Trade Entrepreneurs Face Strategic Risks
Marketing Analysis of Troubled World Economy Uncovers Opportunities
Oct 22, 2008
An international trade entrepreneur is a calculated risk taker skilled in strategic planning.
From the get-go, international trade entrepreneurs strive to derive significant competitive advantage from the use of global resources and the sale of outputs in multiple countries.
Role of a Trade Entrepreneur
In the global economy, international trade entrepreneurs look for supply and demand gaps. For example, if a country like India has limited supplies of fresh water then international entrepreneurs will research new venture solutions ranging from desalination tablets to water purification technology
In addition, international trade entrepreneurs:
- Create jobs mostly for small and medium-sized companies
- Create markets for their products
- Serve as tax payers
- Attract foreign investment to the countries where the entrepreneurs are based.
When turbulent financial markets skid downward, many people become frozen in their tracks immobilized by emotions like fear and gloom. Successful international trade entrepreneurs thoroughly analyze legal, economic and political risks then formulate strategic plans to profit from the situation.
Legal Risks
The International Chamber of Commerce (ICC) is the world’s leading organization for international dispute resolution. International trade entrepreneurs mitigate legal risks by becoming familiar with ICC arbitration processes in such matters as international copyright violation and fraud.
Legal jurisdiction – the authority granted to a legal body – is perhaps the most problematic risk that international entrepreneurs face. Entrepreneurs from countries such as the U.S. and Canada that practice case law are often at a strong disadvantage when they submit to procedures in other countries like China that practices code law. Often the home country is seen as much less sympathetic to parties from foreign nations.
Entrepreneurs must also be mindful to never breach any of the terms of the specific international sales contract for a global trade venture.
Economic Risks
International trade entrepreneurs must carefully analyze economic factors in the countries in which they plan to do business.
Economic risks include a country’s:
- Barriers to trade which include both tariffs and non-tariff items (e.g. stringent documentation requirements)
- Protectionist policies (e.g. unfair subsidies for domestic wheat farmers)
- Export policies (e.g. flooding the market with timber products which lowers lumber prices)
- Exchange rate (e.g. a lower exchange rate should increase a country’s export sales).
Also, entrepreneurs study a nation’s unemployment rate, inflation rate and interest rate to discern how stable a market that country represents.
International trade entrepreneurs look closely at countries with falling financial markets, since downfalls in traditional markets can lead to heightened black market activities.
Political Risks
Political risks result from changes in government policies, or aggressive governmental strategies and agreements. Governments engaged in war or predisposed to military action are also known for political risks.
Some countries have a history of expropriation, a specific risk to an entrepreneur’s capital assets in another land. That is, the government will seize private property without compensation. For example, China seized private residences including those of elderly women to use as part of the newly constructed Beijing Olympics site.
Other countries including Canada nationalize personal property after paying compensation for title to the land, as was done to purchase land for when the national railways were built.
Political risks affect importers and exporters by:
- Raising the cost of doing business in specific countries
- Creating shortages in the market
- Preventing permanent stability in the global economy.
Risk Analysis Conclusion
By studying the legal, economic and political risk factors, international trade entrepreneurs may well decide that it makes the most sense to do business with countries like Ireland and Canada that score well in most of these risk categories.
Reference:
David M. Neiport, A Tour of International Trade (Prentice Hall 2000).
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