International Trade Risks

Companies operating within international trade face a number of challenges and risks that require attention. However, it is possible to mitigate them efficiently with the right methods and technologies.

International Trade Risks

Within the international marketplace, there are a lot of risks that could ruin your transactions. Companies must usually deal with different kinds of problems, such as ethical, transportation, credit, currency, etc. All of these risks sometimes directly affect the worth of your product or service, the authorization to sell or to produce them, or the social image of your business, among others. Therefore, in order to face and overcome these risks, it is necessary to identify and categorize them. Here is a list of the main types of risk that haunt the international market.

Foreign exchange risk

Foreign exchange risk usually concerns accounts receivable and payable for contracts that are or will be sooner in force. The rates are constantly changing, which means that businesses will sometimes need to convert funds generated abroad at lower prices than they budgeted. In this case, companies need to obtain tools that help them to analyze the market and lead them to take the advantage of any foreign exchange risk.

Credit risk

The risk of not collecting on a receivable is famous as counterparty or credit risk. Companies can mitigate this risk by expanding into global markets in several ways. By accepting 100% of the amount due, or a reasonable percentage, prior to providing services at the time, the order is placed can help reduce administrative costs and finance charges. This eliminates the possibility of nonpayment. Although this may be difficult for new businesses and exporters, it is easily worked out. Another possibility is to get a commitment given by a financial institution in which the institution commits to pay a specific sum to the service/product supplier in return for delivery within a specified timeframe. This protects both the seller and the customer. It contains a full description of the cargo as well as the sale terms.

Ethical risks

An international company’s reputation is one of its greatest assets. The capability of maintaining high ethical standards and being a good citizen at the same time is a challenge in any market. Therefore, operating in international trade can make managers and CEOs hesitate about their values. It means they must especially take care of their customs and social conditions no matter where they make business in. So, you need to make sure that your foreign partners and suppliers adhere to your ethics rules, and values wherever they operate.

Political Risks

Political risks are related to non-tariff trade barriers, bans on exporting-bound products, or financial organization change laws in specific countries. It means that before doing business abroad, you need to research as much as you can and be open to receiving restrictions or objections.

Shipping risks

Inside the trucks and ships (or even outside of them) many things can happen if there is not the right monitoring. Cargo tracking protects you from theft or vandalism. However, you will face problems like contamination, seizure, accident, loss, and breakage. Therefore, you need to monitor the condition of your cargo to see whether damage occurs to it, where it occurs, and why it occurs.

Despite all these risks, most are unavoidable because supply chain managers do not receive accurate information about what is happening in international trade. This lack of information makes them unprepared to deal with changes in currency, politics, the transportation process, etc. Moreover, not facing these challenges leads them to jeopardize their ethics and values by pursuing their goals. Therefore, if you want to start overcoming these problems, invest in digital technologies to get accurate and up-to-date information 24 hours a day.

Conclusion

In conclusion, while international trade presents numerous risks—ranging from foreign exchange and credit risks to ethical, political, and shipping challenges—these obstacles can be effectively managed with the right strategies and technologies. Identifying and categorizing these risks is the first step.

Grydd provides you with the digital and technological tools that deliver accurate information in real time and enable proactive decision making. Contact us and boost your supply chain management.

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