Credit Management Jan:Feb 2019

INTERNATIONAL
TRADE
Monthly round-up of the latest stories
in global trade by Andrea Kirkby.
ALWAYS LOOK
AT THE MARGINS
AN interesting piece from Coface shows
that French exports are lagging. Leading
exporters in automotive and aeronautics
are focusing on the domestic market
despite the fact that they are highly
competitive globally. Why? Because
they've decided to use increased
competitiveness to increase their export
margins, rather than to gain market share.
That gives them a nice cushion as global
trade slows.
There are two messages here. One is
always look at your customers' margins as
well as their balance sheets when you're
taking credit decisions. The other: there
are more ways than one of thinking about
growing your exports.
TROUBLE IN AUTOS
LOOK at the charts of car sales around the world and it seems
someone's just stamped on the brakes. Annualized growth
entered negative territory earlier in 2018 and it's getting
progressively worse. Bond markets have voted with their feet –
auto is the worst performing high yield bond sector of 2018, GM
is closing five North American plants, and Nissan/Renault head
Carlos Ghosn is under arrest. Jaguar Land Rover and Ford are also shedding
jobs and reviewing strategies.
Most of the big government sponsored packages for replacing older cars
have now expired. Demographics and tighter pollution regulations form
major headwinds, and there’s a threat of turbulence from hybrid, electric,
and self-driving cars. If the auto sector goes into the red, there's a huge
supply chain that will go down with it. If you're selling into this sector, be
very, very careful. Things aren't going to get any easier.
Euler serves up the ugly
side of English
SERVITIZATION: I saw this word in a Euler
Hermes report and I was not impressed.
What a truly ugly word it is. I really hope the
Oxford English Dictionary doesn't make it
one of its words of the year.
But it does describe something quite
important – not just the massive growth of
the services sector in emerging markets,
but the way services are entering every
aspect of the economy. Even the most
hide-bound manufacturer probably now
uses e-commerce trading platforms or
has embedded software – cars with autodiagnostic
systems, for instance. Many
manufacturing and construction firms
now have as much revenue from add-on
services as they do from their products;
some have even reconfigured products as
services. Euler Hermes expects services
to be the big trade winner next year, with a
massive $365 billion of export gains. Time
to think about how you too can benefit
from servitization, whether or not you like
the word.
A POLITICAL AND
ECONOMIC DISASTER
SRI Lanka was getting its act together
nicely, with high GDP growth following
the end of civil war in 2009, but now
it's rapidly turning into a political and
economic disaster. The President has
ousted the Prime Minister and tried to
reinstall 'strongman' Mahinda Rajapaksa.
That risks fuelling ethnic tensions with
both Muslim and Tamil communities and
could destabilise the economy. The Sri
Lankan rupee is already one of the worst
performers among Asian currencies for
2018, and that could easily get worse if
the constitutional crisis worsens. S&P has
already cut the credit rating from B+ to B.
As an oil importer, Sri Lanka has found
coping with increased oil prices tough,
and with a widening current account
deficit and a looming foreign debt crisis,
the strengthening dollar put it under
the cosh for most of the year. There’s a
bit of wriggle room now as both oil and
the dollar have weakened, but if foreign
investors get nervy, that could tighten
the screws. Keep a very close eye on the
currency and on the political situation.
The Recognised Standard / www.cicm.com / January / February 2019 / PAGE 28