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INTRODUCTION

International business means more opportunities, but also entails greater risks. Although
the environment for international trade has changed substantially over the years, the risks
that exporters face when selling their products and services in other countries remain
essentially the same. The initial step in managing export risks is an obvious one but one
which sometimes needs to be spelled out: first to identify the source of any risks, and then
to manage and lower those risks to a minimum. Choosing the right partners and the right
professional advisers is a major step in mitigating risk. Bankers, lawyers, insurers and
accountants should also be able to give knowledgeable advice about the risks that may face
in overseas markets. This section also includes information about potential risks associated
with travelling and doing business in overseas markets. Managing risk is one of the primary
objectives of firms operating internationally Nevertheless, current treatments of risk and
uncertainty in the international management literature vary in their use of these terms and
tend to look at particular categories of risks to the exclusion of the risks mentioned
elsewhere in management literature. The strategic management field lacks a generally
accepted definition of risk.1 The major uses of the term are in reference to unanticipated
variation or negative variation (i.e., "downside risk") in business outcome variables such as
revenues, costs, profit, market share, and so forth. Managers generally associate risk with
negative outcomes. The concept of risk as performance variance is widely used in finance,
economics, and strategic management. With either the variance or negative variation understandings, "risk" refers to variation in corporate outcomes or performance that cannot be
forecast ex ante. The label "risk" has also commonly been assigned to factors either
external or internal to the firm that impact on the risk experienced by the firm. In this
sense, "risk" actually refers to a source of risk. Some common examples of risk referring to
risk sources are terms such as "political risk" and "competitive risk." Such terms link
unpredictability in firm performance to specific uncertain environmental components.

TYPES OF RISK IN INTERNATIONAL BUSINESS IN REFERENCE TO BANGLADESH


Doing

business

internationally

can

involve

different

risks

from

those

encountered

domestically and will be influenced by the country you intend to export to. Here are some
of the major risks firms doing business internationally can face.
Political risk
Major political instability at your export destination can either disrupt or in some cases
prevent completion of export contracts. This type of sovereign risk might include defaults on
payments, exchange transfer blockages, nationalisation of foreign assets, confiscation of
property, changes in government policies or, in extreme instances, revolution and civil war.
Some factors to consider are:

Trade embargos enforced by governments and the international community affect


the flow of goods and services and could affect your delivery of goods and getting
paid.

Civil disorder may affect personal security of company staff and contractors.

Political upheaval may occur due to economic factors, natural disasters, civil disorder
or revolution

Whether the local country complies with international law requirements, for example,
human rights, trade sanctions, recognition of personal property rights etc.

Some types of exports may be prohibited under local laws or due to trade embargoes
or other international resolutions

There may be no legal recourse for default in the local country or it becomes
uneconomic to pursue your legal rights

Legal risk
There can be major differences in Australian law and the law of the country you are
exporting to. You need to understand what these differences are and how they could affect
your ability to successfully export your products or services. It is important not to assume
that legal processes will be the same as in Australia, particularly when entering into
contractual arrangements.

Some examples of situations where legal issues can create problems for exporters include:

The differences between legal systems for example, common law systems as
compared to civil law systems.

Differences in contract law between countries means tailored advice on contract


terms is important to ensure they are binding and enforceable. As discussed further
below, the use of internationally recognized contracts may alleviate some of these
problems.

The question of which laws will apply in disputes.

Patent registration and other Intellectual Property issues.

Product liability laws and any implied consumer warranties.

For exporters of services, occupational health and safety and employment laws may
apply

Access to courts and dispute resolution mechanisms. Some countries may not permit
local litigation or place restrictions on the types of claims which can be made.

Taxation and revenue laws

Negligence and misrepresentation laws

Bribery, graft and corruption risk


Bribery, graft and corruption are illegal in most countries around the world. It is a criminal
offence to offer a benefit which is not legitimately due with the intention of influencing a
foreign public official. A benefit is not restricted solely to monetary payments and can take
other forms. Further, it is not necessary to prove any direct benefit to the foreign official use of an intermediary is sufficient to make out the offence.
Many other countries also have extraterritorial laws outlawing bribery, including the USA, UK
and other EU nations. Therefore, the risk for anyone engaging in bribery or corruption arises
not only under law, but also the law of the host country and potentially laws of other
nations. It also places an exporter at risk of litigation by those who are affected by illegal
conduct, as demonstrated by recent successful class actions.

Quarantine compliance risk


Most countries have strict quarantine requirements. Before exporting, you need to be aware
of what is and what is not allowed under the relevant quarantine laws of your export
destination.
There may also be import restrictions on certain goods and services and you need to ensure
that any proposed exports are permitted under the laws of the local country. Failure to do so
can result in forfeiture or destruction of goods, fines and restrictions on the exporter.

Exchange rate risk


Exchange rate risk can occur because of fluctuations in the value of a currency.
Unfortunately, many exporters have had their profit margins eroded or have even lost
money due to exchange rate fluctuations.
There are a number of ways in which you can protect yourself against this risk, including
quoting your prices in dollars (but many customers do not like this and you may adversely
affect the number of new customers you attract) or hedging against currency fluctuations.

