4 shifts in global trade that businesses need to guard against 

Some of that overall caution shows up in the way companies are approaching their international expansion. “Most countries are looking to consolidate their positions in existing export markets. They want to invest in countries where they’re already well established and gain further market share,” says Kuhanathan. “Investing in new countries is not top of mind for most.”

The exceptions are Poland, Spain, and the US, where companies still class expansion into new territories as a top three strategic opportunity, according to the survey responses. In any case, the current market uncertainties suggest that businesses would do well to protect themselves from the higher risks of international ventures with trade credit insurance.

Behind the wary outlook lies a diverse set of challenges and risks that are holding back exporters. A prominent hurdle is the cost of financing export activity, a direct result of higher interest rates. That is singled out as a big risk factor by US and Spanish respondents in particular.

For UK companies, energy costs are seen as the top export risk; in Italy and Germany, companies are still more concerned about logistics and supply chain challenges; while in France, the biggest concern is non-payment.

But non-payment is now a common source of disquiet across all the countries surveyed as economic momentum slows, financing tightens, and suppliers try to stretch their cash reserves as far as possible. 

“For many companies, delaying payments is now being seen as a means of financing their operations – for free,” says Kuhanathan. But that varies industry to industry.

“One way to accommodate your client is to allow them to pay with longer terms. And companies in sectors where they have built up a lot of inventory may choose to allow their buyers to increase payment terms as they clear that inventory. But other sectors that are more cash strapped will definitely be using supplier credit or payment terms to manage their liquidity,” says Kuhanathan.

About 40% of the surveyed companies are now expecting an increase in non-payment risk (up from only 29% in 2022); in the US and UK that’s closer to 50%.

Those companies are reading the market correctly, seeing payment problems as a possible prelude to insolvency. “Our data shows that after several years when non-payment risk was low, there has been a clear uptick in insolvencies in most countries in recent quarters. And that dynamic is here to stay,” he says. “High financing costs, inflation, and wage pressure biting into corporate expenses: it’s a cocktail of bad ingredients for corporate profit and financial health.” Trading in such an environment is riskier and is likely to encourage more companies to hedge against such bad debts with credit insurance, he adds.

The new dynamics show up clearly in the Global Survey responses to how companies are funding their foreign expansion. The top two sources of financing were, as in previous years, cash flow and bank loans, identified by 47% and 45% of companies, respectively. But ‘payment terms’ has now emerged as an alternative source of financing, cited by 44%.

“Two years ago, payment terms as a source of financing simply wasn’t on the podium,” says Kuhanathan. “Rates were low, most firms were cash rich and were not considering it as a financing source. Now it’s in the top three.”

Payment mechanisms are also now manifesting themselves in different ways in different countries. In the UK and France, Buy Now, Pay Later (BNPL) is considered as a source of financing for businesses ahead of more standard payment terms; in contrast, BNPL is barely mentioned in the survey results in Italy or Germany.

“This is a new and innovative way of accessing financing,” says Kuhanathan. The facility is provided via a financial services intermediary, and usually at a lower rate and with greater flexibility than could be obtained through a bank loan.

In tougher economic times, companies are also increasingly looking to their national governments to support the financing of international expansion. Half of all those surveyed put such backing at the top of their wish lists for government help. But, surprisingly, the shortage of skilled workers now comes a close second: 47% of companies say they want to see active labor policies for upskilling to help deal with the issue of scarce skills. In fact, in France, Italy, and Germany, that wish has now overtaken support for financing at the top of the list.

So what can exporters do to gauge the level of risk associated with current market conditions and at the same time carefully pick the best opportunities for their international expansion?

One key approach that companies are taking is to gain a deeper and more comprehensive understanding of their supply chains so these can be actively managed and made less risky.

Nearly 75% of the survey group say transportation risk and costs would have at least a moderate, if not a significant, impact on their export activity in 2023. With that in mind, almost a third are looking to supply chain insurance to safeguard their activities from disruption.

“More companies now want to see exactly how vulnerable they are at every point in the supply chain, and to know all the dependencies: not just with their suppliers but with their suppliers’ suppliers,” says Kuhanathan. “Until 2020, that was not so relevant; globalization was running at full steam, with lots of alternative suppliers and channels for fulfilment.”

That is not the only action companies are taking to insulate themselves against such risk. Survey responses also highlight ongoing changes to how companies manage their inventories.

“We are now in a very different world,” says Kuhanathan. “For many years we were in a world of just-in-time inventories. Then in 2020-21 that became just-in-case, with people building inventories to make sure that they don’t suffer from disruptions. Today, we are somewhere in between the two models. Businesses can rely more on global supply chains, but they are still being cautious: they don’t want to take their inventories too low, because they know that there are still plenty of risks.”