Risk Management in Export-Import Business
Now since the world is all connected and globalization became normal in this century, many investors and traders turn into international trading. International trading opens a very likely chance of benefiting market to do successful business. International trading includes exporting and importing which allows the businessman to connect personally with all the necessary suppliers and manufacturers which will eventually lead to cost effectiveness. However, doing global business overseas has many risks that we need to keep in mind and be aware of. Exchange rates are always in the risk of fluctuating which is clearly a risk that faces importers and
Importers should keep their goals as a priority which is to postpone paying for the merchandise for as long as they can. Also, managing the cash flow in the period during paying for the merchandise and being paid by the local customers who would buy the imports. They should also do this to reduce the risk of fraud from suppliers or doing business in unfamiliar environment. Some examples of importing risks are the following:
1. currency risk,
2. non-delivery risk
3. credit risk,
4. transfer risk
5. country risk
6. transport risk
Currency risk is when the local currency used to pay for the merchandise might be higher than the total amount to be calculated and used to enter the contract because of the fast changes of the currency market price. Exchange rates between most currencies have very high chances of fluctuation all the time, and there is a time difference and period between entering into a contract and making the payment. Importers should control for this risk and keep it in mind by using solutions for controlling currency risks. Non-delivery is when the suppliers don’t follow the sales contract by making mistakes such as delivering the wrong items or not delivering by the time frame stated in the contract. This risk can be controlled by requesting an agency to check the merchandise before the time of shipping.
Credit risk is when the suppliers don’t have enough finances to ship the importers’ merchandise after the importers submit the payment. This risk can be controlled by using methods of payment that involve conditions or checking credit and collecting document to make sure that the supplier will deliver the merchandise.
Transfer risk can be a result when the government puts new regulations and sets new laws on foreign currency exchange or amount of money transferred outside the country. This can be controlled by consulting trade experts in the country or area an importer wants to work at or invest in to get more knowledge and information about the rules and regulations of that country.
Transport risk is a result when the merchandise are stolen or damaged or even lost on the way during shipping. To manage this risk a consultation with an insurance agency should be made to insure the items involved in the process. .
On the other hand, exporter’s goal to keep in mind is receiving the merchandise before paying for them to check if they meet all the requirements and standards and the quality they want. They also should be controlling the merchandise until they receive the payment. Managing the cash flow in the period of investing or buying the merchandise and getting paid in exchange for them is very important to manage the risk and avoid fraud by unserious buyers and also avoid debt. There are many types of risks for exporters and it is very very important to study them closely in order to to be aware of them which will help the exporters to assess, prioritize and minimize them. Exporting risks include political and safety risk events just like when borders get closed in politically suffering places. Merchandise can also be damaged in transit. Compliance issues with foreign regulations and standards. Cultural and language differences might result in miscommunication and...
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