessica Bent from Royds Withy King commented, “You build intellectual property protection into those contracts as many IP rights can’t be protected…so your only protection is through contract.”
Whether it’s stealing ideas or stealing money, the cyber threat can also increase as you broaden your horizons. As Jason Matthews recalls, “We had a trade delegation from China and the number of IT incursions spiked to about 100,000 a day. Before you know it, you’re having to spend more money on firewalls.” (Read our blogs on Cyber Security).
Insurance liabilities can rack up too. As Peter Marchbank, MD Rotary Precision Instruments, says, “If you’re sourcing from an EU-based supplier, it’s going to be manufactured to similar UK standards. But China’s not so regulated. It then becomes a material fact you have to declare to insurers and the products’ liability risk is higher.”
So you can see – the financial risks in a more global trading approach are broad and varied. And security risks also change from market to market.
One delegate pointed out that personal risks might not always be obvious: “The Saudis keep their terrorist incidents under wraps, but the risk our people are exposed to – there and elsewhere – is quite significant.”
Many countries deemed ‘safe’ also require stringent security planning – whether it’s South Africa, Russia, Azerbaijan or Mexico. Another delegate added: “If you trade in parts of South America, there’s a very high risk of kidnap.”
Once again, assess the situation in advance. Use trusted local expertise and never take anything for granted. Most importantly, get the right insurance.
So, what’s the upshot?
There’s no question that the EU has made trade simple – with its single market, customs union and tight regulations. And there’s no question that the risks increase further afield. But as Peter Marchbank observes, focusing on Europe is a risk itself: “When they catch a cold, you get pneumonia. For us, we’ve always actively sought out different markets – emerging and established.”
Business has always favoured the brave, and different regulatory environments can mean better opportunities – it’s just about developing sound strategies, and balancing optimism with caution.
HGKC client i2i Infinity are specialists in software for export documents, customs management and international trade. Managing Director Adam Underwood was not able to make our round-table, but commenting separately, he said: “In my view, there are big challenges for a new starter, but trading globally means you should expect and accept the risks. No one said it would be easy. As a nation we should try to encourage international trade and help by demonstrating the solutions, there are also lots of support services for international trade from DiT, Chambers of Commerce, freight agents, brokers, consolidators, etc., but the first step should always start with the contract and the INCOTERMS.”
If you use local channels, they can alleviate a lot of the stress and do the hard work for you. Jason Matthews: “It’s taken us 18 months to break into the US – it’s tricky finding the right people. But when you do, they can be remarkable. That’s opened up new opportunities and we’ve now got our third customer in three months.”
If not, it’s about doing thorough ground-work. Just as you’d do with any other business strategy.
For those of you considering trading outside the EU for the first time, or even for those of you who already are, here’s a quick ‘de-risking’ check-list:
- Always check the Foreign Office travel and business advice for security risks
- Make sure your documentation is correct – consult with specialists such as i2i Infinity
- Consider local agents and distributors – as in any business it’s about networking and finding the best partnerships
- Check with your bank before trading to make sure they’ll support you. They may even have local business contacts
- Make sure your insurance is fit for purpose in that country
- Consider taking legal advice from a reputable firm such as Royds Withy King
- Do your research. Here’s a few sites you might find useful:
The Department for International Trade
Clements Worldwide Country Risk Guide
Standard and Poors Country Risk Assessment Methodology and Assumptions
GIACC Country Corruption Risk Assessment
If you have any queries about International Business and the risks involved, HGKC have a trusted network of experienced people who can offer tailored advice and support you in making the right connections internationally. HGKC can also help you prepare an international trading strategy, and develop your ability to identify, evaluate and mitigate business risk. For a confidential conversation, contact us here.