The key to success in the export business is minimizing risks

Writuparna Kakati | 27 Mar, 2008
Export business can be a great opportunity, but it is risky and challenging at the same time. These risks, totally different from those encountered domestically, are unavoidable, but you can minimize them taking proper precautions. Find here some useful information regarding different export business risks and how to manage them.

One might face different types of risks in the export business:

1. Political Risk: The country where your client is located may experience major political instability. Such instability could result in defaults on payments, confiscation of property, exchange transfer blockages, etc.

2. Legal Risk: At domestic level, business are subject to a myriad of laws, regulations, restrictions. But internationally, there are much more complexities. International transactions are governed by unilateral measures, bilateral relationships, multilateral and regional agreements. This difference in law may have impact in such areas as taxation, currency dealings, property rights, employment practices, etc.   

3. Credit Related Risk: While doing business internationally, trading can seem complicated and risky. Besides political, legal and other risks, the most common problem businesses face is the risk in the transaction. To overcome payment related risks, an exporter needs good understanding of different payment methods in international trade. Choose a payment method which provides you with some security. Try to avoid open account method, at least initially.

4. Internet Frauds: Like in any other place, the Internet is not free from scammers and frauds. These people are are very cunning and being smart it is not enough to protect yourself from them. It is not only individuals who are targets for a variety of illegal schemes but also small as well as large business organizations.

5. Quarantine Compliance: Many countries (especially the European countries) have strict quarantine requirements to prevent the spread of contagious disease. Before sending a shipment, ensure that your products are allowed to be exported to the destination country.     

Minimizing export business risks:

1. How to minimize political risk and country risks:

• Always do extensive market research and try to about the politics, economy, culture and business environment of the country where your client is located. Besides language barriers and legal restrictions, your business may be get affected by suddenly introduced new regulations, political riots or natural disasters.
  
• If you are dealing in a foreign language, taking assistance of a professional language support is a good idea.
  
• In export business, a clear agreement is very important to get rid of confusion and to reduce risk.
  
• If you find that doing business with a company in a foreign land is very risky, don't get involved in long term business deals.  
  

2. Minimizing Legal Risks:

Often, we find that most of the international business laws are based on treatises. So, it is always a good idea to locate the relevant treatise while researching for any specific international business law. The Internet is a great source and you would certainly get a lot of information in hundreds of websites. While studying the laws, make sure whether there is any possibility that a conflict would arise between the international and the domestic law.

3. Minimizing Credit Related Risks:

• Always use a reliable payment method for transaction
  
• Always try to know exactly what costs you and your client are each responsible for. Shipping or air freight, import duties, taxes, onward delivery to your premise- consider all these things before signing the contract
  
• Foreign currency exchange rate could change, and therefore, it is important to keep yourself ready for some extra expenses
  

4. Assessing the Creditworthiness of Your Customer:

• Don't get excited. Use your common sense to understand the offer; does he want to buy your product without asking about the price or quality? Has he accepted the deal without bargaining? Is he very quick to know your account number? Analysis all these things and only after that take the next step.
  
• Do not provide financial account information of your company unless there is a good reason to do so.
  
• Get all the terms and conditions, modes of payment, sales conditions, quality inspection, etc. in writing.
  
• Always choose Letter of Credit (L/C) or Escrow as payment methods. Check  the L/C number, opening date & place, name & address of the issuing bank, valid date, shipping date, etc.
  
• Request for a nominal payment for samples.

Business at the international level involves different risks which are different from those encountered while doing business at the domestic market. The best way to manage and minimize those risks is to recognize them. Prepare a simple risk management plan for your SME and analysis where you are exposed to risks. If necessary, talk to experienced advisers to identify, assess and manage the risks.