Protecting corporate balance sheets against political uncertainty. (International Affairs Section).

Publication: Business Credit

Publication Date: 01-NOV-02

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COPYRIGHT 2002 National Association of Credit Management

As trade barriers have crumbled in recent years, companies seeking to globalize their businesses have eagerly expanded into new markets outside the United States and Western Europe. Mexico, for instance, was the United Stares' second biggest trading partner last year after Canada. China was the fourth largest and Brazil thirteenth.

But as lucrative as international trade can be, it carries substantial risk. In the last year, the global economy has cooled dramatically. Corporate credit quality has deteriorated, and a number of major companies have declared bankruptcy or are on the verge of doing so.

Some foreign countries are also in distress. Argentina, for instance, has defaulted on its debt, devalued its currency and is in such economic turmoil that customers have been barred from withdrawing money from their bank accounts. International tensions are also on the rise after the September 11 terrorist attacks on the United States.

Clearly, companies have good reason to be concerned about the risk of doing business in foreign countries. They know that even under the best of conditions, there is always a risk that customers will be unable or unwilling to pay for the goods they purchased or to deliver the goods they promised.

Even so, trade continues. Businesses cannot afford to lose foreign sales, and foreign governments need what those companies have to offer. Some countries, like those of the former Soviet Union, need to raise cash and find they can do so by tapping the market for their abundant natural resources. International trade is too crucial to businesses and their foreign trading partners for it to just grind to a halt.

Protection in Uncertain Times

Balance sheet protection can make the difference between success and failure in today's turbulent global marketplace. Without adequate protection, companies run the risk of significant write-offs, layoffs and even bankruptcy. Companies need...

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