Business musings

I don’t know about you but Matt and I have been absolutely glued to the Olympics over the last few weeks. I think the last time that I watched this much sport was back in 1996 when Damon Hill won the Formula 1 World Championship—and that wasn’t compressed into two short weeks when I was also working!

Of course there will always be cynics (we’re British, aren’t we?!) but, for me, London 2012 has been incredible—and we’ve still got the Paralympic Games to go! Sadly Matt and I didn’t manage to get tickets but we’ve loved dipping in and out of the events, watching athletes perform amazing feats of human achievement, and generally soaking up the atmosphere.

And, it would seem that we haven’t been alone. Almost everyone I know on Facebook and Twitter has been posting pictures of how they’ve been supporting the Games and, in an almost unprecedented voice of unity, the media have been unendingly positive.

On Monday, the front page of The Times read:

Our revels now are ended, but the past 17 days have been such stuff as dreams are made of. The London Olympics Games ended last night and the greatest party in the history of the world is now a memory. Or a raft of them.

Looks like we got away with it, then. Looks like London 2012 was—well, we don’t really go in for boasting in this country, but it was, shall we say, not bad. Really quite good, in fact. Quite good for us: rest of the world, was it good for you too?  It was, you know. I think a nation can tell.

So why I am writing about this on a blog dedicated to business musings? Well, it seems like a pretty appropriate time to give a shout out to all things British, including business.

For example, did you know before you watched the Closing Ceremony that the theme tune to CSI: Miami is by The Who (as are all CSI theme tunes) and that The Who are British? This was news to me—at least about the theme tunes for a hit American television series being British in origin.

What about Sir Tim Berners-Lee, British inventor of the World Wide Web? In an Ipsos MORI survey conducted earlier this year, only 13% of adults believed the World Wide Web was made or designed in Britain. Fortunately, the people in the know knew better and Sir Tim was given a star role in the Opening Ceremony.

The stunning and beautiful Olympic Cauldron was designed by Thomas Heatherwick, founder of Heatherwick Studio—one of the most inventive design studios in Britain.  Matt and I spent a fabulous afternoon at the Victoria and Albert Museum browsing the first major solo exhibition of their work (this exhibition is running until 30 September as part of the London 2012 Festival).

In addition to the Olympic Cauldron, Heatherwick Studio have also designed the bestselling zip bag, developed in collaboration with Longchamp; a brand new London bus—”the first bus to be designed specifically for the capital in more than fifty years”; the Rolling Bridge at Paddington Basin; and a huge programme of improvements to a Pacific Place shopping mall in Hong Kong; to name but a few.

We’ve got a lot to shout about in Britain and a lot to be proud of. And yet—at least before the Olympics—only 4% of people felt that business was a reason to be proud to be British. Hopefully this is an attitude that will change following the success of the Olympics but I also wonder whether, to some degree, it’s a matter of education. I don’t think we always realise how rich our heritage is and how much us Brits are truly responsible for. Maybe that’s because we’re too self-effacing. Maybe British businesses aren’t very good at getting the word out. Maybe, in a funny way, it’s just part of the nature of being British: we don’t boast, we don’t shout, and we like to quietly go about our business—even when that business is changing the world.

The Opening and Closing Ceremonies of the Olympics were great at showcasing British achievements. A film by UK Trade & Investment was also produced several years ago to promote the creative cultural heritage of modern Britain in our bid for the 2012 Olympic Games. Part of UKTI’s ‘Love and Money’ campaign, the film showcases “products and services that balance business ambition and commercial success with the invention and experimentation for which Britain’s creative industries are internationally renowned.”

Having travelled the world, the Love and Money exhibition has received an international reaction that has been “unanimously positive”. And maybe that is something else that we should take away from these Games: international opinion on Britain is generally more positive than we give ourselves credit for. Good news if you’re looking to internationalise!

I’m sure there will be people out there who disagree with me—you may even be reading this article! But, for me, I stand with Declan Carty whose letter to The Independent having travelled to the Olympics from Dublin was featured in The Week:

I have come to the sad conclusion that there seem to be more people with glasses half-empty than half-full, and it is these people who bleat on endlessly about how poor everything is and how it could be better. We must despatch these naysayers and not pay them any more attention than we have to. Our experience, and the experience of dozens of people we spoke to, was a very positive one. Congratulations to all concerned.

