Doing business internationally brings new risks as well as new opportunities. It's important to be aware of the additional risks involved with exporting, so you can identify, assess and manage them.
As an exporter, you’re exposed to risks that you generally won’t encounter when doing business in New Zealand.
These can include political instability and security concerns, ensuring compliance with foreign regulations, foreign exchange risk, compliance with in-country tax laws, customs or quarantine issues, or unforeseen tariffs applied at the border.
You may also find some existing risks to your business are increased when exporting, including:
- property ownership rights, including intellectual property protection
- crime and fraud specifically targeting export companies
- financial risks, including non-payment or damage or loss of your goods in transit
- problems of success, shortages of capacity or money to meet international demand
- difficult relationships with contractors, distributors and agents.
Political and security risk
Political instability, including wars or other conflict, can affect your business through defaults on payments, shipping delays or loss of product. Civil disorder may affect the safety of your staff and in-market partners, or even your own personal safety when travelling.
Check the New Zealand Ministry of Foreign Affairs and Trade travel advisory website before you travel or enter into any export agreement. Note that some large countries may have particularly unstable or dangerous regions, while other parts of the country may be safer to trade in.
Think about your entire export supply chain, and consider if your people or goods will pass through any volatile regions on their way to your target market.
Compliance with foreign regulations and standards
Never assume that rules and regulations will be similar to New Zealand. Make sure you understand what all the country-specific points below will mean for your business:
- import procedures
- employment practices
- currency dealings
- property rights
- agency or distributorship arrangements.
Seek advice from a respected legal practitioner in the country concerned. Alternatively, your New Zealand lawyer may be able to recommend overseas legal support.
Cultural and language differences
Overseas customers won’t necessarily like or value the exact same things as your local customers – and there’s no bigger export risk than having a product nobody will buy.
A product that ‘speaks for itself’ in New Zealand might be unfamiliar to people from another culture, or they might want or need to use it in quite different ways compared to what you expect locally.
Make sure you research the cultural habits of a target country or region to assess the acceptability of your product or service. You might need to adapt your product for the market, or redesign packaging, logos or corporate colours to suit local preferences (and avoid taboos).
You’ll also need to find out how other cultures negotiate and make their business decisions, to communicate effectively and reduce risk. For example, some cultures may treat business meetings as an opportunity for small talk, with big decisions or commitments put off until the evening meal or after-work drinks.
Small things, like knowing how to present or receive a business card, can make a big difference to how you are perceived by an overseas customer.
Our market guides are a great starting point for guidance on cultural factors in different markets around the world. You should also get detailed advice on cultural issues from people who have worked in or exported to the country, so you can avoid costly mistakes.
Financial risks to your export business can include:
- non-payment or late payment by export customers
- loss or damage of goods in transit
- unfavourable exchange rate movements – meaning you get less New Zealand dollars than expected for your sale.
You can get various types of insurance to cover non-payment, exchange rate and transport risks.
The problem of success
As strange as it sounds, success can be a major risk when exporting.
You’ll need to be fully committed to your export strategy and ready to expand your staff, capacity and financing to cope with increased orders. Otherwise you may struggle to deliver on time and be taken seriously by international customers.
Think about what constitutes export success for your business (in terms of customers and sales levels). Then work out what resources you’ll need to sustain that activity, including trips overseas, hiring new staff, and reinvesting in your business.
Find out more about preparing for growth in our guide to the cost of exporting.
Success in international markets means more visibility, and more attention. You might start to get contact from New Zealand companies wanting to benefit from your efforts (or learn from your experiences) - and from overseas companies enquiring about your products.
There’s a risk with any unsolicited enquiry that the overseas buyer isn’t genuine. Some of them may be scammers or fraudsters. Others may be using the enquiry process to fish for your intellectual property (IP) or pricing information – with no plans to ever place an order.
Validate any unsolicited enquiries carefully, and always confirm the buyer’s ability to pay before you send anything to them. If you’re in any doubt, don’t deal with them. Remember the old adage that if it looks too good to be true, it probably is.
The following steps may help you determine if your enquirer is genuine:
- requesting a copy of the company’s business licence
- requesting a copy of their certificate of import / export authority (available from certain countries only)
- asking for references from companies that they have dealt with in New Zealand and internationally
- checking out their website
- commissioning a company credit report to verify the company’s operations, territory and payment history.
Even genuine unsolicited enquiries can sometimes be a risk, if they take more effort than they’re worth, or cost you time and resources you could have used to pursue more important customers. Be selective about the enquiries you follow up on. Concentrate on enquiries from your target markets first, and make a plan to filter and prioritise any others that come in.
Intellectual property risk
Intellectual property (IP) may be one of the most valuable assets in your business – whether it’s a unique design, formula, invention, process or system.
If it’s carefully protected, it can form powerful barrier to competitors – but if it’s stolen or disclosed without your permission, your entire business may be at risk.
Find out more about protecting your intellectual property here.
Protecting your intellectual property
As well as legal protections, you can also help to protect your IP when exporting by:
- capturing market share and reputation through speed to market
- practising continuous improvement and innovation to keep ahead of the field
- maintaining low operating costs to create a price advantage
- targeting niche markets
- maintaining product design and quality ahead of likely imitators
- using marketing and branding which competitors need time to emulate
- maintaining secrecy about your process or formula
- providing a tailored service valued by your customers, so they remain loyal.
