Commercial Risks and its solution in International Trade.
What is Commercial risk in international Business? How do commercial risks arise in export import trade of international business? What are the factors caused for Commercial risk under import export business?
In this article I am also going to explain, how to solve commercial risks under import export trade.
One of the major commercial risks is lack of knowledge about the international market. If an exporter who does not have proper knowledge about the area of sales where he markets his product, no doubt, he may fail in international business. So, an exporter should have studied thoroughly about the foreign market about selling of his export product.
Adaptability of your export product in foreign market plays a vital role in international market. Means, if your product can not have adaptability to change to the conditions of foreign market requirements, you may fail in exporting such product. With a simple example, I can explain about this commercial risk under international business. Suppose you are a mobile manufacturer. As you know, the models and application features are changed daily basis globally. So, if you fail to update features of your product, your market to sell such mobile comes down. So taste and preference of end users of your product plays an important role in any business market especially in export import trade.
We have discussed two commercial risks involved in export import business under international trade. Both commercial risks are common in any business. But the impacts of such commercial risks are more in international business. Now I am going to explain about another commercial risks involved in international business. As you are aware, international business is taken place from one country to another country where the distance between exporter’s place and importer’s place is too far. So meeting requirements of your overseas buyer is a crucial one. Due to longer transit time, if shipped by sea or delay in transit to inland destinations may lead to reject the export goods as your overseas buyer may not be able to use goods based on his commitments to customer.
I would like to point out one more situation under commercial risks in international business. Suppose, you have exported a consignment to your overseas buyer. But in between, due to various reasons, changes in order happened - amendments in export order, cancellation etc. In this situation, exporter should be in a position to handle the issues which had not anticipated before export.
In a nutshell, most of the commercial risks are not predictable. The changes in international market are hazardous and difficult to anticipate. Suitability and acceptability of the product in international market is rather difficult to gauge. Variations in demand and supply conditions are more unpredictable. A good business man untie such knots and succeed.
Here we have noticed that most of the commercial risks are to be borne by the exporters. Exporters cannot shift these risks to the professional risks bearers, paying insurance premium. The exporter is not aware of the conditions in the foreign market as the way he is aware of domestic market. Long distances to travel along with cost and time implication distinguish international trade form domestic trade. Exporter cannot visit Paris with the same ease he does Mumbai from Bhopal. If goods are not sold or price realization is lower than anticipated, due to changes in demand or supply, exporter has to bring back the goods, incurring additional freight cost or opt to sell the goods at a loss. In international market, as in domestic market, presence of competitors influences the demand and supply conditions and entry of new competitors depresses the market more. Further, local production may bring down the prices. Introduction of substitutes to capture the market may take away the exporter’s share in the market.
How to overcome commercial risks in international business?
Commercial risks can be minimized by using forecasting techniques and keeping a careful watch on the changing business conditions in the concerned country, in particular, and also keeping a track of the changes in the world economy. Exporters have to be prepared to face any eventuality and wisdom lies in forecasting and anticipating, of course, finally, quick responding, at the earliest hour.