Becoming International In Business and Management
Entering a foreign market can open up opportunities but entails a web of interconnected risks. International trade, for example, carries risks from insolvent partners to foreign exchange to transportation. A common theme runs through trade risks: a lack of information. That’s especially true in emerging markets, where growth prospects are greatest, but so are risks. Those risks overlap and are difficult to assess in markets that lack transparency. The basic risks in international trade and investment haven’t changed much since trade began. But the challenge of how to respond to those risks remains an elusive, moving target. (Wall Street Journal by freelance author Catherine Bolgar).in this article, we want to focus on international trade and the most important elements of this field, if you are thinking about overseas trade stay with Maadico.
Is there any international trade practice?
All forms of business contain elements of risk, but when it comes to international trade, the risk profile often enters a new dimension. Internationally, you seldom have common laws that can support the transaction, as would be the case within one country. Instead, established trade practices and conventions are used to underpin the undertakings made by the parties. The main sources for international trade practices are publications issued by the International Chamber of Commerce (ICC).
Successful trade transactions depend on knowledge of these established practices, ensuring that the undertakings in the individual contract are in line with such practices. This is why it is crucial for the seller to have started with a correct risk assessment before entering into the transaction. Sometimes, however, the circumstances in a particular case are so obvious that one hardly thinks of it as a risk assessment, whereas in other situations a thorough risk assessment needs to be done. In every new transaction one has to take it for granted that, from the outset, the parties will have at least somewhat different views about various aspects of the deal, not least the terms of payment. This is quite logical since the most important function of these terms for both seller and buyer is to minimize not only the risks involved but also the cost of payment and of the financing of the transaction.
What is the International Chamber of Commerce (ICC)?
The ICC is the world’s only truly global business organization and is recognized as the voice of international business. Based in Paris, its core services/activities include:
● promoting growth and prosperity;
● Practical services to business;
● Spreading business expertise;
● Working against commercial crime;
● promoting the multilateral trading system.
● being an advocate for international business;
● setting rules and standards;
ICC membership groups thousands of companies of every size in over 120 countries worldwide, mainly through its national committees. They represent a broad cross-section of business activity, including manufacturing, trade, services, and professions. Through membership of the ICC, companies shape rules and policies that stimulate international trade and investment. These companies in turn count on the prestige and expertise of the ICC to get business views across to governments and intergovernmental organizations, whose decisions affect corporate finances and operations worldwide. The ICC makes policies and rules in a number of areas.
What are the most important risks in international trading?
Transport risks and cargo insurance
Commercial risks (purchaser risks)
Adverse business risks
The need for a strong policy
Financial risk and cash management
The negotiation process in international marketing
The seller will always try to get terms that will maximize the outcome and minimize the risk. However, they must also be prepared to accommodate reasonable demands from the buyer in order to match other competitors and reach a deal that is acceptable to both parties, thereby also developing a good long-term business relationship. Should the seller be inflexible on this point, it could result in an adverse competitive situation with the potential risk of losing the deal. On the other hand, demands from the buyer that are too stringent can have the same result, or be resolved by means of a higher price or some other adjustment to the final agreement. The outcome of these negotiations will depend on past knowledge and experience, which is even more important if the buyer bases their request for tender on simplified or standardized terms of payment, usually to their own advantage. In many cases, such terms are adapted to conditions that are not optimal for the seller, compared with what the seller could have reached if they were individually negotiated. In such a case it is important to be able to argue and convince the buyer that there might be other solutions that can satisfy any reasonable demands, in order to find the optimal result for both parties. There is, however, another and in many countries, a very common way to bridge the gap between the parties if the seller has to abstain from some demands in negotiations with the buyer. The seller could instead approach a third party, often a credit insurance company, to reduce the commercial risk that could not be covered through the agreed terms of payment.
What are Product risks in international trade?
Product risks are risks that the seller automatically has to accept as an integral part of their commitment. First, it is a matter of the product itself, or the agreed delivery; for example, specified performance warranties or agreed maintenance or service obligations. There are many examples of how new and unexpected working conditions in the buyer’s country have led to reduced performance of the delivered goods. It could be negligence concerning operating procedures or restrictions, careless treatment or lack of current maintenance, but also damage due to the climate or for environmental reasons. Matters of this nature may well lead to disputes between the parties after the contract has been signed and to increased cost for the delivery as a whole. It is important for the seller to have the contract, and specifically, the terms of payment, worded in such a way that any such changes, which are directly or indirectly due to the actions of the buyer or originating within their country, will automatically include compensation or corresponding changes in the seller’s commitments. This can be in economic terms, in originally agreed time limits or both. It goes without saying that these risks become even more complicated when it comes to whole projects or larger and more complex contracts. These are often completed over longer periods and involve many more possible combinations of interrelated commitments between the commercial parties, not only between the seller and the buyer but also often involving other parties in the buyer’s country, both commercial and political.
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