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Avoiding Risk in International Trade: What We've Learned

On: March 26, 2018    |    By: Roberto Bergami Roberto Bergami    |    4 min. read

Avoiding Risk in International Trade: What We've Learned | Shipping SolutionsThis is the tenth and final part of my series of articles on assessing risk in international trade.

In my last article of this series, I made some comments about certain aspects of regulatory issues and market access. In this article, I will provide some general comments and a final conclusion.

When explaining the intricacies of international trade transactions to a large group of managers within an organization, one of my former staff once said, "When you are exporting, you do not just whistle for a taxi." Of course, this also applies to imports.

For an international transaction to be completed, one needs to consider the other side. Exporters need to know what importers need, and importers need to understand what exporters require. That's easier said than done when one considers the differences in languages, cultures, business approaches, regulations, customs and permit issuing agency requirements, market demands, and in-market regulations. All these differences lead to different risk profiles of nations, customers and suppliers.

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International trade is very exciting, but it is not for the faint-hearted. To be successful, one needs to accept differences between individuals and resist the temptation to judge, label and stereotype others. No one is right or wrong, we just behave differently. The minute we start labeling someone we have judged them, and the road to recovery from there is very difficult indeed.

Who makes you wrong and me right? Your own beliefs? Assumptions? Perceptions? If it is illegal, for sure it is not acceptable. Otherwise, try to live with the differences and learn from them.

Yes, we can learn from different approaches others may adopt as long as we are flexible and open to suggestions. Being able to consider other points of view gives us a broader understanding of the issues related to a transaction and that, in turn, should also provide a better angle from which to manage our risks.

Enough of the General Stuff; What about Specifics?

I do not believe there are long-term sustainable shortcuts in international trade. Yes, international markets are lucrative, but these typically require a long-term approach. Markets need to be learned and relationships developed. It takes time.

From a practical perspective, any export-import organization needs to take a more proactive risk-management approach. There must be a greater application of enterprise risk management, one where the relevant parties internally (and externally, if appropriate) communicate with each other and contribute their expertise to the process. However, this must take place during the pre-contractual negotiations.

Make sure your organization only commits to contracts where risk has been assessed beforehand. This means making sure the contract is a good deal for you, and that you can meet its requirements.

In relation to regulations and border control matters, these need to be well understood in the post-9/11 era where compliance is at the forefront of all border control processes.

When seeking new opportunities in foreign markets, either as a supplier/seller/exporter or as a buyer/importer, risk profiling is essential. Use the tools recommended in earlier articles, such as the Organization for Economic Cooperation and Development's Country Risk Assessment Model, the World Bank's Doing Business project, the World Economic Forum's Global Competitiveness Report, or one of the other resources I mentioned. Managing your risk, however you decide to do it, will ultimately lead to better outcomes.

Do use the services of established associations such as chambers of commerce and similar industry bodies and also seek the input from trade consulates and the like. Networking is an important part of getting to know your markets, wherever they may be.

Do go to trade fairs, exhibitions and the like, observe what others are doing, and learn from it. Attend market briefing sessions and webinars (many are hosted free).

On a final note, remember the golden rule of managing risk: it is about information and understanding. You cannot manage the risk of that which you do not know. You cannot manage the risk of that which you do not understand.

I hope this series of articles has been useful to readers. Much of what we learn is experiential, especially in international trade. You will not find everything you need to know in a textbook or on a website—the variations of business transactions are as endless as their solutions.

This article was first published in June 2014 and has been updated to include current information, links and formatting.

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Roberto Bergami

About the Author: Roberto Bergami

A full time member of staff at Victoria University, Melbourne, Australia, since 1998, Roberto holds a PhD (Thesis title Risk Management in Australian Manufacturing Exports: the Case of Letter of Credit to ASEAN), a Master in Education and Master of Business by Research (Applied Economics). Roberto additionally holds the Certified Documentary Credit Specialist qualification.

He is currently a Senior Lecturer in the College of Business and Visiting Professor at the University of South Bohemia in Ceske Budejovice, the Czech Republic. Roberto is also an Associate Researcher of the Centre for Cultural Diversity and Wellbeing and the Centre for Strategic and Economic Studies. Roberto has maintained his involvement with industry through a number of peak associations where he enjoys various grades of senior level membership.

Roberto’s main areas of research interests in international trade focus on government regulations, delivery terms (Incoterms), international payment terms and market entry barriers. His other research interests include the development of communities of practice, online teaching and online communities, migration from Emilia-Romagna (Italy) to Australia and teenage/youth dialect.

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