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|Cultural differences when trading overseas - Atradius advice|
|Thursday, 21 April 2016|
To mark Exporting is GREAT Week, trade credit insurer Atradius provides a timely guide to navigating cultural differences while trading abroad.
The UKTI’s Exporting is GREAT Week is designed to get companies thinking about export and opening up new ways of doing business across the world. British businesses have a lot to offer and British made goods are in demand in many markets. However, for a business new to exporting, engaging with the right partners is key and here Atradius sets out some important principles to building successful international relationships.
Key to expanding trading horizons is making sure that you have the right information at your fingertips and that you have taken steps to protect your business from the risks involved. As a leading trade credit insurer, Atradius holds business intelligence on 200 million companies worldwide and insures £billions of B2B trade domestically and overseas. Credit Insurance is an enabler, supporting insured customers to manage business risks and by providing access to analysis of trading conditions and insolvency trends; as well as by paying claims when there is a payment default or occurrence of a multitude of insurable political risks.
Vince O'Brien, head of strategic accounts at Atradius, said: “Expanding in global markets can be the key for successful business growth. However, companies should always look before they leap. Too often, international trade is seen as a quick win but the attendant challenges should not be overlooked and time invested in preparation will be well rewarded. To manage the transition into a new territory it is essential to research the local market; to understand local conditions and practices, as well as identifying target customers and assessing market size, consumption trends, potential demand and the level of competition.”
Mistakes can be costly
Businesses need to be familiar with the political and socio-economic situation in the country they are trading with as well as the cultural differences that might affect trade. It is naïve to assume that another market will mirror ‘home’ cultural practices and can risk offense, making you less attractive to do business with, and can potentially lead to costly mistakes. It is vital to understand the market from the perspective of your customer and also to bear in mind that in some parts of the world there can be vast differences in cultural behaviour from one province to the next.
An example of not getting it quite right is illustrated by the experience of a British cheese manufacturer that had thought of China as an easy ‘target’ as a potential new market. They had done their homework and correctly identified that the cheese market in China offered significant growth opportunity. However, the commercial sophistications of the highly developed east coast are yet to reach more central provinces; so when the British company selected a food fayre in Guilin to launch its product, it did not appreciate that in the less developed, more traditional areas the culture and ‘taste’ is very different. To the traditional Chinese palate, the taste and smell of European style cheese can be distasteful: our British Manufacturer could not persuade Guilin trade delegates to venture anywhere near their cheese stand. The sample produce which was carefully - and expensively - shipped to central China went to waste.
Develop a real understanding of your buyer
Information is the bedrock of sound trade. Not just political, geographic, trade sector or distribution channels but real understanding of your buyer. Cultural differences can range from time keeping to your tone of voice. For instance, Germans are renowned for their punctuality whereas in many African and South American countries, a meeting time is more of a guide; so in one country you’d lose respect for being late while in another it would be expected. And once you are at the meeting, when do you speak? should you take control or wait to be invited? In America and Germany, key points may be conveyed loudly in a business meeting whereas in Japan a softer style is more likely.
But it’s not just about when to bow and when to shake hands, it’s about legal frameworks contractual norms and payment practices. If you can’t dictate the standard you need to be very clear about what you’re getting in to.
Get a competitive edge
Trade credit insurance not only protects businesses from non payment. It also helps exporters gain that all important competitive edge, while also reducing red tape and the risks associated with trading overseas. For instance, by trading on an open account, Atradius gives companies the security and flexibility to do business – whereas some uninsured companies may need to continue to seek payment security of letters of credit. Therefore, trade credit insurance helps businesses become more attractive to customers as well as keeping admin down.
Don’t make assumptions
Cultural differences in payment practices are something that is often overlooked, although pretty rudimentary. Most businesses presume that their trading partner shares a similar attitude towards getting paid. But making this kind of assumption when entering a new export market is, at best, naïve, and at worst can create enduring problems for cash flow. If you are planning to export to Italy for example, your business may have to withstand the impact of 90-day payment terms - or even longer - as such terms of payment are far from unusual. Meanwhile in China it is actually illegal for a non-Chinese business to attempt to collect an overdue debt. In addition, in South America we see increasing trends for using dispute as a negotiation tool; and in Asia we see non-collection of goods as a method for obtaining discount. These are the kind of things businesses need to be aware of before taking the plunge.
Developing relationships with foreign embassies, trade bodies and business organisations will help build knowledge of local trade customs and legislation. Your trade credit insurer is also an invaluable source of information able to offer knowledge and experience as well as up to date analysis at country, sector, and individual company levels.
O’Brien continues: “Businesses need to take risks in order to grow and growth often begins with a new opportunity in a new market. With the right mind-set, preparation and protection, British businesses are poised to take advantage of the wealth of opportunity that international trade offers.”
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