Political risks when exporting to mature markets. How Swiss SMEs protect themselves.
The political landscape is becoming increasingly unpredictable. Risks such as trade barriers and Brexit are weighing on exports from Switzerland. What other political risks are SMEs exposed to when exporting to mature markets.
Political risks exporting from Switzerland to mature markets
Anyone exporting to mature markets hardly expects political risks. It is mostly companies exporting to emerging markets that need to be wary of wars, revolution, social uprisings, embargoes, and nationalization. But political risks are also pervasive in mature markets. "The political and regulatory environment are becoming increasingly unpredictable," says Andreas Gerber, Head of SMEs of Credit Suisse Switzerland, for instance. "This trend will continue in the coming years."
One example is the current trade war between the US and China. Even if this predominantly affects the two superpowers, other countries are also feeling the economic consequences: Directly through the penalty duties on aluminum and steel as well as indirectly through triggered economic uncertainty. In addition to the higher customs duties, sanctions or a boycott can impede Swiss exports or even make them impossible. However, companies should not be scared off exporting to mature markets by such measures.
Exporting to the United Kingdom
Depending on how Brexit plays out, it will have direct and indirect effects on exports from Switzerland. The bilateral trade deal with the UK, which was signed in February 2019, simplifies exports. It includes broad sections of the trade agreement in place with the EU, but still has some gaps, for instance, regarding the machinery industry as well as the veterinary area. There are also open questions regarding customs declarations, transit handling, and inspection offices. Swiss exporters should take precautions to be prepared for changing demand. After all, the UK ranks 6th among the sales markets for Swiss products.
Regulatory requirements impede exports from Switzerland
Export-driven companies should also not underestimate regulatory conditions. They differ from country to country. They are particularly strict in the land of opportunity. "I know only very few companies that have tapped into the US and got away without a black eye at the start," says Andreas Gerber. Legal questions regarding product liability are particularly tricky.
It is therefore important to take a good look at the local regulations. However, they can also change over time. Depending on the product and country, it may therefore pay off to collaborate with local partners. They are more familiar with the circumstances on the ground and can respond more quickly to regulatory conditions than companies based in Switzerland.
Strikes and business cycle risks can weigh on exports from Switzerland
Fortunately, strikes bringing an entire country to a standstill barely occur in mature markets nowadays. But nevertheless airline employees, railway staff, and truck drivers still occasionally go on strike. Such events can affect exports from Switzerland. Possible consequences are lost time when exporting or commodity production bottlenecks. These are annoying, disrupt schedules, and can result in financial losses.
Like future performance, strikes cannot be predicted. Both factors depend on a country's politics. Business-friendly politics can stimulate demand, whereas uncertainty weighs on it. This shows that even if the political risks in mature markets are smaller than in emerging markets, entrepreneurs exporting to mature markets are still exposed to the politics of the export market. "As opposed to currency risks, however, political risks cannot be hedged against," emphasizes Andreas Gerber. But internationalization is nevertheless a major opportunity for SMEs.