There are many risks involved in exporting and in this section we briefly cover the main risks you are likely to encounter. Follow the links below to learn more about the risks in question:
- Credit risk
- Poor quality risk
- Transportation and logistics risks
- Legal risks
- Political risks
- Unforeseen risks
- Exchange rate risks
- Cultural and language risks
Companies need to develop a professional approach when entering the field of exporting. The company’s management will have to be extremely committed and will need to devote time and money to starting up their export campaign. Companies will also face greater competition and more stringent rules and regulations pertaining to products and packaging.
Managing your risks
The task of managing your export-related risks begins with known what the risks. Your first step is therefore to identify the risks that you are likely to encounter and to give some ‘weighting’ to the seriousness of the risk. The more serious it is, the more attention you will need to give to addressing the risk in qiestion. With some of the risks oultined above, you can obtain insurance to cover the risk. Three main types of risk cover include credit risk cover, country risk cover and transit risk cover.
In the case of exchange rate risks, you can cannot direct insure your exchange rate risk exposure, but you can take steps to minimise these risks through hedging your risk by using one of four financial instruments forward contracts, future contracts, swaps and options (these are discussed in the section on foreign exchange). For most exporters, the first two (forward contracts and future contracts) are likely to be the only two instruments you will consider. Larger exporters with many export and import contracts in place may try to pair their forex exposures (linking an export contract in, say, US dollars to an import contract also in US dollars) or by matching assets and liabilities held in foreign currencies in their books.