Just owning a patent or trade name doesn’t guarantee success, so developing a wider plan for IP protection is also an important part of your export plan.
At some point in your export growth, you’ll probably need to share IP or other sensitive information with certain people outside your business.
A written confidentiality agreement (or non-disclosure agreement) is the best way to make sure that sensitive or commercial information you share with a third party will be legally protected.
You can see a sample reciprocal confidentiality agreement here - this is an example only and you should always seek legal advice to make sure any agreement is tailored to fit your specific business requirements.
Be aware that some companies might be reluctant to receive information under a confidentiality obligation, in case it overlaps with their own IP – this is because of the risk of legal action if they release a product or service based on their own work, but which looks like it infringes someone else’s confidential IP.
Think about other ways to protect your IP in everyday business too - including only sharing critical IP on a ‘need to know’ basis within your company, keeping records of who has received it, and requiring staff to return or destroy any confidential information once it’s no longer needed.
See more on managing confidentiality.
Crime and fraud
Exporters are exposed to the risk of crime and fraud in overseas markets. However, if you’re aware of the risks, you can take steps to manage them and reduce the impact of crime or fraud on your business. A key step here is to create and follow a detailed risk management plan.
Risk management plan
One of your business’ best defences against crime and fraud when exporting is a risk management plan. A comprehensive plan sets out ways to identify possible negative outcomes before they happen and establishes procedures to help avoid or minimise their impact.
Types of crime and fraud
Here are some of the key crime and fraud risks that exist when exporting overseas.
Products can be at risk of theft at all stages of the export process, including during shipping and in-market transport before they reach the end customer.
Information and IP can also be stolen – including hacking or other unauthorised access to your computer networks, or copying and use of material you’ve placed online.
Fraud – online and offline
This is a broad area and includes criminal action such as:
- scams - getting money or products by deception, including identity theft and conspiracy (an agreement between two or more people to commit an offence)
- counterfeiting - copying your business's products, usually to a lesser standard of quality, and passing them off as your business's products.
- credit card fraud - the use of stolen or fraudulent credit cards to obtain money or property. Businesses that trade online are particularly vulnerable spam / junk mail - unsolicited bulk email, often illegal in itself, can also be used as a medium for fraud and identity theft. Spam could be made to look like it has been sent directly from your business, damaging your business' reputation.
This crime involves concealing the true ownership or origin of money obtained from criminal activity. Be very wary if you’re asked to accept money on behalf of someone else, or to pass that money on to someone else by wire transfer - this could involve your business in money laundering for organised crime.
Reducing the risk of crime and fraud
Here are some steps you can take to reduce your exposure to crime and fraud when exporting.
- Talk to your logistics and in-market partners about theft prevention. Be especially vigilant at entry and exit points in the distribution and supply channel, where products are particularly vulnerable to theft.
- Educate yourself on the latest scams targeted at businesses. Look for red flags such as unnecessarily complex transactions or unprofessional and poorly written letters or messages.
- Thoroughly investigate everyone employed or otherwise engaged with your business offshore. Insist on full reference and background checks.
- Check that your customers are who they say they are – keep track of those with good and poor records, use an address verification system, record transaction details (including IP addresses for online sales) and confirm large or unusual orders by calling the customer directly. Be wary of customers who don’t provide all the required details.
- Cross-check the accuracy of information received from offshore. Conduct regular audits of financial information.
- Invest in up-to-date and comprehensive antivirus and security software protection.
- Where possible, get insurance to protect your business against loss caused by crime and fraud, including theft during transit.
- Use well-known shipping or courier companies that allow you to track your shipments from their origin to the final destination. If you’re ever in doubt about the authenticity of any communication, contact the sender to check.
- Where credit cards are used for payment, always ask for the expiration date and validation code as well as the card number. Invalid or missing details can mean that someone is using a stolen credit card number. Watch out for multiple orders using different credit cards from the same IP address, or orders charged to different cards but delivered to the same physical address.
Risks for technology businesses
Innovative technology plays a major role in many of New Zealand's new exports. If you are exporting technology-based products or services, you may need special entry techniques, delivery and support in the market. Ensure you budget for this.
Companies can also experience difficulties when bringing new technology-based products to market. These can be caused by the type of technologies customers already use in the target market, the rapid rate of technological change, or slower than expected adoption rate by mass-market customers.
Make sure you research your target market thoroughly to reduce any technology-based risks to your business, including slow adoption or issues around compatibility and infrastructure.
Environmental and corporate responsibility
In many markets, consumers are increasingly demanding sustainably produced goods and services and a higher level of corporate responsibility.
For example, in Europe pressure is currently increasing for manufacturers to take ‘cradle to grave’ environmental responsibility for their products, including setting up recycling or disposal schemes for their products or any hazardous components that pose a threat to the environment (such as batteries).
Staying ahead of the curve on environmental and corporate responsibility may give you a competitive advantage in these markets, and potentially reduce the costs of regulatory compliance later on.
Talk to someone already manufacturing goods for your intended market if possible. Your Industry Association or local Chamber of Commerce may be able to recommend a business contact you can talk to.