Evaluating
and Mitigating International Business Risk
Dennis R. Chrisbaum
of the U.S. Small Business Administration has written what
is good advice for small businesses to evaluate and mitigate
concerning exporting successfully and prudently. He says,
“When doing business abroad, the risks may look ominous
and be different, but that does not mean you should stay at
home. Rather, you should clearly identify the risks and then
figure out the best way to protect yourself against them.
Let’s look at some of these international business risks.
1. Policital.
Obviously, every country has its own political system. Some
governments are stable; others are less so. There are professional
organizations that evaluate country political risk, but you
can do some research to understand a country’s basic
political structure and history. Look up a country in The
World Fact book at www.cia.gov, read “Background Notes”
on each country on the State Department’s site at www.state.gov,
and check out some commercial sites, such as www.countrywatch.com
and www.aigonline.com. You also can monitor news in newspapers
around the world at the World News Network: www.wn.com.
2. Economic.
Every country has its own economic history of growth, inflation,
productivity, monetary policies, and business cycles. A foreign
country might present a greater economic risk, or a smaller
risk, than doing business in the United States, but certainly
it will be different. Whatever the case, it is important to
realize that when you go abroad to do business, “you
aren’t home anymore.”
3. Commercial.
It is possible to order credit reports on potential foreign
buyers from such organizations as Veritas, Graydon, Dun &
Bradstreet, and Standard & Poor’s. Even more important,
you can insure your overseas account receivable against political
and commercial risk through such organizations as the U.S.
Export-Import Bank (www.exim.gov) and large insurance companies.
The International Company Profile program of the U.S. Commercial
Service helps U.S. companies evaluate potential business partners
by providing a detailed report on overseas companies that
have been personally visited by a trade specialist or commercial
officer of the U.S. Commercial Service.
4. Regulatory.
Import regulations vary by product and country, so make sure
to check ahead of time to ensure that your products qualify
for market entry. Regulations can govern everything from certifying
that your products meet industry standards to meeting electrical
standards, to properly labeling your products, to getting
ISO certification. The U.S. Commerce Department’s Export
Assistance Center staff in your area can help.
5. Legal.
Every country has its own legal system. Many countries operate
under civil law, instead of common law as practiced in the
United States. It is critical to understand the laws of the
country in which you operate, as well as international arbitration
options. Also remember to protect your intellectual property
(copyrights, patents, trademarks) by properly registering
it in the countries where you plan to do business. How countries
enforce their laws also will vary greatly by country.
6. Financial.
Two separate financial risks confront an exporter:
the method of payment and foreign exchange risk. For example,
payment under a letter of credit has much less risk than an
open-account sale or payment by an international check.
7. Cultural.
When you deal with people in other countries, there is always
the risk that you will do something offensive, probably through
a lack of understanding. In addition, a country’ culture
might determine if your product will even be accepted in a
market. Make sure you understand the cultural nuances before
entering a new market.
8. Shipping.
While not the norm, shipping risks always exist. A good freight
forwarder will help you address this risk, because most can
arrange directly for such insurance.
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