Vision - July/August 2008 - (Page 22)

Non-tariff barriers are an example of regulatory risk. — Paul Sabbah, president of Stamford International Inc. and chairman of CEA’s International Advisory Committee and the Accessories Division These and other institutions can assist CE companies with global objectives to fend off—or at least moderate—the impact of commercial and political risks. Protective tools, including insurance against almost any contingency, are widely available. As the World Bank’s Fawaz explains, “political risk insurance … can play a key role” to protect companies considering moves into uncertain new climates. Other forms of insurance also are available to mitigate the business risks of pursuing new global opportunities. Private and government-connected insurers provide policies to cover risks ranging from those affecting IT networks and “human capital” to terrorism and financing. Experts recommend that companies exploring expansion into all overseas markets, not just the sensitive terrain of emerging economies, evaluate options via the blossoming lineup of information resources. The World Bank offers several options, including its Foreign Investment Advisory Services (www.fias.net) and the Doing Business report (www.doingbusiness.org). Independent organizations, such as the Federation of International Trade Associations (www.fita.org) and the Overseas Private Investment Corp. (www.opic.gov), a government-backed organization that helps U.S. businesses invest overseas, thus fostering economic development in new and emerging markets. They also complement the private sector in managing risks associated with foreign direct investments. Unpredictable Currency Currency fluctuations represent another business risk as recent situsitu ations at Apple Computer, Nokia and STMicroelectronics showed. Nokia faced dramatic financial setbacks in 2003: a 60 percent drop in revenue per phone during one three-month period because of the dramatic fall in the value of the dollar. On the other hand, early this year, Apple like other U.S. companies operating worldwide, benefited from the weaker dollar. The current volatility of international currencies underscores the challenge. A recent Standard & Poor’s study noted that European companies competing in the U.S. face the complex problems of the falling dollar and the slowing U.S. economy. S&P singled out high-tech industries as “most exposed, to the detriment of their profitability.” At the same time, U.S. companies benefit from the current conditions. The dollar exchange rates help boost revenue and margins from foreign sales. Nonetheless, the real risk in this situation is unpredictability. It becomes more difficult to forecast earnings, margins, revenue and cash flow because the currency rate projections themselves have become less reliable. From the insurers’ perspective, currency fluctuations are a form of “commercial risk.” “Currency risk refers to fluctuations in exchange rates that may have an impact on profitability,” says Fawaz, noting the interconnection to political risk. “Government actions [can] prevent investors from converting local currency into hard currency and/or transferring it to the investor’s country of choice for earnings repatriation or scheduled payment on a loan.” He cites the example of a Japanese firm that obtained MIGA coverage against this risk, as well as the risk of expropriation, when setting up a software manufacturing facility in Pakistan. Other experts also caution U.S. companies about understanding the different ways that businesses operate in other parts of the world, especially when it comes to corruption and “alternative” ways of operating. In many regions, including Africa and the former Soviet bloc countries, companies can be taxed at higher rates if they start making big purchases, such as buying large stocks of inventory from a foreign source. The sales can be spotted through large bank transactions. Hence retailers in that country may set up a shell organization to pay for a purchase in smaller increments. “Don’t be surprised where you get the money from,” explains one global trader, who adds that it is always wise in such cases to “insist on being paid in advance.” “We feel we operate on an ethical basis,” he says of American businesses going abroad into emerging markets. “But in most parts of the world, that sometimes puts us at a competitive disadvantage,” he counsels. Knowing how to play by the local rules in each environment is one of the commercial risks—and a vital factor in successful operations. Start With Assessments Commercial and business risk assessments are an essential first stop in creating a global expansion plan. Joseph Grandmaison, a member of the Board of Directors of the Export-Import Bank of the United States, acknowledges the challenges of moving into developing markets. In many of those countries, “There’s nothing like a Dun & Bradstreet” for credit evaluation of prospective resellers, he says, noting that a U.S. CE maker must find other ways to evaluate the creditworthiness of potential resellers. Grandmaison describes a typical situation in which a foreign reseller seeks terms from a U.S. manufacturer to handle its products. But the vendor may not be structured to finance such an arrangement, and its domestic bank may not offer a suitable lending program. That’s where the Ex-Im Bank, an independent government agency that works with the Departments of Treasury, Commerce and State, can step in. It focuses on U.S. companies that seek to sell their products overseas. Its loan guarantees cover both commercial and political risk—and it works only with companies that are creating jobs in the U.S. (that is, not U.S.-based distributors who manufacture goods overseas and then sell them into another country). The Ex-Im Bank can recommend banks www.ce.org http://www.fias.net http://www.doingbusiness.org http://www.fita.org http://www.opic.gov http://www.ce.org

Table of Contents Feed for the Digital Edition of Vision - July/August 2008

Vision - July/August 2008 Contents Shapiro's Spectrum In This Issue The Economist C4 Trends Visionary Embracing Disrupting Technology Vaulting Ahead with Your Brand International Risk Stop Boomerang Products CEA Newsline Tech Speak Tech Policy Going Global Eye on Business Market Insider Just the Stats

Vision - July/August 2008

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