5 tips: Managing risk in turbulent times

In Economics & International Trade by CECAdmin

How to protect your business against disruptions

With the conflict in Ukraine having a ripple effect around the world, Canadian exporters need a solid business strategy to manage their risks. Here are five tips to help you respond to an ever-changing world.

1. Minimize supply chain disruptions

The Russia-Ukraine conflict is disrupting supply chains already snarled by the pandemic and is posing further threat to an economic recovery in Europe and beyond. With shipping, rail and air freight impacted, growing shortages due to a lack of components are being felt in a number of sectors. Here’s how to minimize disruptions to your business now and at any time:

  • Communicate with customers to keep them informed and updated on your business operations and challenges.
  • Examine all aspects of your supply chains, including logistics, cross-border movement of people and capital, and how your goods are bought and sold.
  • Assess the situation to understand how your business will be affected in the short and long term. Pivot as needed and take advantage of new opportunities.
  • Prioritize spending. With cash flow issues likely, you’ll have to work hard on keeping spending down, especially if you want to avoid layoffs. 
  • Re-evaluate your business processes for optimum efficiency. This isn’t business as usual and with a new reality in terms of cash flow, there may be processes and protocols that need to be reconsidered. Talk to your staff to ensure they’re clear about their responsibilities.

“While exporters rightly need to consider the immediate impacts of the current conflict on their business, such as logistic issues or higher input costs, it’s proactive to factor in the medium-longer effect, too. For example, diversifying their supply chains will help exporters withstand some of the volatility that this conflict has unleashed,” says Ian Tobman, manager of Export Development Canada’s (EDC) Economic and Political Intelligence Centre.

2. Protect your margins against currency fluctuations

“There’s a lot of volatility in currency markets right now,” says Paul Mitchell, EDC principal of International Trade Guarantee. “Currency risk can be hedged with a foreign exchange facility from your financial institution or FX broker.”

Securing exchange rates with a Foreign Exchange Facility Guarantee (FXG) is an important way to protect your margins, says Mitchell. Typically, financial institutions will require a 5% to 10% security on these types of facilities, which puts unneeded stress on your cash flow during exceptional times.

EDC’s FXG solution removes that stress by providing a guarantee to your financial institution, which effectively removes the collateral requirements, allowing you to use that working capital to grow your business.

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