Today, I am proud to be British and proud of everything we have achieved. If you’re a British business, be proud of your achievements and consider shouting them from the rooftops, even if at first this is only in a whisper.

Once upon a time, in May 2010, John and his team at EngCo Ltd were competing to win an order from a firm in the US. John knew they could deliver a high quality job and it was a company they’d wanted to work with for some time. They’d also done their due diligence and knew the company had plenty of cash reserves, so payment shouldn’t be an issue.

Together, the team at EngCo worked out a price that included a 10% profit margin on the work and sent the US firm a quote for £244,000. However, the company shortly came back to them and asked for the quote in US dollars (USD) instead of pounds (GBP). John readily agreed and his sales manager duly converted their fee. Using a currency converter, she moved everything into dollars with a conversion rate of 1.4334 on 20 May 2010, rounded the figure up to $350,000, and sent the quote off again. The US company quickly accepted and John and his team were thrilled to have been selected!

EngCo got started on the work straight away, spent a couple of months completing the order and invoiced the client in early August. The client was delighted and paid almost immediately.

Great news…or not so much!

The trouble was that, having converted their original quote to US dollars, EngCo only received £219,485 instead of the £244,000 they’d accounted for! In the process, they effectively lost £24,515 and just over 50% of their profit margin.

So what went wrong?

When the US client paid EngCo Ltd, the exchange rate for USD to GBP was 0.6271. This meant that although the US company still paid $350,000 at their end, EngCo received much less than anticipated as they had converted their quote when the exchange rate was more favourable.

What could John have done differently?

There are a number of things that John could, and should, have done to protect EngCo from the risk of exchange rate fluctuations.

Quote in EngCo’s own currency

To be fair to John and his team, this is what they did initially and all would have been fine had the US firm not asked for a quote in US dollars. The team could however have been smarter when dealing with the request for a new quote.

For example, John could have quoted in dollars but negotiated with the client over who had exposure to exchange rate fluctuations and within what limits, thereby triggering a re-calculation mechanism should exchange rates become unfavourable.

He may also have been able to negotiate phased payment for the project (including an upfront deposit), again reducing EngCo’s currency exposure and significantly smoothing their cashflow.

Foreign currency account (or local bank account)

Another simple solution would have been to set up a US dollar account with EngCo’s bank and ask the US company to pay into this (John would simply have needed to provide the client with the IBAN and BIC numbers for the currency account). While this wouldn’t have protected EngCo from currency fluctuations at the point of conversion, John would have been in control of when the monies were converted to GBP (unless, of course, he needed the cash to cover overheads, in which case this option would have offered less benefit).

Setting up a foreign currency account would have also meant that if John had further expenses in the US (such as setting up an international office), he would have been able to pay in US dollars directly from this account, thereby entirely removing any exchange rate risk from these transactions.

Alternatively, if John was committed to the US market, he could even have set up a local US bank account through his existing UK bank. This option would have been particularly attractive if EngCo ever wished to give the impression of being a local US company.

Forward foreign exchange contracts

If John had been completely certain of when his team would invoice and when EngCo would be paid, he could have set up a forward foreign exchange contract. This would have meant that John was committing to converting $350,000 to GBP at a fixed point in time and at a pre-agreed exchange rate—a great solution for removing exchange rate uncertainty in a predictable transaction.

That said, a forward contract would also have had the potential to expose John to significant risk if he had not been paid on time. A forward foreign exchange contract requires that, whether payment has been received from the client or not, the exchange must be actioned regardless. Had John not been paid, he therefore would have had to find $350,000 from somewhere else in EngCo!

Similarly, if the August exchange rate had instead gone in EngCo’s favour, John would still have had to convert at the agreed forward contract rate, thereby missing out on any additional profit.

Currency options

Currency options are in some ways similar to forward foreign exchange contracts in that they enable you to buy or sell currency at a specified exchange rate at a given time. As the name suggests however, the key difference between currency options and forward contracts is that options are optional!

