Article

23.05.2019

Coping as a business with geopolitical risk

William De Vijlder, Group Chief Economist, BNP Paribas zooms in on increasing geopolitical uncertainties.

The slowdown of the global economy which became increasingly visible in the second half of last year has many causes, but there is broad agreement that rising trade tensions, import tariff hikes and concern about the pace of US monetary tightening acted as clear headwinds. In Europe, Brexit-related uncertainty played a role, as well as sector-specific issues, like new emission standards for the automobile sector. Clearly, uncertainty, in various guises, was a big issue: uncertainty about the economy (the international consequences of China’s slowdown), about economic policy (the Federal Reserve’s monetary stance), about political decisions (soft or hard Brexit, Italy’s budget) and about geopolitics (considering that the build-up of commercial tensions between China and the US is about more than the bilateral trade deficit).

Geopolitical uncertainties on the rise

Whereas economic, economic policy and political uncertainty tend to come and go, depending where we are in the economic and political cycle, research based on media coverage of geopolitical tensions shows that geopolitical uncertainty has on average been higher since the turn of the century compared to the 1990s. This higher average is associated with an increased frequency of uncertainty  spikes, triggered by events like 9/11, the Iraq war, the Arab spring, the Crimea, Syria, terrorist attacks, etc. These events illustrate that geopolitics now covers a broad range of issues, well beyond the older concept of how nations project their power internationally and react to the behaviour in this respect from other nations.

Empirical research shows that an increase in geopolitical risk weighs on industrial production, employment, international trade, consumer confidence. Moreover, whereas certain events can have a short-lived economic impact, because after a spike, uncertainty drops quite quickly, geopolitical threats (without an event necessarily occurring) can cause a sustained increase in uncertainty and hence have a longer lasting impact. This issue of resolution of uncertainty (“how much longer do we need to wait until we know the outcome?”) has been clearly visible in the reaction to the postponements of Brexit day.

A top priority?

Newspaper articles about geopolitical risks may be numerous but, judging from the mapping in the Global Risks Report 2019 of the World Economic Forum, companies are, in recent years, more concerned about climate change and cyberattacks. In the assessment of their likelihood and impact, they score above average, whereas issues related to geopolitics score around average. This is still sufficient for companies to pay particular attention to it, given the macroeconomic headwind coming from protracted uncertainty or the possible non-linear consequences of risk events. The list of questions to be tackled is long but, as usual when dealing with uncertainty, it is about how can uncertainty be monitored, what is my exposure and how can I manage it. The monitoring is the easier task of the three, considering that there is no lack of research on geopolitical topics. High quality, media-based uncertainty indicators are even available for free on the internet.

“The tensions between the US and Turkey in the summer last year turned out to be short-lived, but they remind us of the necessity to define in advance how to cope with short-lived versus sustained increases in geopolitical risk. “ William De Vijlder, Group Chief Economist, BNP Paribas

Direct and indirect exposure

Assessing the exposure is already more complex, in particular when dealing with indirect exposure. Moreover, one should not only assess where geopolitical threats or events can impact your business, but also, and this is the more difficult question, to which extent.

Direct exposure is about: does geopolitical uncertainty influence how and where I produce (which commodities, which intermediate inputs, how complex a global value chain); does it influence the markets into which I sell; does it influence my financing costs, my access to financing, the use of my cash-flow, the repatriation of foreign profits?

When analysing indirect exposure, the questions ultimately are the same, but the channels are different, more complex and hence challenging to assess. Globalisation has enabled companies to broaden their customer base and lower their cost base, but, with a slight exaggeration, it implies that anything can hit them anywhere. When the US and China are negotiating on trade, it can end up impacting third party countries when it leads to trade diversion (the innocent bystander syndrome). There can be political contagion with unrest in one country spreading to other countries which suffer from similar problems. Financial markets can act as an accelerator or a channel of transmission. The increasingly harsh tone between the US and Turkey in the summer of last year unnerved international investors and contributed to the significant weakening of the Turkish lira. It also raised concerns about financial contagion to other emerging market currencies. Eventually, the tensions turned out to be short-lived, but they remind us of the necessity to define in advance how to cope with short-lived versus sustained increases in geopolitical risk.

Accepting or avoiding the exposure

“Coping with” can mean to just accept it as a fact of life, to build a robust strategy which takes uncertainty explicitly into account or to simply avoid the exposure. Accepting the exposure could make sense if, all in all, the financial impact of risk events would be rather limited. The cost of protracted uncertainty can be taken into account by using a sufficiently high return on investment target before committing money.

