Is your business ready for overseas expansion but not sure how to choose your next market? Do you have a few markets in mind but want to ensure you’re choosing the right ones? When you’re planning to expand abroad, it is crucial to your success to be strategic, not reactive.
Expanding into international trade is one of the best ways to grow a business. Not only does international trade provide access to new markets but it also helps businesses to diversify their portfolios.
However, doing business with trade partners operating in other countries also brings a new set of risks. Different countries have different legal systems, tax requirements, business cultures, and political environments that can all impact the viability and profitability of international business. In many ways, choosing the right countries in which to do business is just as important as choosing the right trade partners. That is why it is so important to conduct a country risk assessment.
A country risk assessment can help a business identify and evaluate country-specific risks. In doing so, businesses can determine how much those risks might impact their business and what steps they can take to manage or mitigate those risks.
The importance of this type of country risk analysis cannot be overstated. Without it, businesses could face unexpected and potentially devastating changes to the business environment without warning. Learn more about how to evaluate country risk by checking out Euler Hermes' resources.
Analyzing Country Risk
Country-specific risks cover a wide spectrum. Specific risks include fluctuations in currency exchange rates, economic or political instability, the potential for trade sanctions or embargo and anything else occurring in the country that could negatively impact the business environment or trade and cash flows in and out of that country.
By quantifying these risks and their potential impact on the business should they become reality, businesses can adjust forecasts and expectations, while also looking for ways to mitigate or protect against some of the more substantial or unpredictable risks to the business.
Analyzing country risk requires both qualitative and quantitative analysis. A qualitative risk analysis relies on a subjective analysis of a country’s situation. This can include news and business intelligence from the target country. In some cases, this extends to rumors that can be confirmed or which are seen as having a realistic chance of being true. In other situations, this insight must be developed on the ground in the target country but it can also be gleaned from reputable sources of business and political news and insight.
A quantitative risk analysis relies on market data and statistics to identify and measure the amount of risk involved in doing business with partners in the target country. This includes the use of macroeconomic indicators, such as the country’s GDP, debt levels, sovereign ratings and independent ratings in tools like the MSCI Index.
Use Public and Government Resources to Analyze Risk
Governments and public resources can be a great support both at home and abroad. Your local government may help you expand abroad, and the foreign government can also help you to expand into the country. Most countries have departments or organisations dedicated to this. To find the right organisation try contacting the trade departments or organisations of your home country and the potential countries. You may find that they have programmes to help you expand, they can also help put you in contact with the right people.