THE SOOTHSAYERS have not hesitated in predicting doom and gloom for the economy in 2012. It seems that every newspaper is covering the harsh time the nation is going to be facing. Unemployment is rising, consumer spending is declining, household names are disappearing, credit is harder than ever to obtain and economists are already saying we are in recession. However, in every downturn opportunities arise.
The government is starting to recognise how over-reliant the UK is on the service sector. One measure recently announced by David Cameron is a £95m investment for SMEs which aims to boost exporting. While this is not a huge injection of funds it is definitely a step in the right direction.
Opportunities are there for both importers and exporters. For importers, there are more lucrative source markets outside of the eurozone. For exporter’s it is an opportunity not just to expand their horizons outside of the eurozone, but to take advantage of some of the initiatives set out by the government and trade councils.
Many FDs believe that this is the time to consolidate and protect budgets; others believe that it is too risky to set up a business or expand it into the unknown. The global economy is slowing and there have already been some high profile casualties. However, this does not mean that there are no opportunities in some of the frontier markets, namely the CIVETS nations (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).
One focus for UK importers and exporters will be to look towards some of these markets that are developing. As it stands, over half of the UK’s import and export is done within the eurozone, but it appears to be a poisoned chalice and its problems look set to remain for the long term.
There is a big world outside the eurozone; Brazil, Russia, India and China (BRIC) are continuing to grow. It is estimated that by 2015, they will be collectively bigger than the US All of the CIVETS countries except Vietnam made the list of nations predicted to be in the top 30 economies by 2050.
Despite the slowdown in pace, it could be argued that the frontier market economies are responsible for keeping global growth pushing forward. Both importers and exporters have opportunities to diversify, by moving away from the already heavily reliant eurozone and exploring some of these attractive markets.
Small businesses continue to be in a position where tight planning is crucial to success, especially if expanding into unknown markets. The first steps financial directors must take is proper research; contact with a joint chamber of commerce (British and another) would be advisable as there is an accord to build trade links. It is still advisable to go singular chambers of commerce but it must not be forgotten that they are going to see their marketplace through rose tinted glasses. Financial directors must consider the future prospects of any target market, not just the economic trends. The demographics, infrastructure and political stability all need to be considered.
Currency exposure is always a focal point, whether the business is expanding or consolidating; most of the exotic markets are currently paying or receiving US Dollars. The world is changing, as can be seen with China’s early steps to relax the restrictions on the Chinese Renminbi. Some companies may wish future payments to be made in local currency and this offer more favourable terms. One of the most important factors to consider is how to hedge your exposure. Various tools such as forward trades, currency options and non-deliverable forwards are ways to help mitigate risk.
It is well documented that not everything is rosy in the global economy; UK PLC needs to diversify its offering. It is hoped that by addressing this issue, the economy will be more balanced and we will be less likely to be in this unfortunate position should a similar position arise again. Financial Directors of UK importers and exporters are well advised to expand into frontier markets as these are forecasted to continue growing. The key issue this year in the case of either expansion or consolidation is careful and meticulous planning. Whether this is through budget rates, currency hedging or research. More opportunities are bound to arise as time goes on, businesses that have weathered the economic crisis this far are becoming evermore efficient and will be in a good position to take advantage of these opportunities as they unfold.
Jamie Jemmeson is a trader at Global Reach Partners
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