Avoiding the exposure could be justified if the trade-off between return and (tail) risk is unattractive, if it would trigger a disproportionate attention by shareholders or creditors, if attractive alternatives to grow the business are available, etc. ‘Avoiding’ could also mean ‘waiting to decide on an investment’ but this raises the question of the opportunity cost of waiting. If a company was contemplating to build a factory in the UK before the Brexit referendum, is there an opportunity cost to waiting for the type of Brexit when alternative locations, outside the UK, are available? When time is money, waiting ends up being expensive.

The question of building a robust strategy is the more interesting and challenging one. It starts from the observation that we are (or need to become) active in a country (e.g. because it is a huge market or because it is key to remain competitive) but that this could increase the exposure to geopolitical risk. In designing a robust strategy, different scenarios are analysed and eventually, the chosen approach should do well under a multitude of environments, without being optimal in any specific one, simply because, in deciding under uncertainty, we are (by construction) not in a position to anticipate which one will materialise. Ongoing geopolitical risk monitoring will allow to plan for corrective action if need be as time goes by.

How does your company deal with geopolitical risks? Have you mapped them out sufficiently? Follow the blog of Wiliam De Vijlder, Group Chief Economist, BNP Paribas or subscribe to the newsletter of the Ecoblog of BNP Paribas.
Article

24.01.2018

Exportation: risk control in the palm of your hand

The Credendo mobile application provides a solution to mastering the export risks and information associated with the various world markets...

The importance of exports for the economic strength of companies, especially SMEs, is no longer in doubt. Nevertheless, the uncertainties associated with going international can keep some companies from taking the leap. To turn uncertainties into opportunities: Credendo!

Exporting: opportunities to be taken

In an increasingly globalised world and with an explosion of digital tools, most companies sooner (sometimes much sooner) or later dream of conquering foreign markets. And with reason. Whatever the size of your company – even if big companies are more active on this issue – exporting represents an opportunity to leave the limitations of the Belgian market behind in order to energise your turnover, make economies of scale, explore new outlets for your products or even benefit from advantages in terms of employment and innovation.

Read the FPS Economy report on the performance of Belgian SMEs regarding exports in French or in Dutch.

Increasing optimism

Given their increasing confidence, companies will be even more attracted to going international in the future. In any event, this is what the Credendo and Trends-Tendances export barometer reports, indicating that four out of five Belgian companies are expecting a growth in exports during the next few years. An optimism that is only slightly dampened by the fear of protectionist barriers being raised in different regions of the world... One more fear to add to the classic obstacles in exporting, such as different legal systems, increased risk of non-payment, political-economic uncertainty in the destination country and the burden of administrative formalities.

Credendo: a new tool for exporters

Zero risk is a myth and even more so when dealing with business overseas. This is why the European credit insurance group Credendo has developed an application promising to "turn uncertainties into opportunities". How? You download the application to your smartphone and choose to export (long term) from Belgium to Portugal, for example. You immediately receive an up-to-date assessment, practically in real time, of the risks for any country or continent. In the blink of an eye, you can access various important risk parameters and also set up alerts for countries or sectors, benefit from risk analyses and in-depth thematic studies on the economy of emerging countries, for instance. The main advantage of this solution is that it provides information from the point of view of the exporter and directs you to customised solutions. Final detail: the application is free!

For more information for SMEs on going international, the Economy FPS has produced an interesting pamphlet on "International expansion of SMEs: clear findings and operational measures for SMEs" (available in French and in Dutch).

Article

01.06.2018

Cover yourself before embarking on a quest for global markets

Any company that begins to trade abroad is buying into the idea that it can conquer brand new markets, but also that new risks are an inevitability. And although the risks are often worth taking, informed directors will evaluate the danger in order to be better prepared.

In love, as in business, distance makes things more complicated. However, in an increasingly globalised world, expanding your business activity into other countries remains essential – especially in an export-oriented country like Belgium. This strategic challenge demands an appropriate approach that will allow the company to move into new territory successfully. Whether internationalisation takes a physical or virtual form, a number of risks of a new type will join those you are already managing at local level, including hazards associated with transportation, exchange rate risks, poor knowledge of regional regulations, cultural or ethical "gaps", and difficulties arising from unpaid sums and recovering these abroad, etc. To minimise the impact on your business, take precautions and correctly signpost the pathway separating you from your international customers.

Where should you venture to?

If you have identified a particular continent or country of interest, you have presumably spotted obvious commercial benefits. You know your business and are convinced that this move can work well. But before you take the plunge, a step back is necessary so that you can analyse the country-related risks: from the geopolitical context (an embargo would be disastrous for your plans) to the political and socio-economic situation on the ground. It is not uncommon, for example, for elections to have a destabilising effect on the climate of a nation.

Do you have sufficient local knowledge?

This question may appear trivial at first, but culture and traditions have a major influence on the way trade is conducted – even in a globalised world. Beyond market expectations and the chances your product has of success, it is imperative to grasp the cultural differences that could have an impact on your business. A Japanese company does not take the same approach as its equivalent in Chile. Do not hesitate to recruit a trustworthy consultant who fully understands the region.

