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Home > Operations Management Best Practice > Essentials for Export Success: Understanding How Risks and Relationships Lead to Rewards

Operations Management Best Practice

Essentials for Export Success: Understanding How Risks and Relationships Lead to Rewards

by Paul Beretz

Executive Summary

  • The global business environment can present opportunities for rewards for the exporter if international risk attributes can be determined and mitigated.

  • Exporters who want to succeed should be able to identify and evaluate their “IQ” (international qualities).

  • The risk elements of country, currency, and culture can significantly impact global business transactions.

  • Relationship-building and the ability to sustain those relationships are necessary qualities for reaping rewards.


More and more, companies located throughout the world are recognizing that the way to sustain long-term growth is not by continuing to emphasize local, in-country markets. Whether it be for better or worse, global business is a factor that can provide businesses with the opportunity to consider new and challenging markets. In 2008, we saw that severe credit and financial issues could spread quickly, and that no part of the world was immune. Therefore, an understanding of the key risk factors that can lead to rewards is essential.

How should a business assess world markets? One initial approach for exporters is to determine their “IQ,” or international qualities, before either entering or expanding their overseas markets.

Rating Your Company’s “IQ”

The “IQ” test shown in Figure 1 will address your company’s readiness to compete in the global marketplace. For each question, give your company a letter grade (A–F, or U for “Unknown”) and state the reason(s) for your grade. Grade A = 90–100%, B = 80–89%, and so on.

Risks Facing the Exporter

An exporter will face many risks once the decision to sell in overseas markets is made. Key risk areas, in particular, are known as the “three Cs”—country, currency, and culture.

Country Risk

Figure 2 outlines the dimensions of country risk when goods or services are sold globally. Exporters may wish to use the chart to classify the major risk issues and attributes of each risk by country.

Theses are the questions to ask when determining the dimensions of country risk:

  • What currency will you be selling in? Is the decision a competitive one? Are you equipped internally to deal in multicurrencies?

  • Do you know the laws in specific countries? (For example, a joint venture in China must balance imports with exports, or else it could be barred by the government from obtaining hard currency.)

  • What is the recent political history (that could influence the availability of funds or internal stability)? This will include government takeover of properties, whether with or without compensation, operational restrictions, or damage to property or personnel.

  • What is the current economic environment in the country? Have there been local currency devaluations recently?

  • Have there been border disputes that could escalate military readiness and therefore impact the availability of hard currency, both within the country’s borders and as funds leaving the country? If the exporter’s customer base is expanding through direct investment abroad, will there be access to the invested capital and will earnings be able to be repatriated? This could impact cash flow and the ability to meet its trade obligations.

Currency Risk

Exporters have to consider selling in foreign currencies to offshore customers. In this competitive environment, an exporter needs flexibility in determining the currency that is billed to the customer. In a volatile global economy, however, billing a buyer in a currency that differs from the seller’s own currency can be fraught with risk: When payment is due, has the value of the currency fallen in value against the seller’s currency?

One approach for the exporter is to deal in the foreign exchange (FX) market, which is an enormous, sophisticated, and efficient global communications system operating around the clock to enable international transactions. Large commercial banks are the dominant players in the FX market, serving as intermediaries between supply and demand; corporations are the principal end-users. FX transactions are speculative by nature and thus can be volatile, thereby increasing risk.

Three basic transactions for managing FX risk are spot transactions, forward transactions and options. Spot transactions are purchases or sales of foreign currency for “immediate” delivery. Forward transactions carry a specified price and stipulated future value date for the exchange of currencies. They are used most often to cover future foreign currency payables and anticipated receipts. Options are a more suitable tool for “hedging” risk when a foreign customer’s commitment is not firm. Buyers pay a premium for the option to exchange foreign currency at a predetermined rate (“strike price”). Options are bought and sold on the “exchange-traded” (less flexible, less expensive) and “over the counter” (more flexible, more expensive) markets, and they allow buyers to take advantage of favorable changes in currency rates while guarding against adverse changes.

The prudent financial manager recognizes that currency risk is a major factor in the export decision.

Culture Risk

The proactive, truly globally oriented exporter living in today’s competitive marketplace understands that business decision making is a form of art as much as a science. All the evaluation tools available cannot take the place of experience. It is essential to possess a fundamental, analytical approach to the export selling process. The “art” form of today’s global business process includes an understanding of how the cultures and negotiation processes of different countries become part of the arsenal of tools in making an intelligent decision. How the culture of each country or region impacts the risk is material to the ultimate business decision.

A lack of awareness—whether it be intentional or not—can impact the business relationship, impede the negotiations, and end the opportunity to complete the business transaction. Does the exporter understand customs and practices regarding whether or not to shake hands and what clothes to wear? Does the exporter know about presenting business cards (in different languages)—and not writing on the card? Mistakes that involve eating and drinking have been known to end a business opportunity; many Westerners do not know that in certain Chinese provinces the act of putting chopsticks in a rice bowl means “death” to the person on the other side of the table. In many world cultures, the customer expects the eldest representative of the exporter to be involved in negotiations (such elders are known as the “gray-haired gods”), even if this person is not the most astute.

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Further reading


  • The Handbook of Country Risk 2007–2008. London: Coface & GMB Publishing Ltd., 2007.
  • Morrison, Terri, Wayne A. Conaway, and Joseph J. Douress. Dun & Bradstreet’s Guide to Doing Business Around the World. Paramus, NJ: Prentice Hall, 2000.


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