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Hedging your bets

Economist Jeremy Thomson-Cook looks at the challenges of running an international craft company

For the last 18 months, the world has been spinning on an unpredictable axis of macroeconomic change, with every update from China, the US and the UK seeming to destabilise the status quo even further. It's a difficult time to run a craft business, particularly one that sells its goods or services overseas or sources materials from abroad. Currencies are volatile and can make fraying margins even more threadbare. Brexit may create unnecessary hurdles with key customers, and UK consumer spending habits are changing at a frenetic pace, with no signs of letting up any time soon.

Running the risk

As soon as a craft company crosses international borders it takes on a currency risk, whether it trades as an importer, exporter or simply part of an integrated supply chain. Sterling's fall in value following the EU referendum may have been two years ago, but the tremors are still being felt across the margins for UK craft retailers. In order to protect against this risk, companies must hedge their currency requirements and lock in the margins they wish to obtain. Larger issues such as global trade, customs arrangements and tariff enforcement cannot be controlled by small and medium sized firms, but margins, and the risk that currency poses to them, can be. Hedge the controllable risk in your business and the impact of uncontrollable risks will be a lot more manageable. Having said this, the agreement of a transitional deal at the end of March to keep the UK a member of the single market and customs union is unequivocal good news for international business. SMEs would be well-minded to use this additional time to have conversations with foreign suppliers on the logistics and payment terms that will govern these relationships once the UK finally 'Brexits'.

Think global

It is important to remember that retail is not a purely domestic industry and many of our national champions are exporters with operations around the world. Focusing on international sales, while initially time consuming, is one of the easiest ways for a company to diversify its consumer base out of a single geographical region. Where previously time and money would have to be spent setting up and monitoring these channels, e-commerce marketplaces can now do all of this at the click of a button, whether the business supplies 20 or 20,000 products. In combination with a solid ground service for British shoppers, craft retailers can diversify themselves away from a pressured UK consumer and set themselves up to prosper from international demand and changes in consumer shopping behaviour by looking further afield and thinking global.

A regular contributor to BBC News, Jeremy Thomson-Cook is Chief Economist at WorldFirst.


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