How to protect your business against disruptions
With the conflict in Ukraine having a ripple effect around the world, Canadian exporters need a solid business strategy to manage their risks. Here are five tips to help you respond to an ever-changing world.
1. Minimize supply chain disruptions
The Russia-Ukraine conflict is disrupting supply chains already snarled by the pandemic and is posing further threat to an economic recovery in Europe and beyond. With shipping, rail and air freight impacted, growing shortages due to a lack of components are being felt in a number of sectors. Here’s how to minimize disruptions to your business now and at any time:
- Communicate with customers to keep them informed and updated on your business operations and challenges.
- Examine all aspects of your supply chains, including logistics, cross-border movement of people and capital, and how your goods are bought and sold.
- Assess the situation to understand how your business will be affected in the short and long term. Pivot as needed and take advantage of new opportunities.
- Prioritize spending. With cash flow issues likely, you’ll have to work hard on keeping spending down, especially if you want to avoid layoffs.
- Re-evaluate your business processes for optimum efficiency. This isn’t business as usual and with a new reality in terms of cash flow, there may be processes and protocols that need to be reconsidered. Talk to your staff to ensure they’re clear about their responsibilities.
“While exporters rightly need to consider the immediate impacts of the current conflict on their business, such as logistic issues or higher input costs, it’s proactive to factor in the medium-longer effect, too. For example, diversifying their supply chains will help exporters withstand some of the volatility that this conflict has unleashed,” says Ian Tobman, manager of Export Development Canada’s (EDC) Economic and Political Intelligence Centre.
2. Protect your margins against currency fluctuations
“There’s a lot of volatility in currency markets right now,” says Paul Mitchell, EDC principal of International Trade Guarantee. “Currency risk can be hedged with a foreign exchange facility from your financial institution or FX broker.”
Securing exchange rates with a Foreign Exchange Facility Guarantee (FXG) is an important way to protect your margins, says Mitchell. Typically, financial institutions will require a 5% to 10% security on these types of facilities, which puts unneeded stress on your cash flow during exceptional times.
EDC’s FXG solution removes that stress by providing a guarantee to your financial institution, which effectively removes the collateral requirements, allowing you to use that working capital to grow your business.
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EDC is keeping a close eye on how COVID-19 and the conflict in Ukraine is impacting Canada and the global economy. Stay on top of changing country risks, so you can make informed decisions.
3. Do your due diligence
Risk comes in all shapes and sizes and, depending on the industry, it can have vastly different effects. Many companies look at best-case and worst-case scenarios to identify and help monitor business risk. When evaluating any potential market, you should be aware of standard risks, including political, financial, social, legal, environmental, supply chain and cyber. Given the sheer breadth of Canadian sanctions related to Ukraine on individual and entities involved in the Russia-Ukraine conflict, it’s paramount to know your customer and to have confidence in your decision to partner or work alongside other organizations.
Exporters need to have a solid risk management strategy in their toolbox, says Tobman. “Companies should also consider the implications should this conflict persist, including diversifying their suppliers.”
During the discovery process, it’s wise to capture the information in the form of a “risk register” to track potential risks in a market. Large corporations use sophisticated algorithms in performing risk analysis, but companies on a smaller scale can do virtually the same thing, using an Excel spreadsheet. To break it down:
- Identify the risk
- Determine the likelihood of it happening
- Evaluate your exposure and the potential consequences
- Develop an action plan in response
Companies need to keep on top of each market and routinely re-evaluate the various risks and plan accordingly.
4. Protect yourself from payment default
Risk of non-payment is top of mind for many Canadian exporters and credit insurance is essential to protect your business. Here are tips to ensure you’re getting the right coverage:
- Risk specific. The policy should be structured or tailored to your business needs and make sure the risks that are covered are the ones you need protected.
- Credit risk appetite. If you’re dealing in high-risk markets or with riskier buyers or sectors, you need to ensure the credit risk appetite of your insurer will support you in those times.
- Dollar value. Make sure you understand what value you’re getting for the cost you’re paying.
- There are also financial tools available from various institutions. EDC, for example, offers solutions that qualified exporters can use to protect the bottom line.
5. Seek expert advice
Understanding what’s happening in a market, and having an insight into its potential risks, is a form of risk mitigation. EDC provides many resources that exporters can use to find the information they need. To explore these areas, please refer to our Knowledge Centre and the articles at edc.ca.
To help monitor global risk, exporters can also turn to the:
- Canadian Trade Commissioner Service (TCS);
- Business Development Bank of Canada (BDC);
- Canadian Chamber of Commerce (CCC; and
- Industry associations, including the Canadian Manufacturers and Exporters.
Other informational tools include: