Part 2 –Risks Associated with Exporting
In the first post in this series, we discussed the myriad of opportunities associated with exporting your products (we here at CMTC are glass half-full type of people, after all!).
- Improved access to a vast world economy
- Increasing demand for your products and services
- Improved profitability and sales
Now, we will discuss some of the perceived risks associated with exporting. These concerns keep many companies from considering exporting their product. However, recognizing the risks ahead of time and planning appropriately can overcome or mitigate these issues.
Risk #1: Country Risk – This refers to risks of changes in the business environment that would have an adverse affect on your company's operations, profits or asset value in a particular country. It includes risks of political stability, legal systems, economic conditions, cultural environment, and expropriation, restriction of operations or on remittance of profits.
Mitigation: It’s best to determine which countries would desire your products through market research and pick one or two countries to begin exporting to, particularly if you haven’t exported in the past. Political risk insurance is also available through the Export-Import Bank.
Risk #2: Credit risk or financial risk – This refers to risks associated with non-payment, late payment or even fraud by foreign buyers. These risks may result either from the difficulty in verifying buyer's creditworthiness and reputation due to larger distances between trading parties or the payment options available for international trade.
Mitigation: The Export-Import Bank will insure export transactions.
Risk #3: Foreign currency and exchange rate risk – There is inherent uncertainty regarding the future value of a currency. It is the risk that a business' operations or an export value will be affected by changes in exchange rates or the fluctuation of a currency value.
Mitigation: There are hedging programs available to mitigate currency and exchange rate risk. These are discussed more in this finance guide. You can also address this risk by carefully wording your contracts with regards to currency risk.
Risk #4: Transportation and logistics risks - Transportation risk refers to the risk of transferring goods from one country to another. Such risks may include theft or transportation damage or loss of goods.
Mitigation: This is an area where planning and appropriate selection of your logistics provider is key. You can mitigate these risks by ensuring proper packaging is used for overseas shipments and addressing expectations using the contract between you and your logistics provider.
Other risks associated with exporting include increased complexity of documentation and administration; protection of intellectual property and geographical remoteness from markets and customers compared to domestic delivery. To mitigate these risks, and the ones outlined above, you must have a sound exporting plan to execute. This is where ExporTech™ comes in!
The ExporTech™ program is designed for at least two executives from a maximum of eight companies to ensure an effective, peer-group learning experience. There are three full-day sessions, and each company will have an executable export plan tailored to their situation at the close of the ExporTech™ program. This has proven to be a valuable process for companies like Louroe Electronics (see Louroe Electronics’ transformation story here).
Now that we have discussed the opportunities and risks, along with techniques and tools for mitigation of those risks, the last article in this series will focus on the best practices associated with exporting.
Realize sales and profitability growth through informed exporting practices! Let CMTC’s ExporTech™ process help you develop an exporting plan tailored to your needs!
For more information about exporting or the ExporTech Program, contact Elizabeth Glynn at email@example.com.