Spreading the risk

Paul Gestro is the kind of guy who has seen things go wrong too many times. His current job is evidence too that his employer, BNZ, takes that kind of risk very seriously on behalf of their clients. Gestro has been in the newly created role of Head of Asia Desk since February after previously being a New Zealand Trade and Enterprise (NZTE) director.

“Smaller companies without the governance and rigour behind them are often just borrowing on their house,” Gestro says. “That could be quite risky. They might just have one seemingly genuine contact, so they send their goods without any idea of when and how they will be paid. They can risk their whole business doing that, and wonder why cash flow is a problem. It pays to be well-briefed and call in the experts to partner with them and give good advice on what to spend that precious money on.”

He advises doing, at the very minimum, the basics yourself by at least considering the region’s political and economic stability and the stability of the particular governments. The initial step is a simple risk analysis, particularly risk of rapid and extreme changes in value due to smaller markets, differing accounting systems, reporting, or auditing standards, the possibility of nationalisation, expropriation or confiscatory taxation as well as economic, political or diplomatic changes. “If your business is highly dependent on cash flow, you should ask yourself, do I send two containers to somewhere less stable, which could yield big returns, or just one to somewhere like Australia, where I know I am going to get paid?” he says.

Gestro also recommends spreading your risk, so that if you are planning to export to, say, China, you don’t just export there, so that you have something to fall back on. You also don’t want to let smaller markets you have already captured dwindle away – you might yet need them again.

Enderwick offers the same advice: “There’s still concern that things will not go well in China if there’s a political incident with Tibet or Taiwan,” he says. “This is often referred to as a China Plus One strategy, although some firms have a China Plus Two or Three. They set up duplicate or similar plants in Vietnam and Cambodia.”