Risk Management when exporting

Introduction

For introduction into trigger 5, we watched Zurich insurance group video about risk management in exporting case. The example was a case study about Chase Vodka, about it´s successful branding and the risk management when the company started exporting the product to 36 countries.

What risks are there with exporting and how to manage them?

Plenty of diverse and adoptable skills are needed in exporting firms today. Technological, economic and political changes have created international environment, which is integrated, rapidly changing and highly competitive, says Hyatt (2016).

There is an increased environmental concern, due to rapid economic development during the last century. Therefore, there can be more stricter regulations for exporting, general insistence for environmentally friendly products and sustainable solutions. (Hyatt, 2016)

To manage this risk, company must be sure, that not only the product, but also the procedure and corporate practices conform to local environmental regulations. For example, when negotiating mergers and acquisitions, there must be certainty that there are no environmental liabilities arising due to the contract. Companies should also make improvements to their environmental practices proactively, not wait for requests for improvements for this from business partners. Environmental concerns have a long-term perspective to businesses and planet resources, so therefore proactivity in this matter is mandatory (Hyatt, 2016)

Hyatt (2016) mentions also business ethics one of the great concerns in exporting business in today´s world. The emergence of global economy is accompanied by international emphasis o n appropriate standards of conduct and ethical business practices. Anti-corruption campaigns and concerns about international terrorism have increased regulatory oversight, reporting and security arrangements. Due to this concern, very crucial for the companies, is to understand and adhere the laws of the countries where they operate.

Capital market changings, financial changes and fluctuating will affect on costs, which are all the time existing risk in businesses, when thinking for example about transportation and distribution when exporting. Companies are vulnerable and can´t affect on these distant events. These changes will require plenty of strategic planning and clear vision and then plan how to achieve it, states Hyatt (2016)

Other risks can be changes in political circumstances, commercial risks and cultural risks, like language or communication barriers (Doyle, 2019)

Commercial risks are usually considered as potential losses from unreliable trading partners or unstable markets. These commercial risks can be a result of certain kind of misunderstanding between the cultures. Such scenarios happen because people tend to interpret other through their own culture, according to Harvard University study, says Doyle (2019)

Political risks are very sudden and it´s important to monitor cross-border political situations. Wars and changes in political and economical alliances, regulations and policies can drastically change the import-export business (Doyle, 2019).

What are the challenges entering new country?

The risks and challenges are quite similar, also mentioned on previous chapter.  But I read a point of view about the challenges from American express article about the data protection and barriers for international import and export (2019)

Internet -enabled digital economy would immensely increase the value of multinational trade, but the companies face plenty of barriers to this kind of business, says Andersen (2019). He says that consumers are concerned about the online privacy and data protection and they don´t trust that the brands handle their personal information appropriately when they participate on cross-border e-commerce. But simultaneously stricter data protection legislation can have negative impact on cross-border trade.

Same time there are countries that don’t have any data protection policies, or they struggle with understanding, modelling and enforcing the appropriate protection measures. This is damaging for the companies in developing countries and import-export trade, since they are not able to pass the appropriate legislation or covering the cost of bringing their data storage policies into compliance in the global level. (Andersen, 2019)

Why to consider brand localization?

Many companies undervalue the localization with branding. Some companies like Mark & Spencer clothing company have failed with this, because they have concentrated on globalization instead of localization. Mark and Spencer halted their online sales to China, but they failed to adopt to the Chinese taste of clothes. Those brands that success to balance the global standard with the need of local flexibility, are the most successful ones. (Casey, 2019)

Brand localization is a strategic opportunity to brands, but this is important especially in Asian countries. According to Casey (2019) Since growth there in general is expected to grow, localizing the brand and marketing are becoming a core strategic component. Approaching the markets for some brands can be challenging in the beginning, especially in China, but the key is to find the way the right narrative way and tailor the brand in a right to the audience, because the mindset and behaviour can be very different in country, where the brand is exported to.

Budweiser beer has managed with localizing their brand in China. They have used similar brand positioning, but they have targeted young and premium audience that they have fresh retail and digital activations to this certain audience. This has made the brand experience beyond the product itself, mentions Casey (2009)

References

Andersen, Z. 2019. American express article. Barriers to digital import-export trade: Data protection. URL:https://www.americanexpress.com/us/foreign-exchange/articles/data-protection-creates-an-import-export-trade-barrier/ Accessed 27.11.2019

Casey, A. 2018. Prophet article. Localization is the key to unlocking relevance and driving growth. URL: https://www.prophet.com/2018/06/localization-is-the-key-to-unlocking-relevance-and-driving-growth/ Accessed: 27.11.2019

Doyle, M. 2019. American express article. Can global mindset mitigate import-export business risks? URL: https://www.americanexpress.com/us/foreign-exchange/articles/global-mindset-mitigates-import-export-trade-risks/ Accessed 26.11.2019

Hyatt, P. 2016. Trade Ready: blog for international trade experts. 4 of the biggest challenges export managers face today. URL: http://www.tradeready.ca/2016/topics/import-export-trade-management/4-biggest-challenges-export-managers-face-today/ Accessed 27.11.2019