Global Business

How to Utilize Trade Finance to Manage International Trade Risks

More companies are doing business abroad than ever before. New opportunities also bring new challenges and utilizing expert trade finance solutions can help you manage risk when dealing internationally.
Jonathan Heuser, Managing Director, Head of Global Trade, Commercial Banking

Global commerce is off to a strong start in 2017; several of the world’s largest developing economies exceeded growth expectations in the fourth quarter of 2016, and global trade volume is now growing faster than global GDP.1

Across the globe, a number of recent programs are encouraging growth in trade. China’s “One Road, One Belt” initiative, for instance, is intended to strengthen commercial ties throughout Eurasia and infrastructure investments continue to improve technology and transportation links. In January, a direct freight rail link opened between Shanghai and London, dramatically lowering shipping time for many goods between Europe and Asia. Furthermore, the World Trade Organization’s (WTO) 2017 Trade Facilitation Agreement is projected to lower the cost of doing business in the developing world by more than 14 percent, or more than $1 trillion annually.

In spite of these positive factors, trade-related political and regulatory uncertainties abound. For example, in the period between mid-October 2015 and mid-May 2016, WTO data shows the G20 economies introduced new protectionist trade measures at the fastest pace seen since 2008, with 21 restrictions per month and signs of continuation into the future. The fundamental complexities of overseas transactions, when layered onto this shifting global backdrop, create a unique set of challenges to manage, including currency risks, regulatory compliance and logistical hurdles.

Growing International Optimism

Regardless of the challenges, more business leaders are entering international markets than ever before. JPMorgan Chase Commercial Banking’s 2017 Business Leaders Outlook report revealed that middle market executives are growing more confident in the global economy: 30 percent reported being optimistic about opportunities abroad while only 11 percent expressed pessimism, a 38 percentage-point drop in pessimism from the previous year.

Among the 56 percent of middle market companies that are already globally active, more than two-thirds expect international sales to grow over the next five years. Specifically looking at manufacturers, more than 80 percent are globally active, selling to overseas customers or sourcing product components globally. Another 10 percent of business leaders plan to increase global activity, such as buying or selling overseas or expanding their operations.

Achieving that growth won’t be simple. According to the Business Leaders Outlook results, executives are growing more concerned with the regulatory environment. The level of concern over international trade policies in 2017 jumped 12 percentage points year over year, with 30 percent of respondents saying they are extremely or very concerned about these policies. Manufacturers are even more concerned about how international trade policies could impact their business growth, with 41 percent extremely or very concerned.

The dollar’s strength is also cited as an obstacle to overseas sales—29 percent of middle market respondents report that the stronger US dollar has had a negative impact on their organizations—primarily due to the higher cost of exports to overseas buyers, global competition and foreign exchange.

Key Challenges

Overseas markets hold great potential, but doing business abroad can present new difficulties. Companies moving into foreign markets may face logistical, political and financial challenges, including:

Emerging markets represent many of the world’s most rapidly growing economies and are home to burgeoning consumer societies that have a strong appetite for American goods. These locations are key to global expansion, but also bring unique difficulties, including:

Trade Finance Solutions

Working with a leader in global trade finance can smooth the barriers to international trade.

Working with experts in trade finance can help your company manage the complexities of international business by providing access to financing, ensuring payments from overseas counterparties and streamlining your supply chain. Combining more than 200 years of trade finance experience with leading technology and expertise, J.P. Morgan helps clients manage global trade risk and develop the knowledge base necessary to overcome new obstacles.

We welcome you to get in touch with us today to learn how we can help empower your organization to make the most of global opportunities.

 

1Source: International Chamber of Commerce (ICC), ICC Global Survey on Trade Finance 2016

 

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