This post has been provided by our partner World First, an award-winning foreign exchange specialist that help online sellers get more for their money when making currency transfers.
Online sellers are facing a daunting couple of months of uncertainty leading up to the UK referendum on EU membership. With the UK media currently embroiled in a game of one-upmanship over who can produce the most fear-inducing headlines, it can be hard to find a balanced view. Well, we hope that’s what you’ll find here; four possible impacts of a so-called ‘Brexit’ (or lack thereof) for online sellers. And not a terrifying headline in sight. Promise.
The UK Cabinet Office’s official opinion piece on the matter has warned of a ‘decade of uncertainty’ for an independent UK if we leave the EU. The government’s argument revolves around the time and resource needed for restructuring and repurposing international laws that have existed for half a century. The effect of this can be summed up in a word: uncertainty.
Uncertainty has been somewhat of a buzzword of late, and something that’s on the mind of the Bank of England’s Monetary Policy Committee – who’ve used recent market turmoil and the two-year low in UK business confidence to justify keeping their bank rate at a record low – a pattern that will likely extend should a Brexit become a reality. Low interest rates, whilst a continued annoyance for savers could provide opportunity to expand selling operations by being increasing your ability to borrow more.
If you sell internationally, regardless of what currency you’re choosing to list your products in, keeping track of the FX rates that both you and your foreign consumer are facing will be critical to finding the right price points, maintaining your margins and hitting your targets. We’ve already seen a decline in the value of the pound, falling over 4% against the USD and by over 9% against the EUR since January 1st. The swings in currency can prove a nightmare for financial planning and setting your pricing right.
Given the roller-coaster ride Sterling has embarked on, you would imagine online sellers and businesses are protecting themselves against losses. However this could not be further from the truth. World First recently carried out research that found despite 75% of UK SMEs who trade internationally fearing EU referendum currency volatility, almost half (47%) admit to being unprepared for mitigating these risks. What’s more alarming is the 45% of SMEs who have already been caught out by sudden currency shifts in the past twelve months. A sign of trouble ahead for business.
Putting volatility to one side, a weaker domestic currency is often a positive for international sellers, who can price their goods and services far more competitively against foreign rivals while maintaining their profit margin targets and revenue aspirations. However this ultimately comes with the erosion of the UK’s purchasing power overseas.
The EU is by far the most popular destination for UK online sellers, and this is likely to remain the case post-referendum regardless of the final result. The EU’s geography, cultural similarities and open access make it the perfect trading partner. However, there are many other trade routes that are thriving: the fastest growing region for e-commerce is actually the Asia-Pac region and as the market becomes more penetrable due to online marketplaces and new services allowing online sellers to tap into the booming market. At World First, we recently launched a new service in Japan providing access to a new market for online sellers in the UK and beyond.
Online sellers who already trade in other markets, however, could find others coming to join them in order to diversify risk away from the EU – heightening competition.
The EU has received heated criticism from some because of the rules and regulations put in place in order to trade internationally from rules dictating the bendiness of bananas, to rules banning the use of a ‘dozen’ as a measurement for a unit of eggs – the EU has entertained some slightly questionable policies. However, an often overlooked benefit of the union is the ability for sellers far and wide gain legal coverage and licensing in any regulated industry across 28 countries with just one application process. Although the specifics and finer details are as yet unclear, the ability to rollout your online selling operation to markets overseas will likely have to be taken on a per country basis, which could significantly extend the time you spend signing forms over actually concentrating on your success on the continent.
For more information on how World First can help cross-border merchants visitworldfirst.com or contact their dedicated e-commerce team directly on 020 7801 105.
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