Five things to investigate when beginning trade with an emerging market

It is true that there are plenty of opportunities for businesses to expand by tapping into rapidly growing emerging markets.

Many British firms have already found success in countries as diverse as China, Russia, Turkey, India, Mexico and Brazil, while others are examining their options given ongoing concerns about the Eurozone.

In doing so, however, companies need to recognise the differences in trading with these countries as opposed to Western nations with which they are more familiar. Everything from cultural factors, ways of doing business, trade regulations and even currency usage can be different in these markets, so with this in mind, here are five areas to investigate when establishing a new trade partnership:

Cultural differences
Do not for a minute neglect to consider cultural differences when forming new business relationships. These can play a huge role in determining the success or failure of business operations, both in the short and longer terms.

For example, in China it is considered inappropriate to say “no” to anyone. This can lead to confusion with Western businesspeople who, in not receiving a definitive answer to a question, can be left believing an idea is plausible despite their Chinese counterpart being firmly against it. Something as simple as fundraising, meanwhile, is largely unheard of in Russia, which can make for difficulties when undertaking charitable activities.

Other things which can be subject to variation across different cultures can be the interpretation of “urgent” and how quickly something is addressed; whether you look someone in the eye when speaking to them; the role of women in the country (which unfortunately is not equal in all societies); the emphasis placed on job titles; and even the role of sharing a meal and/or drinks in agreeing a new deal.

Being aware and understanding the implications of cultural differences will go a long way to establishing viable, successful trading relationships. In addition, it can provide companies with an edge over competitors, given that such knowledge demonstrates an active interest in that country and a willingness to do what it takes to make the relationship fruitful for both parties.

Language
English is not always as widely spoken in emerging markets as it is in Western countries, which can become a major obstacle.

In this instance, translators become an additional expense to factor in, if the business does not have staff who speak the native language fluently. Yet even then, accessing the services of a translator can be fraught with danger, given that business contracts depend on both parties fully understanding what is being agreed to. Even if a trading partner uses or recommends a particular translator, it can be advisable to employ the services of an independent translator who can prove their fluency in both languages.

The British Embassy or Consulate in the country, other Government bodies such as the UKTI or a relevant industry trade body may be able to help recommend a reliable translator.

Alternatively, it can be worthwhile to ask suppliers or business contacts who already have a relationship in the country who they use for translation services.

The advent of the internet also means that digital translation services are readily available, however they tend not to be 100 per cent accurate, and as such should not be solely relied upon when dealing with sensitive documents.

Government regulation
Regulations can be different in emerging markets than in Western ones, as can rules within the UK for trade with a particular nation, so there are points to look into both at home and abroad.

Restrictive measures on foreign imports in order to protect local manufacturers, in the way of tariffs for example, can reduce the viability of exporting a particular product to that destination. It may be that while the target country is a good means of sourcing materials, selling completed goods there may not be commercially feasible.

Similarly, local subsidies – think EU farming subsidies for instance – can reduce the competitiveness of foreign imports. However, it may be possible that by providing different products to those produced locally, or doing so to a higher quality, such subsidies do not have a material impact.

While uncommon to affect trade relations for British companies, it is important to note that trade embargoes by the UK and the international community dictate the legality of trade. Though major emerging economies have little in the way of embargoes, other nations such as Iran and North Korea face tough trade embargoes and international sanctions. This can be subject to change in the face of changing political relations.

Currency
It sounds simple, but ensuring you know which currencies will need to be traded is an important part of the trade process.

As a means of opening up their economies to foreign trade, many emerging countries openly trade in a denomination other than their national currency. For instance, many Chinese transactions are made in US dollars, while Turkish firms often readily accept Euros, US dollars and even pounds.

This can add an additional dimension to international trade, since it requires businesses to be familiar and up-to-speed with a third party currency. Yet it can be easier to calculate costs, since the major currencies are more closely aligned in value than those of emerging economies.

Additionally, not all currencies are freely traded. The Chinese Government, for instance, has controls in place over the value of the renminbi to benefit local manufacturers. The renminbi currently trades within a tightly fixed range, meaning it does move according to trading conditions, but only within the fixed floor and ceiling values imposed by the Government.

Logistics
With goods being sent to, and received from, longer distances, the risk of something happening to them increases. Therefore contingency planning is crucial before the first goods are dispatched.

How will the business cope financially if the goods are delayed in transit? Bad weather, natural disasters, industrial action, transportation breakdowns and accidents are all sadly a part of life. However it is important to have the right measures in place to minimise disruption to business operations should the worst happen. This can include having appropriate insurance in place, access to working capital to cover delayed payments and potentially an emergency stockpile of essential materials.

Do products being transported require quarantine clearance at either or both ends? It can be a business nightmare to have goods locked up in quarantine due to question marks over their construction, materials or usage. As such, it is advisable to confirm beforehand that products meet the destination country’s regulations on fire safety, organic materials, operational safety standards and quality controls. This goes for importing goods and materials into the UK as well as shipping them to a foreign country.

Finally, do staff require visas to travel to attend business meetings or trade fairs? Maintaining both solid working relationships and brand awareness overseas require a physical presence, and since SMEs can generally ill afford a local workforce, this means travelling abroad to represent the business. While Britons enjoy free passage in Europe as a member of the EU, business visas vary greatly between other countries in terms of cost, eligibility requirements and conditions of use.

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