Non-payment risk
The risk of not being paid for your goods or services is a very serious one for exporters,
regardless of the country you are trading with. In order to mitigate this risk, the payment
option you choose should match the level of the risk.
To protect yourself against payment default it is prudent, at least initially, to use payment
methods which provide you with some security such as pre-payment or an Irrevocable
Letter of Credit even for customers in wealthy markets. (bank will be able to provide
advice on various payment options.) There are a number of relatively simple things that can
be done to lower the risk of not being paid. For example, be careful about offering credit
terms to customers, and look into getting credit insurance.

MANAGING RISKS IN INTERNATIONAL BUSINESS


Managing export risks is a process of thinking systematically about all possible undesirable
outcomes before they happen and then setting up procedures that will either avoid or
minimise these risks, or help you to cope with their impact.
There are six basic elements in the risk management process:

Establish the context of the risks


Identify the risks
Assess probability and possible consequences of the risks
Develop strategies to mitigate these risks
Monitor and review the outcomes
Communicate and consult with all parties involved.

Keep your risk management analysis clear and simple, and ensure it is understood by
everyone in the company who is involved in exporting.
Developing a Risk Management Matrix
A Risk Management Matrix will not only clarify your thinking on the risks you may face, but
also give you a guideline to work from in managing or mitigating risks. This document
should be an appendix to Export Plan, heres some examples of what could be included in
your risk matrix:

Risk type

Ranking
(Low/Medium/High)

Exchange rate
risk (BDT/USD
rate changes)

High

Legal risk:
product
liability laws

High

Non payment

Medium

Consequences

Steps to manage or
mitigate this risk

Payments in USD will


Company policy to hedge
not
cover
invoiced
all export orders taken in
amount
resulting
in
USD currency at time of
losses or eroded profit
order receipt
margin
Legal action could be Ensure up to date legal
taken against us with advice on liability laws in
subsequent
financial USA
and
take
out
claims by customers
insurance
Credit checks on any
customers
we
provide
Debtors
difficult
to
credit terms to, check
chase
overseas,
debtors list before shipping
financial losses
any orders. First order to
be prepayment or L/C

Risk Management Matrix by creating a simple list of potential risks. A Risk Management
Matrix is not only a good way to identify the probability of risks occurring and the

consequences if they do, it will also help you to order the priority of issues that cannot be
ignored.
Grading risks helps you to focus on critical areas and to mitigate them before they become a
crisis. For example, if all of export business is with a single client in, and that company
becomes insolvent, the outcome could be catastrophic. But if the likelihood of insolvency is
low, your risk ranking for that event is more moderate, although it may still require
monitoring. It is a good idea to review your Risk Management Matrix regularly to ensure you
cover any emerging market changes.

OTHER RISK MANAGEMENT MEASURES


Building a Foreign Exchange Policy
This guide will help you develop a basic foreign exchange policy that protects your business
from volatile exchange rates that can put your cash flow, profitability and competitiveness at
risk.
Credit Management Processes that Pay Off
Strong credit management is essential to mitigating risk. This white paper offers information
and tools that can help you establish or enhance your companys credit management
practices.
Currency Risk Management Practices of Canadian Firms
Most companies would accept lower profit margins to minimize risk. Thats just one of the
findings of our EDC Research Panel survey on risk managementavailable to you in this
informative report.
Financial Crime in International Trade
Protecting business from getting involved in financial crimeeven as an unwitting
accompliceis a must when doing business abroad. This guide can help your company
identify and manage the risks of financial crime in international trade.

Introduction to Exporting: How to Sell to International Markets

Not sure where to begin when it comes to exporting? This report can help you determine if
your company is ready for international trade and learn how to overcome barriers and risks.
Managing Foreign Exchange Risk
The value of the Canadian dollar can change quickly and dramatically. This paper offers an
introduction to the subject of foreign exchange risk and how to minimize the impact of a
changing currency on your international business.
Research and Development: A Key Input for Enhancing Canadian Export Capacity
Research and development can help you make better export decisions and expand your
presence in international markets. This paper explains how.
Risk and Cash Flow Management
This guide offers practical advice on addressing the challenges associated with international
trade, including complex operational risks, capital requirements and the need to manage
cash flow more vigilantly

CONCLUSION AND RECOMMENDATIONS

Bangladeshi financial institutions should use

modern technologies and

strategy in

international trade and International exchange to minimize risk.


The International trade related rules and regulations must be updated with consistent of
international rules.
Export and import procedure to be simplified and easier.
Cash incentive and other incentives to be extended.
Human Resources must be well educated and trained with modern technologies and
international trade.
Bangladesh Government has to take initiative manage risk in international trade to boost up
export.

In conclusion, we can say that there are a lot of opportunities for increasing export in
Bangladesh if stay political stability. The Human Resources are cheapest here which play an
important role in any business. Bangladesh government has to take proper steps to
maintain congenial atmosphere for sustainable foreign trade and International exchange
business in the country.

REFERANCES

A Text Book on International Exchange, L. R. Chowdhury (3rd Edition)


Financial Institutions & Trade Risk Management, A Modern Perspective
Bangladesh Bank Guidelines for International Trade & International exchange
http://www.economywatch.com/international-trade/risks.html
http://www.worldcustomsjournal.org

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