Have you planned for the worst?

This piece of advice is highly pertinent when the country in question uses a currency other than the euro because foreign exchange rates fluctuate continuously, with the result that you could be obliged to convert money according to less favourable terms than those initially expected. Adopt an effective foreign exchange policy (stabilise your profit margins, control your cash flow, mitigate potential adverse effects, etc.) and employ hedging techniques that best suit your situation.

How do you evaluate your international customers?

Once you have analysed the context, drop down a level to gauge the reliability of your customer in terms of their financial situation and history (e.g. of making payments), their degree of solvency, etc. While such research may not be simple, it is decisive in order to prevent payment defaults that can do enormous harm. If in doubt, take out an appropriate insurance policy to protect yourself. Paying for this could prevent you from becoming embroiled in perilous (not to mention costly) recovery action abroad. Should you end up in a crisis situation, you should ideally obtain local support in the country. Finally, be aware that in the EU, debt recovery is simplified by the European Payment Order procedure.

Have you adequately adapted the tools you use?

One of the greatest risks of international trade is transportation (loss, theft, accidents, seizures, contamination, etc.) in addition to customs formalities. Once dispatched, the goods are no longer within your control, and so you must ensure your carriers accept adequate liability. This means, for example, having suitable insurance cover, but also anticipating the multitude of procedures to be launched in any dispute. More generally, you will need to review and adapt the contracts you have with transport companies, as well as your international customers. Ensure you clearly set out the terms and conditions that apply (payment deadlines, exchange rates, compensation, etc.) and include realistic clauses that safeguard your own interests.

Article

17.09.2021

Which company will cash in on its nomination for the Leeuw van de Export Award?

On the evening of Wednesday 29 September, FIT will be presenting its Leeuw van de Export Award for the 20th time: the highest award for Flemish companies achieving outstanding export results. Will it be Camco Technologies, Container Technics, Locinox, Molecubes, OTN Systems or Sylva?

Every year, Flanders Investment & Trade (FIT) awards a Leeuw van de Export to two companies that have recorded notable achievements in the field of exports in the past year. We briefly introduce the six nominees below. Be inspired by their stories of expansion abroad and find out which companies are voted the strongest exporters on 29 September at 6pm via a livestream at www.leeuwvandeexport.be.

Nominees in the category 'Companies with up to 49 employees'

Container Technics from Wijnegem

Container Technics has been a specialist in cargo securing technology for nearly four decades. The company sells materials to secure cargo on ships and has established a strong reputation in the shipping world. Since there are hardly any Belgian shipping companies, Container Technics has always been an international SME. Today, they are an all-round partner to shipowners around the world.

CEO Wim Ledegen: "For now, we're managing our central stock from our home base, but we're also considering decentralisation. Italy, the USA or Dubai are suitable candidates. The closer we are to the large ports and shipyards with our materials, the greater our response speed and flexibility."

www.containertechnics.com

Molecubes from Ghent

Molecubes develops and builds compact scanners for molecular imaging. All hardware, software and technology are from Flemish soil. The devices visualise organs, tumours or the actions of drugs. During research on COVID-19, the company supplied the only type of scanner that can be used in highly secure virology lab environments. Molecubes scanners are already used in 14 countries, with the United States at the very top of the list.

Co-founder Ewout Vansteenkiste: "Far-away destinations are definitely something we're aiming for, with China and South Korea being the 'icing on the cake'. We're a young company, and there's still so much untapped potential. Together with our partners, we'll look at how we can further differentiate our product range and explore many other areas of application for our devices."

www.molecubes.com

Sylva from Lievegem

Sylva is a plant grower and has been a family business for seven generations. Today, 25 million plants are shipped annually to 40 different countries, including a number of overseas markets. Over the years, the company has steadily developed into an established player in the field of forest plants and hedge plants, and has also been servicing the international market since 2003. Today, Sylva has six local representatives and is in the process of tapping into promising, far-away export countries such as Russia and China.

General Manager Tim Van Hulle: "North America is beckoning. However, given the phytosanitary legislation in place there, it's currently not possible to import plants from our country into the US and Canada. But we're now ready to exploit this huge potential as soon as the market opens up for plants from Belgium."

www.sylva.be

Nominees in the category 'Companies with 50 or more employees'

Camco Technologies from Heverlee

Camco Technologies is a pioneer in terminal automation. The company specialises in container identification and tracking solutions. After the Netherlands, the United Kingdom and Finland, they managed to gain a foothold in the United States. Process automation, the latest camera technologies, micro-location, artificial intelligence... Technological innovation is a must for Camco Technologies.

