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Business management

Going global: from crisis to recovery

Coronavirus has upended international business. How can UK companies adapt their trade and finance in the recovery?

  • The UK government has developed a tool to help with duties, regulations, customs procedures and trade agreements between the UK and other markets
  • New technology can help organisations manage their supply chains and working capital financing more effectively
  • Forward-looking organisations are doing more due diligence into potential customers and suppliers and negotiating payment terms

UK businesses should still consider the potential of international trade, says Nick Clark, head of sales channel management, working capital sales, at the bank. “Companies need to protect and maximise their growth opportunities by looking at markets where there is appetite for UK products,” he adds. “This will maximise value for owners, stakeholders and communities and deliver value to help the broader economy.”

Open for export

The current economic environment for overseas trade can seem daunting. Trade wars are rumbling on and risks of non-compliance with different countries’ regulations are making businesses wary. But global trade is a matter of necessity, says Rebecca Harding, CEO of Coriolis Technologies. She points out that only around 10% of British businesses have no international customer exposure, although many more source from overseas – a dynamic that is complicated by Brexit. “The problem is that relationships have become more nationalistic and riskier since 2016. This creates a lot of uncertainty for any business, so it’s not surprising that some companies are looking to reduce their export markets at the moment.”

However, the government is working hard to make it easier for businesses to engage with overseas firms and take advantage of international opportunities, says minister for exports, Graham Stuart. He points out that the Department for International Trade has recently launched a Check How To Export Goods tool on the Gov.uk website to give businesses product-level and country-specific information on issues such as duties, regulations, customs procedures and trade agreements between the UK and other markets.

A February 2019 survey of more than 1,000 SMEs by YouGov for UK Export Finance, the UK’s export credit agency, found businesses that export have outperformed those that do not over the past five years. “Companies that export are more profitable, more productive and more resilient than companies that don’t,” says Stuart. “There’s a premium on British products and a real desire around the world to buy British.” 

This is borne out by trade data: in 2019, UK exports exceeded £700bn and exports’ share of GDP grew to more than 31%.

Embracing digital

Over the past few years, digitalisation and technologies have increasingly been used to help organisations manage their supply chains and working capital financing more effectively, enabling them to reduce costs and increase efficiency while giving them broader access to finance through different institutions.

Trade finance platform TradeIX has teamed up with enterprise blockchain company R3 and a group of international banks (including founder member NatWest) to create the Marco Polo network, aiming to help companies realise the full potential of global trade by making trade finance more transparent, smarter and better connected.

Its open distributed network uses cloud technologies, blockchain and application programming interfaces to help companies settle their transactions and access funding using digital data rather than physical documents.

Automated matching is at the heart of Marco Polo’s distributed network, says Daniel Cotti, managing director of the Centre of Excellence, Banking & Trade. “The problem is that every funder has its own system and businesses currently need to connect to each one. Every member of the network gets a digital passport, which allows them to deal with everyone else: they connect once to connect to many.”

Since the network is distributed, data remains within each member company’s firewall, meaning the company is in charge of its data and decides on a transaction-by-transaction basis who to share this with. “Only the counterparties involved have access to the data, which offers huge data privacy advantages,” says Cotti.

Working relationships

Concerns about the potential for factory closures, social distancing and fears of overdependence on single suppliers are causing organisations to look more carefully at their trading partners. Many are doing greater due diligence into potential customers and suppliers, considering both their financial stability and the macro, environmental and geographic conditions they operate in.

There are also more conversations about payment terms – many of which are one-sided. According to a survey carried out for Intrum’s European Payment Report 2020, over the preceding 12 months, 80% of UK respondents had accepted longer payment deadlines than they were comfortable with because they did not want to damage client relationships, while 51% said late payment was having a major impact on their liquidity.

John Buckley, performance development lead and a director at Deloitte, is seeing organisations divert capital earmarked for research or maintenance into propping up operations: “SMEs are having to agree to much tougher payment terms; organisations are training their commercial teams to deal with financial distress at trading partners.”

He sees a longer-term trend moving from just-in-time to more resilient and agile relationships. “Supply chains become more resilient with visibility and understanding. Firms that have diversified suppliers and a production network across different countries can adjust production if there’s a problem in one place.”

Keeping capital flowing

The challenge of working through new relationships with partners in different countries and using different settlement terms lies in managing working capital. Very few businesses have a working capital strategy, as this tends to be a consequence of decisions rather than an aim in its own right, says Gavin Swindell, senior adviser at Deloitte.

While the past six months have made firms focus more on working capital and cash management, he says this has to continue. “People only consider working capital when they have to – then the sustained effort starts to drift until the next time there’s a crisis.”

How can businesses keep the gains they have made during the crisis period? To fix improvements in working capital management into long-term habits, Swindell says they need to focus on governance, roles and responsibilities.

“Working capital tends to be a small part of many people’s jobs so it can be hard for a business to control it. Digital tools can help supply globally consistent data on a real-time basis and we’ve seen an acceleration in digital adoption.”

Clark sees the increase in pace of trade digitisation as one of the benefits to have come out of the pandemic. “As physical goods and documents haven’t been able to move around, there’s been much more focus and capability around digital documentation and processing, within operations teams and around logistics and supply chains. This is increasing, and we will see the benefits of greater digitisation for a long time.”

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