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International risk mitigation is one of the most important practices an exporter can develop. While the advantages of international trade are numerous, the risks of international export are as well. Having knowledge of those potential pitfalls is vital to running a successful export business.
Mitigating risks in exporting means preparing for economic downturns, political strife, transportation issues, and audits from the Bureau of Industry and Security (BIS). Exporter strategies for reducing these risks include being insured and working with experienced logistics companies. Preparation is key to preventing risks in international business dealings.
To further understand international business risk, it’s important to review the basics of exporting. Afterward, we’ll describe some of the risks and problems in exporting and the risk management strategies used to address them.
Exporters specialize in selling goods to foreign nations in the international market. An example of export would be selling copper mined in Alaska to customers in Norway. While it can be a risky venture, it’s often lucrative to address the supply needs of foreign countries. This is especially true if you have access to a surplus of goods that your customers can’t source within their domestic market.
Learn more about how to do export business with our guide to export control basics, including getting a license, using the Commerce Control List, and more export business strategies.
Like all business ventures, commercial risks in export include fluctuations in supply and demand and customer satisfaction rates. However, exporting also carries its own unique challenges. These include social and political turmoil, fluctuations in currency values, and language barriers that can lead to misunderstandings.
There are several ways things can go wrong when exporting. Examining these risks is key to preparing your business for setbacks and mitigating consequences. Let’s take a deeper look at the major risks in international trade.
Before your product even leaves the port, some export risks occur. If your submission of Electronic Export Information (EEI) isn’t accurate, you risk being fined by the BIS. This bureau regulates the export process in the United States.
These fines can add up to thousands of dollars. Under extreme circumstances, violators may be given a prison sentence.
This could happen under the following circumstances:
Examples of export transactions that led to imprisonment and fines include:
| Charges | Details | Penalties Assessed |
| Attempt to violate Arms Export Control Act. Failure to file export information. Fraud involving aircraft parts in interstate commerce. | Export of aircraft parts to Hong Kong. | Thirty months in prison with two years of supervised release. $300 special assessment fee. |
| Conspiracy to defraud the US. False statements on export information. Money laundering. | Attempted export of a turbine to Iran via the UK. | Forty months’ imprisonment. Three years supervised release. Forfeiture of $250,000. $300 special assessment fee. |
| Violation of Arms Export Control Act. | Export of firearm parts to Australia. | Forty-two months’ imprisonment. Forfeiture of firearm parts and ammunition. 120 hours community service. $100 special assessment fee. |
| Conspiracy to export defense articles without license and export defense articles to an embargoed country. | Export of military supplies to China. | Forty-six months in prison. Three years supervised release. $25,000 fine. $200 special assessment fee. |
| Violation of a penalty, license, or order, structuring transactions in order to evade reporting requirements. | Export of a filter module to Iran. | Nine months’ imprisonment. Two years supervised release. $200 special assessment fee. |
Source: BIS Annual Report 2020
As you can see, even the attempted export of certain goods and materials can result in crippling fines and years of imprisonment.
BIS also requires that paperwork concerning export transactions be retained for up to five years after the transaction has been completed. Shoddy record keeping by the exporter of record can result in censures and hefty fines.
The greatest risks at the procedural level come from failure to use the proper schedule B number. Learn more about this number and its importance to the exporting business here.
Perhaps the least predictable risk associated with exporting, political upheaval can lead to economic instability, which negatively impacts your customers in the affected region. Even something as simple as a scheduled election can have a ripple effect on buying habits, leading to a sharp, if temporary, decrease in demand.
Depending on the country or countries to which you export, the social and political risks don’t stop at election cycles. Volatile regions may experience populist uprisings, military coups, and other chaotic events. These can turn a lucrative market into a financial wasteland.
Social risks also come in the form of language and cultural barriers. Coca-Cola learned this the hard way when it marketed its signature beverage in China as Ke-Kou-Ke-La, which translates to “Bite the wax tadpole” in Mandarin. From advertising to business meetings, such misunderstandings can make it easy to get off on the wrong foot with your customer base.
The economic risks of doing business with a foreign country can sometimes be tied directly to political risks. However, even stable regions can experience market fluctuations. If your customers experience an economic downturn, it may result in a decrease in demand and a decline in profits. Sometimes these downturns are predictable, but they can also come out of nowhere.
Like any business, exporters risk a decrease in sales in the face of strong competition. When you conduct transactions based on letters of credit, the risk of customers paying late or not at all is also present.
Exporters may also encounter complaints about the quality of their merchandise. These complaints may be legitimate or an attempt from customers to secure a discount.
Depending on your merchandise, you may need to source specialized transportation services. For instance, you’ll need temperature controlled trucks to transport food and medicine. Working with an experienced logistics company will ensure your goods are delivered safely and on time. For these reasons, it pays to partner with a company that has experience in global logistics.
Generally speaking, the best strategy for mitigating risks in exporting to the global market is preparedness. Take the following steps prior to exporting your goods. Doing so can go a long way toward minimizing exporting risks.
Another notable way to reduce risks in exporting is to purchase export credit insurance (ECI). Sometimes called export risk insurance, ECI protects your company’s bottom line in the event that one or more of your customs fails to pay their line of credit.
This insurance is even valid if the reasons for non-payment extend to political issues such as uprisings, protests, and war.
When you’re properly prepared, the risks of exporting, while considerable, can’t outweigh the potential for profit and business growth. This is especially true if you choose to partner with a broker. With over 100 years of combined experience, the experts at Cargo Export USA can provide you with services such as:
Contact us at 866-301-0635 or via our website today to get the information and services you need to succeed in the exporting business.