If John had pursued this path, he could have bought an option to sell EngCo’s US dollars at a pre-determined exchange rate but later decided whether or not to use the option. John could even have purchased an option before he knew he had won the contract, giving him the security that, whatever happened, EngCo’s margins would have been protected. If EngCo hadn’t won the contract, if the client had failed to pay when expected, or if the August exchange rate had gone in EngCo’s favour, John could then have simply chosen not to use the option, only taking the hit on the option premium.

Don’t leave your foreign transactions to chance

As John’s story illustrates, currency can have a significant impact on your profit margins and you can incur huge losses if you’re not careful! We tell the story here with two fairly stable currencies but the risks and effects are magnified further when dealing with countries in which currencies are more unpredictable.

For those of you who are looking at internationalising or are dealing with international clients, take heed! The uncertain financial environment that we find ourselves in at present only increases the likelihood of uncertain and extreme currency fluctuations, so don’t leave your transactions to chance.

Similarly, in our story, John was certain of the buyer’s ability and willingness to pay and he was able to cover his working capital requirements through EngCo’s reserves: if a relationship with a client is less certain for any reason or you are unable to fund the cashflow requirements of the project yourself, you should also look at reducing risk through various export finance and insurance options.

If you’ve read our earlier article, Introducing OMIS—your global research network, you’ll have a pretty good idea of the ways in which OMIS (Overseas Market Introduction Service) can help you as your business expands overseas.

To enable you to maximise the value you obtain from this service and to help you create a great partnership between yourselves, your International Trade Advisor (ITA) and your OMIS team, we’ve pulled together our top tips for getting the best out of OMIS.

Top-level strategy

Before diving headlong into internationalisation, it is imperative to develop a strategy. Whilst you may not need to document your strategy in a lengthy tome, you should at the very minium have some form of strategic framework—we certainly wouldn’t recommend playing pin the tail on the country!

• Develop an overall vision of where you want your business to be in the future
• Create a business strategy that will enable you to achieve this
• Develop an international strategy that is aligned with your business strategy
• Identify your target country or a shortlist of countries/regions
• Set aside a budget for your internationalisation—include the costs of OMIS, travel, accommodation, marketing collateral, legal advice and documentation, etc.

Online research

It’s pointless paying someone else to find out basic information that a couple of hours or a morning spent on Google could give you, so don’t be lazy! You’ll spend as much time explaining what you want to a market specialist as it will take you to complete a quick, broad sweep of the landscape yourself.

• Start by doing some basic online research
• Where possible, find out about the market structure, size and potential within your chosen country
• Try to establish a basic profile of your industry: Who will your competitors be? Who might you be able to partner with? What is your customer profile within that country?
• Conduct an initial search to uncover key political, economic, sociological, technological, legal and environmental factors that might influence your business overseas
• Don’t forget to search for other UK companies that are already trading in your target country as you may be able to learn from their experiences and/or to partner with them

Choosing your OMIS package

Having completed your own online research, you’ll have a much clearer idea of how OMIS can help you and will be able to strategically tailor your OMIS package to meet your needs. It’s likely that the closer you are to entering your chosen market, the more practical the services you need will be.

• Mix and match OMIS services to select those that best meet your needs and requirements
• Use OMIS for ‘value added’ services (i.e. activities that you are unable to easily do yourself)
• For market research, choose between depth and breadth depending upon your current level of understanding—you’ll want to dive deeper into the market if you already understand the broad brush strokes than if you’ve had difficulty establishing basic information
• Tie any activities you ask for to your next planned steps—all services will be part of a bigger process

Creating a clear brief

A good brief is vital to maximising the value you receive from OMIS—when requesting OMIS services, you’ll be asked to complete a standard UKTI form, which should provide you with the structure you need. Remember, you’re engaging the services of someone who doesn’t yet know your business, who doesn’t know you and who certainly can’t read your mind, so the more information you can give them about your company and what you are looking for, the better.

