Many companies turn to international trade in order to take advantages of various benefits this trade. The companies try to increase turn over by expanding their market, take advantage availability economic conditions of certain countries and diversify their market. Despite of the various benefits trading internationally has various risks. The risks involved in international have been the major barriers to international trade.
Strategic Risks
Trading international experience risk in the right strategy to use in a specific market. Countries pose various different conditions that could be different from the condition in domestic market. A company trading internationally may experience various challenges such as competition, substitute products, bargaining power, and buying power of customers. The strategies used in addressing these challenge may have counterproductive effects on a company.
Operational Risks
Operational risks are the risks that result from daily operations of an organization. International trade leads to more operational challenges. Any problem in the daily operations of an organization can lead to significant effects on a company’s performance. For example, breakdown of machinery, inventory and logistical problems, scarcity of resource and reduction on quality of products can affect performances significantly.
Political Risks
International trade involves trading in different countries that may have different political environment. Some political environment may not be favorable to international companies and their products. Political instability in some countries poses a great threat to international trade. Political instability may lead reduction is sales, increase cost of operation or may even force an international company to withdraw. There is a risk of a friendly government being replaced by an unfriendly government leading to severe implications on a company.
Country Risks
Trading conditions vary from one county to another. Although some countries may have the favorable condition for trade, some have a history of instability which may pose a threat to an international company. Some cultures in some countries may also affect international trade.
Technological Risk
Technological level varies from one country to another. Variation in the level of technology can be a threat to international trade. A company that depends exclusively on a certain technology has to make sure that the technology exists in a certain country before trading in a certain country.
Economic Risk
International trade involves various economic risks. A company goes into international trade with hope of making returns from the trade. Economic conditions in a particular may not be favorable to an organization leading to losses. Some of the economic factors that can affect an organization include monetary policy in a particular country and variation in interest and exchange rates.