International Trading – Mitigating Common Risks with the Experts

Posted by Wolfgang Zulauf Köln, Cologne on February 18th, 2020

For any company, international trading brings lucrative opportunities in terms of reaching out to a broader target audience, business growth, and profitability. At the same time, it poses a wide range of risks that companies should prepare for beforehand. The language barrier, cultural differences, geopolitical context, varied business customs & practices, and complicated foreign trading laws – all these factors are major hindrances to seamless export-import between two countries. Therefore, it is imperative to seek expert consultation from an industry professional such as Wolfgang Zulauf who can help you understand the risks involved in foreign trading and also guide you with definitive measures to mitigate the same.
 
Major Risks of International Trading 
 
Here is a quick rundown of potential risks your business might face when involved in the global export-import of products and commodities. 
 
1. Poor Knowledge in Foreign Trading: It becomes a major challenge when businesses lack adequate and appropriate knowledge of global marketing conditions, trading new products or services, fast-evolving consumer behavior, etc. This can be a primary roadblock to streamlines trading processes. 
 
2. Cultural & Economic Risk: Cultural, political, linguistic and economic differences between the two countries can pose a serious threat for both parties to trade. Political turmoil, economic instability, language barriers or cultural disparity can affect trading transactions unless both the exporter and importer work on understanding the same and eliminating dissimilarities. 
 
3. Buyer’s Insolvency or Credit Risk: For a supplier or exporter, the biggest risk is the buyer’s inability to pay for the goods delivered. This can be for any reason thereof, including bankruptcy. 
 
4. Seller’s Performance Risk: A risk for the buyer or importer is the exporter’s inability to fulfill all obligations as specified in the trade agreement. 
 
5. Risk of Importer’s Acceptance: Another potential risk for the exporter is when the buyer or importer is not ready to accept the goods delivered.   
 
6. Forex Risk: In global trading, both parties deal with foreign currencies. Any fluctuation in the Forex market can be a major risk for the exporter and importer. 
 
According to experts, every business involved in international trading should consider these risks and take effective measures to mitigate the same. 
 
Measures to Reduce Risks of Foreign Trading 
 
Wolfgang Zulauf, who studied economics in Köln, Cologne, is a successful entrepreneur, and an avid international trading consultant. He suggests powerful strategies to mitigate the risks and seamlessly conduct business with your offshore partner:
 
· Know the International Market: Before you leap, it is crucial to do homework about the potential market, the credibility and solvency of your business partner, the economic & political conditions of the offshore country, cultural & language differences, etc. This will prepare you for the unforeseen and help address the bottlenecks that may arise. 
 
· Take a Wide Range of Financial Instruments into Consideration: One of the best ways to protect the interests of both the importer and exporter is by using financial instruments that facilitate international trading. These include Documentary Letter of Credit, Bank Guarantee, Proof of Funds, Standby Letter of Credit and Warranties. 
 
· Reduce Risks of Foreign Exchange: Fluctuations in foreign currency exchange can cause a significant threat to any business involved in international trading. To address such risk, you can get into an agreement with the offshore partner to buy and sell in the same currency. Additionally, the buyer or importer can choose the option or forward foreign exchange with the banking institution to reduce the risk to some extent. 
 
Always have an industry expert to assist you with the nitty-gritty of international trading.