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No matter how attractive and "must have" your product or service seems to be, strictly limiting yourself to your domestic market will have a finite capacity. And once you have reached a saturation point, what then? Because of these limitations, wise business owners are looking to go global and exploit international trade opportunities—after all, in the global economy, practically every country is a potential customer.
1）Reduced Dependence on Local Market
The home market may be struggling due to economic pressures, but if a business goes global, it will have immediate access to a practically unlimited range of customers in areas where there is more money available to spend, and because different cultures have different wants and needs, it can diversify the product range to take advantage of these differences.
2）Economies of Scale
If a country wants to sell its goods in the international market, it will have to produce more than what is needed to meet the domestic demand. So, producing higher volume leads to economies of scale, meaning the cost of producing each item is reduced.
3）Increased Efficiency
Benefit from the economies of scale that the export of goods can bring—go global and profitably use up any excess capacity in the business, smoothing the load and avoiding the seasonal peaks and troughs that are the bane of the production manager's life.
4）More Job Opportunities
Increase in international trade also creates job opportunities in both countries. That's a major reason why big trading nations like the U. S., Japan, and South Korea have lower unemployment rates.
5）Enhanced Reputation
Successes in one country can influence success in adjacent countries, which can raise your company's credibility abroad and at home. This is one of the advantages of international trade that may be difficult to quantify and, therefore, easy to ignore.
6）Innovation
Because of exporting to a wider range of customers, exporters will also gain a wider range of feedback about the products, and this can lead to real benefits. In fact, the Customs statistics show that businesses believe that exporting leads to innovation increases in break-through product development to solve problems and meet the needs of the wider customer base. 53％ of businesses they spoke to said that a new product or service has evolved because of the overseas trade.
7）Longer Product Lifespan
Sales can dip for certain products domestically as Americans stop buying them or move to upgraded versions. Selling a product to an overseas market can extend the life of an existing product as emerging markets seek American products.
Despite the benefits, trade can also bring some disadvantages, including:
Trade can lead to over-specialization, with workers at risk of losing their jobs when world demand falls or goods for domestic consumption can be produced more cheaply abroad. The losing of jobs because of such changes may cause severe structural unemployment. The recent credit crunch has exposed the inherent dangers in over-specialization for the UK, with its reliance on its financial service sector. Certain industries do not get a chance to grow because they face competition from more established foreign firms; such new infant industries may find it difficult to establish themselves. Local producers, who may supply a unique product tailored to meet the needs of the domestic market, may suffer because cheaper imports may destroy their market. Over time, the diversity of output in an economy may diminish as local producers leave the market.
Like any business transaction, risk is also associated with goods to be exported in an overseas market. Export risks in international trade are quite different from risks involved in domestic trade.So, it becomes important that you should have an extra measurement as well as a proper way of risk management to deal with all the risks related to export in international trade.
The various types of export risks involved in international trade are as follows:
1）Credit Risk
Sometimes because of large distance, it becomes difficult for an exporter to verify the creditworthiness and reputation of an importer or buyer. Any false buyer can increase the risk of non-payment, late payment or even straightforward fraud. So, it is necessary for an exporter to determine the creditworthiness of the foreign buyer. An exporter can seek the help of commercial firms that can provide assistance in credit-checking of foreign companies.
2）Poor Quality Risk
Exported goods can be rejected by an importer on the basis of poor quality. So it is always recommended to properly check the goods to be exported. Sometimes the buyer or importer raises the quality issue just to put pressure on the exporter in order to try and negotiate a lower price. So, it is better to allow an inspection procedure by an independent inspection company before the shipment. Such an inspection protects both the importer and the exporter. Inspection is normally done at the request of the importer and the costs for the inspection are borne by the importer or it may be negotiated that they are included in the contract price.
Alternatively, it may be a good idea to ship one or two samples of the goods being produced to the importer by an international courier company. The final product produced to the same standards is always difficult to reduce the risk.
3）Transportation Risk
With the movement of goods from one continent to another, or even within the same continent, goods face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.
4）Exchange Rate Risk
Exchange rate risk occurs due to the uncertainty in the future value of a currency. Exchange risk can be avoided by adopting a Hedging scheme.
5）Political Risk
Political risk arises due to changes in government policies or instability in the government sector. So exporters need to be constantly aware of the policies of foreign governments so that you can change the marketing tactics accordingly and take the necessary steps to prevent loss of business and investment.
6）Unforeseen Risks
Unforeseen risks such as terrorist attacks or natural disasters like an earthquake may cause damage to exported products. It is therefore important that an exporter ensures a force majeure clause in the export contract.
Exporting goods to other countries can be a source of significant growth for businesses in the form of new markets and opportunities. In the process, these businesses are likely to face new risks, especially when it comes to managing payments, that they may not have encountered or experienced before.
With careful management, companies can understand the impact new risks are likely to have on the business and how to mitigate these risks on their own or with the help of third parties, like insurers.
Export risk management is not about eliminating risks. There is no such thing as risk-free business, especially when working with business partners and customers in other countries.Instead, risk management is about taking steps to ensure that a company knows what and how much risk it faces and how much of that risk it is able to mitigate.
These steps to stronger export risk management can help businesses focus on both individual risks and the entire portfolio of export risks they face.
①Identify all potential risks.
②Rank each risk according to the likelihood of occurring and potential severity. These risks can include macroeconomic risks, such as the risk of inflation; political risks, such as civil unrest or economic sanctions in a given country or region; and business-specific risks, such as the potential for decreased market demand and changes to customers' creditworthiness.
③Evaluate strategies to manage different types of export risks, including developing customized payment terms, targeting business partners only in specific locations or industries, and insuring against specific and significant risks where possible.
④Monitor risks over time as circumstances and conditions change and adjust risk management and mitigation approaches according to new information.
A strong export risk management approach allows companies to do business with a larger number and variety of international business partners. A company with strong risk management can more confidently extend credit and favorable payment terms to increase growth and solidify critical business relationships, while also investing in other customer relationships slowly over time when necessary.
For example, when an otherwise good customer wanted payment terms for a larger-than-normal order, one export company recognized that it would not be able to absorb the loss if something should go wrong. Because the company did not want to miss out on the growth this deal would create, the company began taking a more proactive risk management strategy for its export business, including purchasing credit insurance for its accounts receivable. With that strategy in place, the company is now able to approve credit limits faster and offer financing on open terms where its competitors can't.