CEO Jan Bossens: "In Europe, we're gradually approaching the ceiling in terms of terminal automation. But there are many large-scale projects on the table in Eastern Europe, Russia and China. And the African continent still offers a lot of potential."

www.camco.be

Locinox from Waregem

Locinox is a family-owned company that develops and manufactures mechanical, electro-mechanical and access control products for manufacturers and installers of fencing and gates such as locks, hinges, hydraulic pumps, electric motors and access-code keypads. Two-thirds of the added value is derived from the product range itself, while the rest is derived from services. The company is fully committed to technological innovation and sustainability.

CEO Mik Emmerechts: "Exporting is in Locinox' DNA. As a manufacturing company in such a specific industry, you simply have to expand your reach. Today, 90% of our revenue comes from exports, and we're the European market leader in our niche industry."

www.locinox.com

OTN Systems from Olen

This technology provider deliberately targets energy and transportation with its applications, two industrial sectors that are currently undergoing rapid transformation worldwide. Their technology makes it possible to migrate outdated telecom infrastructures and then efficiently manage new networks. OTN Systems is now active in more than 70 countries and on every continent.

Chief Product Officer Jurgen Michielsen: "Our technology isn't very different from that of the giant telecommunication providers, other than that we develop and implement fully customised solutions for our industrial customers. We continuously look to innovate and stand out from the major market players. We do this by coming up with clever ideas and through our human-centred approach."

www.otnsystems.com

Find out who will be crowned winners of the Leeuw van de Export Award 2021 during the livestream on 29 September at 6pm. Register in advance at www.leeuwvandeexport.be or visit the website on the day itself.

Are you ready for your first international adventure or do you want to expand your international activities? We offer you the peace of mind you need, with a wide range of solutions to optimise, secure and finance your import and export activities.

Source: Wereldwijs 2021

Article

10.09.2021

Export Lion Award still going strong after 20 years

Flanders Investment & Trade (FIT) will be presenting its Export Lion Award for the 20th time on 29 September. As well as recognising strong export results, FIT also wants to use these success stories to inspire other companies to cross borders themselves. This is something that BNP Paribas Fortis, as a sponsor of this event, fully supports.

What do exporters need to look for to conquer the international market? We asked Frank Haak, Head of Sales Global Trade Solutions, and a jury member for the 20th edition of the Export Lion Award.

What can would-be exporters expect at the beginning of their export adventure?

"Exporting is an important step forward in a company's evolution. But suddenly operators come into contact with a completely different and usually unknown environment. Import market regulations are often different, as are tax and legal regulations. When making international payments, there are exchange risks. And then there are the specific documents and products required for foreign trade. There are lots of new things to consider."

How can companies prepare for this?

"By learning in advance as much as they can about the rules that apply to their new foreign market. Companies can turn to domestic institutions, such as FIT's foreign branches or their banker, to help them with this. They will help new exporters find their way around the very complex international world. I also recommend hiring a local agent or representative. This can help to resolve any bottlenecks that can't be resolved easily from home. At BNP Paribas Fortis, we have our Trade Development department that can help with this. Rob Van Veen offers companies guidance as they take their first steps in a new international market. This kind of external support may be expensive, but it's an investment that will save money in the long term."

How do companies that would like to start exporting learn about a new market? What advice can you give them?

"You learn about new markets simply by visiting as many foreign counterparties as possible. Don't bite off more than you can chew – take it one step at a time. I always say to new exporters: exports are great, but getting paid is even better. The risk of non-payment is still underestimated too often, even by companies that already have extensive international experience. We always recommend customers map out the worst-case scenarios in advance and incorporate the necessary mitigations. Prevention is better than cure!"

How can exporters better protect themselves against unforeseen circumstances?

"The COVID-19 pandemic showed how important diversification is, both in terms of supply or production of goods and in the choice of export countries. Economically, it may seem more advantageous to manufacture or import from a country far away with cheap labour, but always make sure you've got a back-up plan."

Which development would represent a significant added value for international trade?

"We need digitally-secured platforms for international trade transactions that all interested parties can use to securely view and exchange documents in digital format. This not only shortens the lead time of international transactions, but would also be a huge step forwards in terms of sustainability. Trade finance is difficult and cumbersome: it involves exchanging tonnes of data, a lot of which is still on paper, unfortunately. But I'm confident that we're gradually moving in the right direction. Many large international banks, including the BNP Paribas Group, are currently working on this."

Find out who will be crowned winners of Lion Export Award 2021 during the livestream on 29 September at 6pm. Register in advance at www.leeuwvandeexport.be or visit the website on the day itself.

Are you ready for your first international adventure or do you want to expand your international activities? We offer you the peace of mind you need, with a wide range of solutions to optimise, secure and finance your import and export activities.


Source: Wereldwijs 2021

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