1. Discuss risks of importing and exporting in detail and show your examples. 2.
ID: 381790 • Letter: 1
Question
1. Discuss risks of importing and exporting in detail and show your examples. 2. Identify at least three (3) important drivers of importing and discuss in detail and give your examples. Discuss the following aspects in detail and illustrate your examples: a. Bills of lading and global business b. Export management company vs. export trading company and global business c. Commercial invoices Discuss the following aspects in detail and show your examples: a. Ownership advantages and global business b. Location advantages and global business C. Counter trade and global businessExplanation / Answer
Solution 1.
Every organization needs to grow in order to sustain itself with the competition it faces from the emerging entities with new innovations and ideas. One of the ways to grow an organization is to expand its business into new territories. Also, there are requirements when raw materials or new products are to be purchased from other countries and brought to the home country. And for that, the organization needs to do exports and imports.
Every business has risks involve with it and with it are its profits. Greater the risks translate into greater profit or loss. Businesses needs to account for the risks involved in every aspect so as to take a decision on whether to execute a certain plan or not.
Below are the risks involved in exporting and importing:
1. CULTURAL RISKS: While a product might be selling like hotcakes in the home country there are chances that the product might not sell well or at all in the targeted country.
For example, a product containing pork might be one of the successful products of the company it might be a failure in Islamic countries because the religion forbids eating pork. So it’s better to know what are preferences of the country well in advance.
2. POLITICAL SCENARIO: Political scenario i.e. the relationship between the two countries involved or due to undertake the export and import transaction need to stable favoring such transactions. If the relations are sour or there are warlike situation then the export/import cannot be done between the participating countries.
Also if any of the participating countries are engaged in an on-going war or there is civil war then there are chances that the cargo might be looted by the enemy or the rebellions.
Sometimes when there are elections and a new leader comes to power it can disrupt the exports and imports if he doesn’t share the same chord with those of his predecessor.
3. TRANSPORTATON: Transportation of cargo has had improvements over a period. Most of the goods are transported by sea. Transit risks are a common hazard for those engaged in export or import business. The list of risks involved includes storms, collisions, theft, leakage, explosion, spoilage, fire, and sea pirates capturing ships. Every exporter should have working knowledge of marine insurance so that he knows whether he is getting the required risk protection at the minimum cost. It is always possible to transfer the financial losses resulting from perils of sea and perils in transit to professional risk bearers known as underwriters. Principles of marine insurance are also equally applicable to insurance of air cargo.
4. DISTANCE: Distance can also determine the risk involved in the transportation of goods. Longer distances involve higher risks of the damage to the goods.
For example for a US firm exporting to Canada has lesser risks than exporting to China as Canada is nearer to US compared to China.
5. CREDIT RISKS: In the export business importers are sought after by the exporting organizations so they can dictate the terms of the transactions for the most part of it. This had led to make the exports as a credit affair. Credits are offered to importers so they are ready to import and help them expand in new territory.
Once the goods are sold on credit the risks that are accrued till the time when the sale proceeds of the goods are realised is called credit risk. Risk can be due to many factors like inability of the buyer to pay, failure by the banks to transfer the payment to the seller, indulgence of any participant country in war, change in government policies that can deter any transaction between the countries.
6. SUPPLY RISKS: Sometimes the supplier might fail to manufacture or export goods on time or of the quality that was agreed earlier even with no involvement of political bodies. This can happen due to unavoidable reasons like breakdown of the machinery, strikes, lack of supply of raw material etc. This can be detrimental in supply of goods on time.
7. BANKERS RISK: Every export and import that is initiated is after the exporter has undertaken the guarantee by a bank to ensure the payment to the exporter when the exports reach their destination safely and have been in custody by the importer. But there can be instances when the banks might fail to honour their undertaking which can result in loss to the exporter.
8. IMPROPER DOCUMENTS: Every export has to have multiple documents that are required for the exports to be shipped from home country to the importing country. There are documents that are needed to clear the customs, on docks, etc. if any of the document is incorrect or missing can lead to problems at different stage of shipment. This can lead to confiscation of good or returning the goods to home country.
9. LEGAL SYSTEMS: Each country has its own laws and legal system. This makes it difficultfor exporters and importers to enfore the sales contracts they agreed to. Taking legal action across international borders can be very complicated, expensive and cumbersome.
For example a US firm want to sue a Chinese firm they have to consider the court system, language of hearing, cost of international lawyers, etc. these things can distract the firm from its objective to do business.
10. EXCHANGE RATES: The seller often quotes the prices in the currency of their country or some other currency that is acceptable. Varying exchange rates may have an impact in the resulting amount when converted to their home currency to either of the parties.
The changes in the currency when compared to the currency in which the deal is agreed to can impact severely if the currency appreciates or depreciates.
For example when goods are sold by US firm to China and the deal is executed in US$ and then the value of Chinese currency depreciates compared to US$ means higher profits for Chinese firm and vice a versa.
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