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EASTERN EUROPE

CEE business?
But of course!

In times of geopolitical turmoil, safeguarding foreign trade transactions in Eastern Europe is more important than ever.

Why you should read this article


Eastern Europe is an important market. The sales potential is good, despite the uncertainty factor. Companies should exploit the opportunities currently available, while also minimizing the risks by using suitable hedging instruments.

This region continue to see good sales potential, even with the ongoing crisis in the Ukraine and Western sanctions against Russia, which limit exports in the region or prohibit them outright. Particular attention must be paid to the economic and political risks in the buyer country when exporting goods.

The details: Russia is in recession, with investment levels and consumption down sharply over the last year. Importers are experiencing huge problems securing finance. The International Monetary Fund expects GDP to drop slightly again this year.

The Czech Republic and Slovakia are stable, despite the reduced growth expectations for the Central and Eastern Europe region in February 2016, reports the Center for European Economic Research (ZEW).

Notes

Success abroad

Expertise is important if you are to succeed in business with foreign partners. Experienced lawyers, consultants, and the right bank can help remove obstacles at an early stage.

A bank that helps companies to expand and operate abroad successfully
  • Understands the company’s business model
  • Engages in a strategic dialogue with the company directors
  • Supports them with internationalization
  • Prepares a customized hedging concept and, if required, a financing concept for the business
  • Also prepares, if the client requests it, template letters of credit based on the supply contract, and advises the client on questions related to hedging exchange rate risks

What risks should be hedged against in which countries?

Delivery transactions to Russia and the Ukraine have become more difficult and challenging. The main issue to consider here is the political risks. UniCredit' Specialists, therefore, advise companies to either structure their business with clients or suppliers in these countries so that risk is eliminated – for example, through advance payment – or to secure against the risks appropriately – for example, with a letter of credit or guarantee.

In contrast, the countries of Central Europe are in much better economic shape. Here, you should check whether your business partner’s payment risk is acceptable to you. If that is not the case, you can safeguard against your client’s payment risk/period of payment through your principal bank – by factoring, for example.

Should your business partner wish to be invoiced in a currency other than euro, your principal bank can use appropriate hedging instruments to reduce the currency risks.

It’s important to involve your principal bank in your negotiations with your clients at an early stage so that you can discuss suitable hedging strategies with them.

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Sources: auswaertiges-amt.de, destatis.de

Buyer credit, also known as finance credit, is a delivery-linked loan granted to a buyer (importer) by a credit institution to meet their payment obligations to the supplier (exporter). The loan is secured through the state’s export guarantees within the framework of an export credit insurance policy. Both economic and political risks can be included in the cover.

Infographic

Extra-Euro area trade by partner

Source: Eurostat
  • Exports
  • Imports
Created with Highcharts 5.0.6 BulgariaCzech RepublicHungaryRomaniaRussia 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0255075100125
Created with Highcharts 5.0.6 BulgariaCzech RepublicHungaryRomaniaRussia 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 050100150200

Controlling risk with years of experience

UniCredit stands out due to its many years of experience and local presence in Eastern Europe. “We know the banks and the importers, we have industry expertise, and we understand the business nuances of the specific Eastern European countries. We can, therefore, give companies a competitive edge,” says Schwendtner.

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