Export pricing is the most important factor in for promoting export and facing
international trade competition. It is important for the exporter to keep the
prices down keeping in mind all export benefits and expenses. However, there is
no fixed formula for successful export pricing and is differ from exporter to
exporter depending upon whether the exporter is a merchant exporter or a
manufacturer exporter or exporting through a canalising agency.
Like any business transaction, risk is also associated with
good to be exported in an overseas market. Export is risk in international trade
is quite different from risks involve in domestic trade. So, it becomes
important to all the risks related to export in international trade with an
extra measure and with a proper risk management.
The various types of export risks involve in an international trade are as
Sometimes because of large distance, it becomes difficult for an exporter to
verify the creditworthiness and reputation of an importer or buyer. Any false
buyer can increase the risk of non-payment, late payment or even straightforward
fraud. So, it is necessary for an exporter to determine the creditworthiness of
the foreign buyer. An exporter can seek the help of commercial firms that can
provide assistance in credit-checking of foreign companies.
Poor Quality Risk
Exported goods can be rejected by an importer on the basis of poor quality. So
it is always recommended to properly check the goods to be exported. Sometimes
buyer or importer raises the quality issue just to put pressure on an exporter
in order to try and negotiate a lower price. So, it is better to allow an
inspection procedure by an independent inspection company before shipment. Such
an inspection protects both the importer and the exporter. Inspection is
normally done at the request of importer and the costs for the inspection are
borne by the importer or it may be negotiated that they be included in the
Alternatively, it may be a good idea to ship one or two samples of the goods
being produced to the importer by an international courier company. The final
product produced to the same standards is always difficult to reduce.
With the movement of goods from one continent to another, or even within the
same continent, goods face many hazards. There is the risk of theft, damage and
possibly the goods not even arriving at all.
The exporter must understand all aspects of international logistics, in
particular the contract of carriage. This contract is drawn up between a shipper
and a carrier (transport operator). For this an exporter may refer to Incoterms
2000, ICC publication.
International laws and regulations change frequently. Therefore, it is important
for an exporter to drafts a contract in conjunction with a legal firm, thereby
ensuring that the exporter's interests are taken care of.
Political risk arises due to the changes in the government policies or
instability in the government sector. So it is important for an exporter to be
constantly aware of the policies of foreign governments so that they can change
their marketing tactics accordingly and take the necessary steps to prevent loss
of business and investment.
Unforeseen risk such as terrorist attack or a natural disaster like an
earthquake may cause damage to exported products. It is therefore important that
an exporter ensures a force majeure clause in the export contract.
Exchange Rate Risks
Exchange rate risk is occurs due to the uncertainty in the
future value of a currency. Exchange risk can be avoided by adopting Hedging
Export Risk Management Plan
Risk management is a process of thinking analytically about
all potential undesirable outcomes before they happen and setting up measures
that will avoid them. There are six basic elements of the risk management
• Establishing the context
• Identifying the risks
• Assessing probability and possible consequences of risks
• Developing strategies to mitigate these risks
• Monitoring and reviewing the outcomes
• Communicating and consulting with the parties involved
A risk management plan helps an exporter to broaden the risk profile for foreign
market. For a small export business, an exporter must keep his risk management
analysis clear and simple.
Export Risk Mitigation
Export risk mitigations are the various strategies that can be adopted by an
exporter to avoid the risks associated with the export of goods.
- Transportation insurance: Covers goods during
transport; degree of coverage varies.
- Credit Insurance: Protects against buyer
insolvency or protracted defaults and/or political risks.
- Seller non-compliance (credit insurance):
Covers advance payment risk.
- Foreign exchange risk insurance: Provides a
hedge against foreign exchange risk.
Instruments used to Hedge Price Risk
- Stabilization programs and funds.
- Timing of purchase/sale.
- Fixed price long-term contracts.
- Forward contracts.
Table of Contents