Risks of Exporting!

Risks due to your own in-experience:

Because of your in-experience you might make some very expensive blunders. Make sure you DON’T do these things:

Don’t try to go for too many markets at once, or the wrong markets.
Don’t use sales advertising, brochures and promotion that offends.
Don’t appoint incompetent overseas representatives that ‘can't be terminated’.
Don’t fail to protect your intellectual property.
Don’t agree to payment methods or terms that leave you at risk.
Don’t try to handle all the shipping and documentation yourself. (At least in the beginning!)
Go slow until you gain more experience.

Financial Risks

Your main concern is non-payment after you've shipped the goods. You can largely avoid this by selling on a Letter of Credit (L/C) basis. L/Cs assure payment because the buyer must deposit the money in advance at his bank, and a correspondent bank in your country then takes on the obligation to pay you.

However, many foreign buyers ask for delayed payments within 30-120 days after the goods arrive. You might have to offer this, if all your competitors are offering these terms! Doing so increases your risk. You can protect yourself with “export credit insurance”.

If buyers won't pay, it’s usually for one of two reasons:

You haven't completed the “terms of sale” in their view
They're dishonest.

You must complete the “terms of sale” as specified in the L/C and the shipping documents. If you don't do this then it becomes very hard to get paid.

Also, over time you will be able to recognize dishonest buyers. This is something that comes with experience.

Business Risks

Take effort to learn about your export business partners. Beware of deals that are "too good to be true." Many of these will be scams.

You must understand that India is not the only corrupt country in the world. In fact, many of the counties in the world are “much more corrupt”. In many countries, corruption is common. The line between what's customary and tolerable, and what's excessive or illegal, is not always clear. Seek advice from a lawyer.

IMPORTANT: Watch out for firms out to copy your technology once they get a product sample or your first shipment.

Take special care to appoint good overseas agents and distributors. Some may already represent your competitors, or be so busy they can't do justice for your products. They may not have the qualifications or capabilities they claimed, such as the ability to stock, install and service your goods. In some countries, once you sign an agent/distributor agreement, it's almost impossible to terminate the agreement. Make sure you do not fall for this trap.

Legal Risks

Every country has it's own business laws and regulations. Many may be similar to our country’s laws or follow international standards. Some vary widely by country. Failure to comply could trigger fines or worse. Take the time to do market research and seek legal advice as needed.

Political Risks

Political instability can cause dramatic changes, including major shifts in economic policy, nationalization, expropriations, loss of personal rights, and physical danger. It can prompt foreign reactions in the form of economic sanctions, boycotts, and embargoes. Be alert to what's happening in the world. Some shifts can favor exporters. For example, ongoing shifts toward privatization and trade liberalization in many previously controlled countries continue to offer opportunities for the world’s exporters.

All the information provided in till here, must have given you a good idea about what exporting is all about. You are now in the position to decide whether your firm has what it takes to export and whether, you want to go in for exports.

If you have decide to go in for exporting, the next step is to....

Next - Developing an "export marketing plan" >>

<< Previous - Costs of exporting!

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