Comprehensive Risk Management Guide for Foreign Trade Business

In foreign trade business, risk control and detail management are crucial. Whether it is the refined management of contracts, invoices and documents, or the challenges and solutions in the quotation process, or even the prevention of political risks, payment method risks and intellectual property rights, all require foreign trade practitioners to have a high degree of professional knowledge and keen acumen. Insight.

Refined management of contracts, invoices and documents

In foreign trade business, contracts, invoices and documents are important documents to ensure the smooth progress of transactions. In order to avoid losses caused by details, it is recommended to take the following measures:

• Save original template: Start with a new template every time you fill out a contract to ensure you don’t miss any information that needs to be updated.
• Color or font changes: Use different colors or fonts to indicate changes that need to be made, such as changing the black font in the original template to red to remind yourself of changes.
• Comparison check: After filling in, compare it with the original template again to ensure that all information is accurate.

Challenges and solutions during the quotation process

Challenge

• Insufficient information: Without enough information before sending samples, it will be difficult to get an accurate estimate.
• Sample differences: The actual construction of the sample may be different from expected, affecting the accuracy of the quotation.
• Price Sensitivity: Customer budget constraints and price sensitivity need to be considered.

Solution strategy

• Collect information comprehensively: Communicate in depth with customers to understand product details and enhance understanding through pictures, videos, etc.
• Flexible handling of quotations: When initial costs are higher than the customer expects, explore ways to reduce costs through optimized design.
• Reserve an appropriate profit margin: Reserve a certain profit margin to cope with possible future cost changes.
• Gradual concessions and negotiation: Adjust based on customer feedback until consensus is reached.

Controlling political risks

High risk areas

• Eastern Europe and Southern Europe: are greatly affected by the debt crisis.
• Southeast Asia, South Asia: Political changes may lead to foreign policy adjustments.
• Middle East: Regional disputes occur frequently.
• Africa: The economic structure is single and the ability to pay is unstable.
• South America: Exchange rates fluctuate wildly.

Coping strategies

• Payment on delivery: Adhere to the principle of payment on delivery, or use a letter of credit issued by a well-known bank for settlement.
• Prudent evaluation: Do not accept letters of credit issued by commercial banks in high-risk countries.

Payment method risks

TT (Telegraphic Transfer)

• 100% Advance: Ideal for situations where a specific product is urgently needed and suppliers are scarce.
• 30% Deposit + 70% Balance Before Shipment: Applicable to countries and regions with good business reputation.
• 30% Deposit + 70% L/C at Sight: This method is safer unless there are serious discrepancies in the documents.

L/C (Letter of Credit) & D/P (Document of Payment)

• Letter of Credit: It can be used as collateral to reduce financial risks.
• D.P.: Suitable for transactions with customers with higher credit standing.

Intellectual property rights, trade measures and transportation risks

Intellectual property risks

• Case: In 2016, Amazon in the United States removed balance scooters from the shelves due to patent issues; in 2017, the “Fingertip Monkey” brand products were also banned.
• Suggestion: Choose products without patent disputes for export to avoid potential losses.

Trade measure risks

• Case: In 2018, Trump imposed high tariffs on Chinese goods.
• Recommendations: Pay close attention to policy changes in the target market and adjust market strategies in a timely manner.

Transportation risk

• Measures: Purchase relevant insurance to ensure the safety of the goods and reduce losses caused by accidents.

To sum up, foreign trade business involves many aspects of risk control. Only by comprehensive consideration and effective measures can we ensure the smooth progress of the transaction.