Exporting: An Essential Growth Lever for Swiss Companies! For successful Swiss SMEs, expanding into international markets is often a natural progression in their business development. However, like any area in business, opportunities in foreign trade come with risks.
For many internationally active companies, export risks are among the most significant business risks. External factors such as currency fluctuations or political unrest are difficult, if not impossible, to predict, yet they directly impact local business operations. Here, we outline the main risks to consider when exporting and how to protect your business against them.
Currency Risk
Currency values constantly fluctuate due to factors like inflation rates in the concerned countries, central bank interventions, or dynamics in the currency markets. These fluctuations can mean that the amount received by the exporter differs from the initially agreed amount, significantly reducing the profit margin on exported products.
A simple example: Currency values constantly fluctuate due to factors like inflation rates in the concerned countries, central bank interventions, or dynamics in the currency markets. These fluctuations can mean that the amount received by the exporter differs from the initially agreed amount, significantly reducing the profit margin on exported products.
Currency Risk Mitigation
Hedging Operations
Currency risks can be hedged in two ways. One involves performing currency operations through your bank: you lock in the current exchange rate for a future transaction.
Billing in CHF
It's even simpler if you issue and settle your invoice only in Swiss francs. However, if you effectively avoid the currency risk, you transfer it to your client. This could not only have negative consequences on the business relationship but also backfire. If your client faces liquidity issues due to currency fluctuations, they might not pay your invoices.
Political risks
Unfortunately, we regularly read and hear about political developments such as changes in legislation, unrest, or even terrorism and war, which have a direct impact on people and businesses in the affected country.
Impact on Export Transactions: When trading goods and services internationally, you need to ensure that things proceed as planned on the other side of the border, including sales volumes, transport routes, or the legal framework. The unpredictable effects of political events (e.g., strikes, maritime blockades, or currency restrictions) can directly influence your export activities.
A simple example: Suppose you've been exporting the finest Swiss chocolates to China for some time. To protect local producers, the Chinese government imposes exorbitant tariffs on foreign luxury food products. Your local trading partner, a fine grocery chain, can no longer afford to pay for your chocolates and other foreign products and becomes insolvent. You end up with unpaid invoices and excess chocolates.
Political Risk Mitigation
Risk assessments by experts
In Switzerland, you're always aware of political developments that might influence your business. Keeping this overview in different countries, or even continents, is much harder.
Coface helps: our political risk index provides an estimate of the current situation, based on analyses by our economists in various regions, in almost every country worldwide. This allows you to inform yourself in detail and assess the corresponding political risk before signing a contract and, if necessary, take appropriate measures.
Consult our global country risk map and gain valuable insights.
Single Risk: Your protection against political risks
Have you already identified a political risk for a specific client or transaction abroad and want to cover it specifically? With Coface's Single-Risk insurance, this is possible. Thus, you won't miss this opportunity despite the potential risk.
Learn more about the Single Risk offer
Payment Default Risk (Credit Risk) - insolvency of the customer
Credit risk corresponds to the possibility that a buyer pays the seller's invoice late or doesn't pay at all – either because they don't want to or don't have the necessary funds due to liquidity problems or even bankruptcy.
Impact on Export Transactions: There is naturally some credit risk with all clients, even in Switzerland. However, it is generally much higher in foreign trade transactions:
- Political and economic conditions are often much more volatile than in Switzerland (e.g., unrest, frequent regime changes, high inflation, large currency fluctuations, massive exodus of skilled workers).
- The legal framework is not always guaranteed or is insufficiently enforced.
- It's more difficult to make a realistic assessment of the creditworthiness of foreign trading partners, as local companies often do not have access to relevant information.
- It's harder to pursue late-paying clients abroad and ultimately enforce the claim, i.e., recover your money.
A simple example: Suppose your export business to India is through a wholesaler in Mumbai. For unknown reasons, this wholesaler doesn't settle your invoices despite several reminders. You learn that they have entered a spiral of liquidity problems and unpaid invoices. You could try to enforce your claim in court, but this would be very costly and complicated (since the jurisdiction is in Mumbai) – and who knows if, as a creditor, you will recover anything?
Non-payment risk mitigation
Reliable creditworthiness information
One way to reduce credit risk is to obtain relevant information and realistic assessments of your trading partners' creditworthiness.
We are here to help: with Coface Business Information. Benefit from our decades of experience in the credit insurance sector and our presence (partners) in 200 countries.
Discover Coface Business Information and make better informed decisions.
Coface credit insurance
With credit insurance, you can limit the risk of non-payment both nationally and internationally. This protects your export business and liquidity and makes it easier to access financing solutions. At Coface, you will find credit insurance tailored to your needs.
Learn more about our credit insurance solutions
Transport risks
Goods delivered from point A to point B are naturally exposed to various risks: damage during transport, unexpected delays, loss, or theft.
Impact on Export Transactions: Logically, the greater the export distance, the longer the goods are in transit – and the more they are exposed to certain risks. Depending on the region, additional risks related to foreign trade may arise, such as delays due to customs formalities, increased risk of theft (e.g., piracy), or damage (e.g., failure to maintain the cold chain due to high temperatures in the destination country).
Transport risks mitigation
For all types of transport, globally recognized clauses exist: Incoterms® 2020. They specify exactly up to where and from when the seller or buyer assumes the transport risks. They also clarify important questions such as: who insures the goods and at what cost? Who pays customs duties? How is the merchandise packaged?
Inform yourself early, get advice if necessary, and agree on appropriate clauses with your foreign trading partners. Thus, you will know which risks you assume and won't be surprised by unexpected costs.
Detailed information on the Incoterms® 2020 can be found on the website of the International Chamber of Commerce Switzerland (ICC Switzerland).
Transport insurance: The transport risks you (and not the buyer) assume can be covered by transport insurance. This way, you protect yourself against the financial consequences of loss or damage.
"Force Majeure" Risks
"Force majeure" events such as natural disasters, but also strikes and others, can paralyze not only social life but also exports. Due to the increase in extreme weather events, this risk is unfortunately on the rise.
Impact on Export Transactions: We are fortunate that Switzerland is located in a part of the world where natural disasters are relatively rare. However, exporting companies abroad are often exposed to an increased risk of being financially affected by force majeure events, depending on the region.
Force majeure risks mitigation
You can insure yourself against force majeure events. Discover for instance Coface's natural disaster insurance and focus calmly on your core business.
Coface can help you mitigate your export risks
If you're looking for a solution to protect your export operations, click on the link below and one of our experts will call you back.