• Clearly specify your objectives
• Ensure you have understood who will be carrying out your brief and write it accordingly
• Define key outcomes and findings that you require from OMIS
• A clear focused brief = clear focused research and services
• Double check that you and your market specialist have a mutually agreed understanding of the research and services to be carried out

Ongoing engagement with OMIS staff

Whilst written communications are great, verbal communication can’t be beaten. Ensure that you maintain contact with both your ITA and OMIS in the same way as you would to get the best out of your own staff and suppliers. Misunderstandings can happen, especially across international borders, and you’ll save a lot of time and hassle if you make sure that everyone is on the same page from the outset.

• Maintain personal involvement throughout the OMIS process―phone conversations are best
• Relationship is important to getting the right results
• Conduct regular health checks on your OMIS services
• Use milestones and due dates
• Ensure that you obtain sight of draft/initial research so that you can be involved in final revisions/tweaks

Final sign off on market research

Once you’ve received a completed OMIS report, check through it to ensure that it meets your stated brief—don’t just leave it in your inbox gathering dust! If anything is missing or does not meet your expectations, contact your market specialist as soon as possible—they will quickly move on to their next project and it will be easier for them to revise your report whilst it’s still fresh in their mind.

• Once the research has been completed, make sure that you sign off on your brief and that you’re happy it has been met
• Prior to sign off, ensure that you obtain any final amendments that you feel are needed

Using OMIS to conduct a market visit

If you’ve correctly specified your OMIS report, you should now have a strong list of potential customers and partners who you may wish to meet with. Before you dash out on the next plane however, it’s vital to ensure that you’re thoroughly prepared and that you’re making the most of the support that OMIS can give you.

• Let the OMIS staff know when you’d like to visit your chosen country and what you’ll be hoping to achieve―again, a clear brief ensures successful outcomes for all
• Check with your market specialist to ensure that your planned dates don’t coincide with any public holidays or national celebrations
• Where possible, give your OMIS team plenty of notice about your intentions―OMIS’ in-country support can be hugely valuable but if you leave it to the last minute to liaise with the team, it’s highly likely they’ll be unavailable due to other commitments
• Prioritise who you’d like to meet with and explain to your market specialist why you’ve made these choices so they can arrange your meeting schedule accordingly
• If you’d like a market briefing, cultural advice or explanations of business etiquette, specify this when you choose your OMIS package―alternatively, if a UKTI trade mission is arranged for your sector and chosen country, many of these services will often be included

Turning OMIS into action

It’s now your turn to act! The key to unlocking the value of OMIS services is to be a proactive partner throughout your internationalisation journey. Whilst OMIS can help you to lay all the right foundations, at the end of the day it’s up to you to promote your business, to make a great impression with the people you meet, to build lasting relationships and to follow-up effectively. OMIS can generate huge return on investment if you effectively play your part.

If you’ve seen my last post, there are in fact a whole host of ways to avoid playing ‘pin the tail on the country’! OMIS is one such resource.

What is OMIS?

If you haven’t heard of it before, OMIS stands for Overseas Market Introduction Service. Provided by UK Trade & Investment (UKTI), OMIS allows businesses to access the services of UK trade teams located in British embassies, high commissions and consulates across the world. Having used OMIS ourselves for several international client projects, we’ve found it to be a hugely valuable service and would recommend it to anyone looking to break into a new overseas market.

Why do we recommend it?

Internationalisation can be a daunting task, especially when there are differences in time zones, languages and cultures. OMIS provides a wealth of practical support, advice and key market information, supporting you through each stage of your international journey.

Whilst we’d always encourage you to begin the process of market research for yourselves, international research can be difficult when you don’t have contacts ‘on the ground’ and the research information you are looking for is in another language—Babel Fish and Google Translate only go so far! OMIS teams can prove invaluable in finding the information you need and you’ll be amazed by the caché that contacting organisations through the British Embassy brings—it really can open doors that would otherwise remain closed. Imagine sitting at your desk in the UK and receiving a call from an international embassy—you would certainly provide a warmer reception than for a cold caller. The call would probably get past your secretary too! This works in the same way abroad.

When it comes to actually visiting an international market in person, OMIS can be on hand then too. Booking meetings for a market visit and sending marketing material abroad can be time-consuming and frustrating due to the added complexities of tracking down the correct address in another language, dealing with international postage, sourcing meeting venues, and ensuring that you don’t book two meetings at opposite ends of the country on the same day! Using OMIS’ market specialists removes considerable stress and hassle both during the organisation of your visit and once you’ve actually landed in the country. We’ve used this service before and wouldn’t consider organising a market visit any other way.

