Economic uncertainty leads to business uncertainty and there is a lot of it to go around both domestically and internationally.
The increase in trade tensions between major economies and the rise in political populism has impacted, either directly or indirectly, upon macro and micro economic indicators. It’s hard enough to plan your business strategy in just one or two markets, let alone across continents, different time-zones and varied cultures. However, it is vital to be aware and ready to act should key economic and geopolitical indicators change significantly in regard to your sector, industry or business.
The international economy and your business
In assessing the impact of the international economy on your global expansion plans, there are some key areas of risk to take note of:
||Trade tensions and supply chain disruption|
||Global growth reduction|
There are also a number of economic indicators that you should be aware of, when considering the level of expansion plans, you want and the markets you want to enter:
|Volatile exchange rates|
|Equity market performance|
|Interest rate fluctuations|
|Corporate yield spread|
Global economic growth is likely to continue to slow amid a growing series of risks. The level of dollar-denominated debt has increased to $11 trillion from $3 trillion since 2008. As US interest rates rise, economies with large portfolios of dollar-denominated debt will find it quite difficult to service it. Those economies holding large portfolios of dollar-denominated debt relative to GDP—Turkey, Mexico and South Africa—are the bellwethers for risk around emerging markets.
There are two transmission channels for emerging markets’ economic problems: trade and financial. For example, if there is a move by Turkey to renegotiate its debt or possibly even default, the contagion will spread into the European Union quite quickly via trade, and into financial markets in Spain, Germany, France, Italy as well as the UK.
Despite the challenges and risks faced by UK businesses when considering international expansion, the opportunity for global growth remains. Indeed, whilst all the economic and political uncertainty continues, many UK businesses are taking the view that expansion into new markets and in particular, international markets, is the right thing to do. Our middle market survey relating to international expansion shows that 78 per cent of respondents are already active in between two and five overseas markets.
The key to success in your international plans is having a detailed understanding of your chosen markets; the political and economic developments locally; and whether your business is currently structured in a way that will make your growth plans straightforward and prosperous.