Risk Management in Export-Import Business Dr.

Transcript:Risk Management in Export-Import Business Dr.:
Risk Management in Export-Import Business Dr. Bhupinder P S Chahal Risk Management in Export-import Business Risk is a fact of business life, more so of international business. The Management of International business is the management of risk. No manager can make a strategic business decision or enter into important business transaction without a full evaluation of the risks involved. Many of the best business plans have been ruined by a miscalculation or a mistake, or an error in judgment that could have been avoided with proper planning. Risk Management in Export-import Business If the risk cannot be reduced through advance planning and careful execution, perhaps it can be shifted to some other party to the transaction. If the risk cannot be shifted to another party to the transaction, it might be shifted to an insurance company. Many types of risks can be insured against, including the risk of damage to the goods at sea, the risk of loosing an investment in a developing country and many others. Risk Management in Export-import Business (1) Risk Assessment and the Firm’s Foreign Market Entry Strategy: When a firm is considering its entry or expansion in a foreign market, it must consider all options and decide on a course of action commensurate with its objectives, capabilities and its willingness to assume risk. Selling to a customer in another country results in less risk to the firm than licensing trademarks, patents and copyrights there. Risk Management in Export-import Business (2) Managing Distance and Communications: The risks of doing business in a foreign country are different from those encountered at home. A firm doing business in a foreign country would encounter greater distances; problems in communications; language and cultural barriers; differences in ethical, moral and religious codes; exposure to strange foreign laws and government regulations; and different currencies. All these factors affect the risks of doing business abroad. Risk Management in Export-import Business (3) Managing Currency and Exchange Rate Risks: Currency risk is risk a firm is exposed to as a result of buying, selling, or holding a foreign currency. Currency risk includes: (i) Exchange Rate Risk (ii) Currency Control Risk (i) Exchange Rate Risk: Exchange rate risk results from the fluctuations in the relative values of the foreign currencies against each other when they are bought and sold on international financial markets. Risk Management in Export-import Business (ii) Currency Control Risk: Some countries, particularly developing