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You are here: Malaysian Exporters Section | Going Global: Beginner's Guide | Managing And Reducing Export Risks

Managing And Reducing Export Risks

Exporting your firm's products or services can provide you a valuable opportunity for growth.

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Concept of Risk Management

Growing your international client base is an exciting and potentially lucrative opportunity, but with increased growth comes increased risk.

Some of the issues faced by the exporters:

  • Transporting and delivering goods 
  • Currency fluctuations 
  • Language barriers
  • Different business regulations 
  • Political and economic instability in dealing with unknown customers 
  • Debt defaults.

Should not deter Malaysian businesses from capitalising on the global marketplace, particularly those in the emerging second-tier markets, as long as these risks are managed and minimised.

The first step in risk mitigation is to get to know your target market and customers. Exporters can access general information on political, legal and regulatory conditions from local government agencies.

In addition, these agencies can introduce you to potential business partners and local professional services at no charge so you can explore the competitive market before making any commitment to that country.

Types of Risk as per follows:

  • Business Credit Risk 
  • Bank Risk 
  • Country Risk
  • Supplier Risk 
  • Business Risk.
TYPES IDENTIFYING RISK RISK MITIGATION
Buyer Credit Risk 

• When buyer will not or cannot pay for the goods once they have been shipped

• Seasonal purchase

• Dependence on few buyers

• Request for Letter of Credit

• Request for Advance Payment
Bank Risk

• When buyer’s bank is unable to pay the amount guaranteed

• This happens when the bank is not recognised by exporter’s bank

• Request for LC confirmation from premier international bank or reputable domestic bank

• Restrict LC to reputable domestic bank
Country Risk

• Factors in buyer’s country that may make it impossible for either the buyer or the bank to pay

• This happens when the country is under trade embargo, war or even in political turmoil

• Request for export credit insurance

• LC to be issued by another bank from another country ( apart from importer's country)
Supplier Risk

• Country’s restriction, if you buy internationally

• Unable to ascertain the credit standing of the supplier

• Credit checking with supplier's bank

• Check with MATRADE's office at supplier's country
Business Risk

• Risk

• Dependence on foreign labour

• Capital versus labour intensives

• Dependence on few buyers / suppliers (concentration risk)

• Dependences on obsolete machines, senior skilled workers (downside risk)

• Human capital capacity building; Sourced internally

• Production innovation; Shift to mechanisation and automation

• Seek assistance from MATRADE's local office or Trade Commissioner's office

 

Export Insurance

  • Whether you are exporting domestically or internationally and whether you export goods or services, insurance is relevant to you
  • There is a wide range of products on offer providing varying levels of cover depending on your particular needs
  • You should consult your lawyers and accountants about risk mitigation
  • It is advisable to involve your insurance company too, and be fully prepared
  • It is important to protect what you have worked so hard to build 
  • Large or small, every exporter needs a risk mitigation strategy ofwhich insurance is a critical component 
  • Start with a simple matrix of potential risks 
  • In addition to credit, financing and goods insurance, you mightneed to consider political risks, legal risks, graft and corruption,and quarantine compliance 
  • This is a good way to identify the probability of risks occurring andwhat their likely impact would be on your business.