How can OMIS help me?

OMIS provides a broad range of activities, each of which can be tailored to your individual requirements. You might be looking for more indepth information on a particular market, interested in identifying a new business partner for your services or looking to launch your product abroad with a splash: OMIS can help in any or all of these situations.

To give you a better idea of the types of services you can purchase through OMIS, I’ve put together a list of example activities that OMIS can undertake for you below (the list isn’t exhaustive but it is relatively comprehensive):

Market research

• Identification of market size, market potential and key trends within a marketplace
• Provision of localised industry and sector advice
• Analysis of possible routes to market
• In-country competitor analysis
• Assessment of the potential level of demand for your products or services
• Identification of opportunities and prospects

Introductions and partner selection

• Identification of possible business contacts and partners
• Assessment of the level of interest displayed by potential partners
• Background checks and partner references
• Provision of marketing material to partners of interest (including provision of cover letters in the partner’s native language and personal follow-up once the material has been sent)
• ‘Warming up’ of potential partners and contacts
• Organisation of local market introductions (for example, Chambers of Commerce, trade associations and so on)

During your international visit

• Organisation of meetings for your market visit
• Provision of pre-visit briefings and one-to-one mentoring
• Provision of local support to get you from meeting to meeting in an unfamiliar country
• Provision of translation, cultural advice and explanations of business ettiquette during meetings
• Organisation of a launch event hosted at the British embassy (with possible access to the British Ambassador or High Commissioner at the event)
• Invitation of guests and organisation of bespoke receptions, meetings and seminars where you can personally present your product or service
• Organisation of follow-up meetings and post-visit support

Sadly, not all activities are available in every overseas market as the activities are dependent upon the presence of UKTI market specialists within a given country, but where OMIS is available the market specialists are solely dedicated to supporting UK businesses (UKTI provides a full list of country specific information on their website—those countries marked in bold offer full local services).

What will it cost?

OMIS services start from around £225 and then vary in price depending upon your requirements, the level of support you are looking for and the country that you are looking to target. Overall, their prices are very competitive compared to commercial in-country support, especially when you consider the reduction of risk and the support apparatus around these services in the UK.

So what now?

Your first step is to get in touch with UKTI (look for your local contact by region) and to meet with an International Trade Adviser (ITA). Your ITA will become your key point of contact and will be able to offer additional advice on your internationalisation process. To enable you to access OMIS, your ITA will put you in touch with the right contacts, help you fill in the relevant paperwork and brief, and support you throughout the OMIS process.

Update 10 November 2011

If you have already started the OMIS process or are thinking about requesting their services, we’ve pulled together our top tips for getting the best out of OMIS in our latest article.

We had the privilege of interviewing Adam Bird, Co-founder and Chief Technical Officer of Esendex. Having established themselves as leaders in business SMS in the UK, Ireland, France, Spain, Australia and now America, Esendex seeks to transform business communication.

Adam describes Esendex’s experience of going international and offers his insight and advice to other companies looking to internationalise.

At the beginning of this year, few people - and certainly few businesses – would have imagined that we would now find ourselves in the midst of extreme travel disruption due to the eruption of a relatively unknown volcano in Iceland.

The Eyjafjallajökull volcano first began to erupt in March of this year but it was not until its second, more dramatic eruption in April that we saw the unprecedented move to shut large swathes of European airspace due to the dangerous volcanic ash that it was spewing high into the atmosphere.

Globalisation reliant on air travel

This loss of air travel has certainly highlighted how reliant we are on modern air transport and the degree to which it facilitates the level of globalisation we have come to expect. We have effectively been transported back in time to an age when flying was unknown and the main forms of transport were sea and road.

The halt of UK and European air travel has left thousands of people stuck in limbo, unable to come or go, stranded where the pause button deemed fit. Many businesses and business people have also been affected, unable to get back from holidays or business trips, struggling to import or export much needed goods, and unable to attend important meetings abroad.

Global implications

The extent of the disruption has not only been felt in the UK and Europe but also worldwide.

