Understanding Export Risks
Exporting is exciting and opens-up new opportunities to a company. However, it also carries greater risks than doing business on the domestic market. Every exporter must be aware of the challenges and risks in selling his/her products and services to other country or countries. These risks can be:
- Political risk
As an exporter you may face risks of political instability in your export market, which can disrupt and even break your business. This can lead to default on payment, introduction of foreign exchange controls, seizure of property and assets, change in trade policies among others.
- Legal risk
The laws and regulations in your export market can be different to the laws of Zimbabwe. You need to understand these differences prior to engaging with your client(s) in that country.
Investigate the provisions on enforceability, of law disputes resolution, arbitration, protection of property and Intellectual Property Rights, employment, health and safety laws, and the court system.
NOTE: Most of West African countries follow (Code Napoleon) French law.
- Corruption Risk
Be mindful of legislations on corruption in the country you are or wish to do business with.
- Compliance Risk
All countries have some forms of restriction on imports of goods and services based on established compliance standards and norms relating to:
- Labour laws – Against exploitation of labour, slavery and child labour
- Health and safety – In support of good and safe working conditions
- For export of fresh produces, you will require a valid phytosanitary certificate
- For export of live animals, you need to know the quarantine laws
- National Security – Some products are prohibited for national security purpose
- Moral Issues – Products which can affect morality and may disturb peace are banned
- Standard Compliance – Most countries have strict standard compliance code on selected products
- Environment Compliance – More and more countries and buyers are introducing stringent compliance standards for sustainable development, in terms of environment friendly products.
- Exchange Rate Risk
Exchange rate is a vital component of international business. Unfortunately, exchange rates are never fixed or stable. You should always have an eye on the prevailing exchange rate of the currency in which you are denominating your exports. More importantly you should follow the trend. Any mistake in foreign currency pricing can be detrimental to your business, either eroding your profit margin or causing loss.
You can protect yourself against exchange rate risks by quoting your prices in USD and by hedging against currency fluctuations. Unfortunately, most SMEs do not understand the mechanism of currency hedging.
CAUTION: Always contact your bank for advice on currency pricing and how you can protect yourself against foreign exchange risks
- Non-Payment Risk
It is important to select reliable trading partners. However, the risk of non-payment if you are using an Open-account policy is always present. It is advisable to use more secured Payment Terms such as Cash-in-advance or Irrevocable Letter of Credit.
CAUTION: Be careful in offering extended credit terms, specially to new clients.You can protect yourself against non-payment risk by taking appropriate Export Credit Insurance cover.
|Check-list for Managing Export Risks|