At a glance
- A major contract with a multinational customer can boost your revenue, your reputation and your growth prospects.
- However, there are challenges to be aware of, from language barriers to logistics.
- Undertaking due diligence, costing carefully and seeking advice from experts can help you ensure the deal is a success.
Winning a major contract with a multinational customer can transform your Small or Medium-Sized Enterprise (SME). It can bring a wealth of opportunities and help you move to the next stage of growth.
In addition to bringing a welcome injection of revenue, a large contract with a powerful global brand can also support your reputation. Testimonials and proof points could give other larger firms confidence in your proposition.
Even if the initial job isn’t that lucrative, it could let you into other more attractive contracts in that business. Or it could be a springboard for entering a broader geographical market or sector.
What challenges can a contract with a multinational client bring?
For all the benefits of a large, multinational contract, there may be challenges too – from language to skills, culture, funding, logistics or reputation. For example, will the deal be done in English? What is the cultural style at the client company? Will you have to travel to meet face to face? Do you have the technical skills, knowledge, infrastructure and people to fulfil the order?
You will likely need a compliance expert or legal adviser to handle due diligence on the deal and, for example, ensure the other company has sound finances, standards and processes. Your due diligence will need to include checking for any adverse media mentions, politically exposed persons, or sanctioned companies or individuals involved.
Red flags could include a history of financial, legal or regulatory problems; poor payment performance; or mistreating suppliers, customers, the environment or communities. Dealing with unfamiliar organisations and territories makes such due diligence all the more important.
You may also need to check the customer’s data protection and cyber-security arrangements. Do they tally with your standards and expectations?
Andrew Shepperd, Director and co-founder at Entrepreneurs Hub, recommends finding out as much as possible about the company and seeking references from all credible sources, including banks, local embassies and the client’s other suppliers. Also try asking around in your business networks and trade associations.
Research the wider market too. What are your potential competitors doing in this space? What is the size of the market and what are its challenges and opportunities? Is this a good fit with your firm’s strategy – or do the risks outweigh the benefits?
Logistical challenges of selling to global clients
International trade often comes with extra red tape, such as export clearance, and local and international standards and regulations.
Arranging logistics can be more complex – for example:
- how much will it cost to ship the goods?
- how long will they take to arrive?
- what are the shipping terms?
- who is responsible for checking regulatory and quality standards on your side and theirs?
- how much are the export duties, what red tape is involved and who will handle that?
- do you have a good shipping agent with experience in this sector and geography?
Financial challenges of a global contract
If the deal is bigger than you’re used to, funding can be an obstacle. Larger companies often drive a hard bargain and try to impose discounts or longer payment terms, says Andrew. So cost the job carefully, forecast your cash flow and make sure you can fulfil the order profitably.
If there’s a payment gap, you may need funding such as an overdraft, business loan or invoice discounting. “Or you could try negotiating prompt payment for a discount,” says Andrew. “That could work out better for your cash flow and stress levels. If your forecasts show it will be hard to make a profit on the deal, consider whether it’s still worth it just for the brand association and potential to enter new markets.”
A large company’s projects and funding cycles might be much longer than yours, so take care not to burn too much cash before the project completes, or negotiate down payments. The larger company may even try to impose unreasonable terms or have an unwelcome level of influence on your company.
You’ll also need to consider what currency the deal will be transacted in. Your preparation could include taking advice on likely currency forecast patterns and how to avoid adverse foreign-exchange movements diluting profit – for example, by hedging your currency position to lock in current exchange rates.
“Sometimes, the best thing to do is nothing – if the deal isn’t working for you, have the courage to walk away,” says Andrew. “They may be changing supplier because others are struggling to profitability service the contract with them.”
How to dilute the risk
Start by reviewing whether your existing insurance covers the deal and what extra cover you may need – such as cargo insurance, and credit protection to cover the risk of non-payment. You will need watertight contracts, so good legal support is essential.
Andrew says you could also consider creating a joint venture or other partnership with a local firm – such as a credit provider, researcher, consultant, or PR or legal firm. “That’s a great way to dilute risk and accelerate your presence in the target country by tapping into your partner’s local knowledge, network and infrastructure,” he says. “It can reduce the investment and time it takes to test an unfamiliar market, and bridge differences in laws and compliance such as foreign-ownership restrictions.”
Where to get help
We can offer support and advice as you grow your business, as well as referring you to others in our network who can help. It’s also worth speaking to your investors, who hopefully have some experience of multinational deals and should be able to offer useful feedback.
There are other great resources offering a wealth of advice, which is often free. These include Chambers of Commerce, local British embassies, British Business Bank and UK Export Finance. Winning a multinational client is an exciting and challenging time, and you need all the help you can get.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
SJP Approved 13/04/2023