Yesterday, Nissan suspended production at two of its factories in Japan due to the fact that it could not get hold of crucial air pressure sensors.

Kenya’s economy faces devastating losses as it “haemorrhag[es] $1.3m a day in lost [flower] shipments to Europe” and “there is no diversionary market [as] flowers and courgettes are not something the average Kenyan buys.”

Fujitsu has temporarily suspended exports of notebook computers to Europe and has been unable to say how long its European stocks will last or how much it stands to lose if the disruption continues.

The UK premiere of Iron Man 2 has been moved to Los Angeles, and many sporting, music, movie and other entertainment events face schedule changes and disruption.

Not to mention of course, the financial impact upon European airlines and tour operaters, with the International Air Transport Association stating that losses in the European airline industry had reached £165m a day.

Business continuity

The complete lack of European flights has certainly reinforced the need for business continuity planning.

Stephen Cross, CEO of Aon Global Risk Consulting, observed that “as economies contract or competition increases, lean manufacturing becomes the name of the game… Such an approach might be highly efficient when things are running smoothly, but in the event of a major disruption event such as this, it can lead to significant delays in key materials and inputs being delivered, or in a worst case scenario to a systemic failure in your supply chain” (Continuity Central).

As the volcanic disruption has highlighted though, it is not only suppy chains and operations that can be affected.  With many business owners, directors, managers and staff stranded, a business also needs to be able to continue in the absence of its people.

Not only that, but as the plight of the airlines emphasizes, a business also needs to have contingency plans in place for times when the very service it provides cannot be delivered.  As Jan Husdal rightly pointed out, “a flight is not something you can produce and stock somewhere. It is produced and instantly consumed at the same time… Without passengers and without flights, no airline can survive.”

Yet, in A Decade of Living Dangerously – The Business Continuity Managment Report (produced only a year ago, in March 2009) The Chartered Management Institute reported that (of the businesses they surveyed and received responses from) only 52% had specific business continuity plans covering their operations and that generally managers within organisations remained complacent about continuity.

Obviously there are some eventualities that are almost impossible to predict and therefore to plan for – the black swans of this world – but that is not to say that we should not be building robustness into our businesses and systems now.

Have you been able to run your business without access to flights?

What would happen if other transport systems were unavailable to you?  Does your business have alternative transport plans in place?

Were you or any of your staff stranded by the flight disruptions?

If you have not experienced any disruption, have you designed your business in such a way that it could continue in your absence, should you ever be stranded in the future?

Can you and your staff access emails, documents and telephone services remotely if you are unable to get to the office?

Although the impact of the volcanic ash disruptions is expected to be relatively low in Europe, (RBS has predicted an impact on GDP in Europe of 0.1%), history warns that we are not necessarily out of the woods yet.  According to the Telegraph, the last time Eyjafjallajökull erupted (in the early 1820s) it blew intermittently for 14 months and on each occassion of its previous eruptions it has been followed within months or a year or so by a major eruption at Katla (a nearby volcano that is known to be more violent).  Presently there are no ground rumblings at Katla and the conditions that have led to the unprecendented closures of air space are rare, but this event has very much highlighted the vital and urgent need for business continuity planning. Without it you risk the future well being of your business.

I recently went to the Baltics on behalf of a client, exploring the potential of the Estonian, Latvian and Lithuanian markets. The trip was very well organised by UKTI; the visits were hugely useful both in understanding the market dynamics and also in finding out the level of potential opportunity in each country.

Having enjoyed the trip immensely, I just thought I’d give you a taster of it here, starting with the stats!

The numbers…

• 6 day trip
• 4 countries (if you include a transfer in Frankfurt airport!)
• 2 days of traveling
• 6 flights
• 3 hotels
• -1° Celsius average temperature
• 2 days of snow
• 4 days of meetings
• 3 Embassies
• 3 UKTI local teams
• 2 evening events
• 2 ambassadors met
• 2 government ministers spoken with
• 15 one-to-one meetings with interested parties
• 21 companies met with in total

The commercial opportunity…

Well now, that would be commercially sensitive information! Sorry to disappoint.

And a few pictures…

Click on the images to enlarge them