Make globalisation your friend

So your gizmo’s gorgeous, your widget wonderful and the service you supply is stupendous. You’re selling well in the UK, but the market is looking a little full. Now, you think, it’s time to export.

There are people out there, lots and lots of them, whose poor lives would be transformed by your ingenuity and innovation. So where to start? Buzz your accountants, certainly. But are they sufficiently experienced in the field? One very large accountancy firm even told us they, “Don’t do firms starting to export. We just do tax.”

The good news is that there is plenty of help available. The bad news is that, inevitably, it’s a minefield.

Companies might do worse than talk to another business in the same geographical area, or sector that started to export in the recent past. They will almost certainly have met their share of triumph and disaster.

There is, of course, the Export Credits Guarantee Department.

Its aim is to help exporters of capital equipment and project-related goods and services win business and complete overseas contracts “with confidence”.

It provides insurance against non-payment by overseas buyers, guarantees for bank loans to facilitate the provision of finance to buyers of goods and services from UK companies and “political risks” insurance to UK investors in overseas markets.

And there’s the Export Marketing Research Scheme, managed by the British Chambers of Commerce on behalf of UK Trade & Investment.

It aims to help and encourage companies to undertake overseas marketing research prior to developing a strategy for market entry or further investment in an overseas market.

But let’s get down to it. Your wonderful product suddenly appears on the dusty shelves of downtown Dubrovnik only to be copied by some charming Croatian gang leaders.

Ben Clay, of law firm Lupton Fawcett, says businesses looking to protect their designs from imitation should consider opting for an EUwide community-registered design rather than one covering just the UK.

He says that in a recent infringement case involving Jimmy Choo handbags (a must-have in Dubrovnik) the High Court highlighted a significant disparity between remedies available to the holder of a UK-registered design and those upon which the owner of a community-registered design may call.

“UK and community-registered designs both essentially allow the owner to prevent anybody else using that design or one which fails to give a different overall impression, although as the names suggest the protection afforded by a UK registration is limited to activities in the UK, whereas a community registration covers the whole of the EU,” he
says.

“However, the High Court has now confirmed that whereas if a UK registration is infringed, but the infringer can show that it was unaware of that registration, then the infringer does not have to pay any damages for its past sales, in contrast there is no such provision in respect of a community-registered design.

“This obviously represents a distinct advantage which the community system holds over its UK counterpart, one which could prove to be rather valuable to a designer, who, like Jimmy Choo, opts for the former over the latter and so is able to hit the infringer in the pocket.”

So be forewarned, says Clay: “While a community registration is the slightly more expensive of the two, unsurprisingly given its broader scope, the Jimmy Choo case highlights that the extra cost may turn out to be a wise investment.”

It’s a useful warning, though whether the Triads, the Yakusa or the Mafia quake in their Jimmy Choos at the thought of contravening community-registered design is open to question.

Lesley Batchelor, chair of the Institute of Export, points to other common problems. “For any business trading internationally in foreign currencies the key is managing risk – as well as being aware of short-term cashflow problems – that can be caused by shifts in exchange rates,” she says.

“Maintain currency accounts for the markets you are active in and adapt supply chains to take advantage of improved currency rates.”

Too many firms, she says, work on a “costplus” basis rather than looking at what is achievable in each market and developing a pricing strategy that incorporates the effects of exchange rate shifts.

“The savviest operations are able to switch production at short notice according to market shifts and take advantage of seasonal trends in specific markets to plan their currency purchases in advance,” she says.

So let’s get down to the exchange rate jargon. Interbank rates are the rates that banks deal at amongst themselves. They are effectively “wholesale” trading prices. Indication rates are effectively meaningless because they're simply an estimate based on the interbank rate: a company is not legally bound to provide a deal at this rate. Dealing rates are the rates at which all foreign exchanges are dealt.

Helen Scott, managing director of the 4X Currency Corporation, which bills itself as the world’s first online currency exchange company, says, “Rates change constantly but often banks provide one rate per day. Worse, some don’t even reveal the rate that the currency has been bought at until days later and payments can take as much as three-to-five days.

“The rates quoted to you will almost always be interbank or indication rates. So always ensure you register with the dealing companies first – this way you can ensure the quoted price is the one you get.”

And there’s more jargon, not quite so opaque. Spot trade is based on the current market rate, which is paid for straightaway – but you can’t guarantee that the rates will not change to become more favourable.

And there’s forward trade. That’s where you “buy now, pay later” by fixing the exchange rate now for a specific date: better if you don’t want to risk a fluctuation in the currency rate.

“Always make sure you are being quoted dealing rates in real time and that you have full transparency of the rate you are going to deal at before you agree to the deal,” says Scott.

“Most transfers incur hidden costs and if you are transferring less than £5,000, overheads do become significant. Banks generally will charge around £20 for sending the money to an overseas account. Some banks and FX companies also charge administration costs.

Commission is charged at a percentage of what you are buying – often up to two per cent.” So now you know.

The Financial Services Authority does not regulate the currency sector in the same way that it monitors mortgage-lending companies (that’s a relief -ed).

Because of this, many FX companies are not legally allowed to give advice to their customers.

So shop around. You wouldn’t buy a car (or a pair of shoes) without researching the many options first but it is, by all accounts, surprising just how many people agree to the first rates they come across.

And before trading with a company you should also ensure it’s registered with HM Revenue and Customs and happy to provide customer testimonials that you can check. Now that really is useful.

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