People as well as companies tend to value security and safety above most things, unless however you are a teenage male with a brand-new Ford Mustang or something, then risk management tends to go out the window. However, managers generally have no choice or desire but to manage risk and mitigate it for profit maximization and asset protection.
Risk aversion can be a number one cause of crippling growth when managers are too risk adverse and when managers are not careful enough, the consequences are generally more painful than the lack of growth alternative the risk adverse manager experiences. Therefore, getting risk management right is crucial. The majority of companies that should be exporting and taking on global initiatives tend to be too risk adverse and therefore are not exploring new options. When companies do not take on global markets they then actually take on more risk because they are not hedging against their "safe" domestic market. Managers see the foreign markets as too risky and choose not to engage in global markets. Of course, there are risks when going into global markets, however like most things in life risks can be transferred and therefore mitigated.
Why is it that pure risk can be mitigated when driving, or when someone passes away, or if someone breaks in to your house and steals things, but when it comes to our accounts receivable for international sales, pure risk lies directly on the manager’s shoulders?
Well as a matter of fact, it doesn’t! Both the EXIM Bank and the SBA have products that insure against accounts receivable, or many financial institutions offer products like letters of credit and other forms of risk management that ensure payment. Granted no company would prefer to rely on these things to ensure the success of their exporting venture and carefully vetting business partners still is part of conducting due diligence, but when push comes to shove, they are available and the fear of going into new markets is irrational.
If you are dealing with international risk and need a hand, contact us and let’s get started!
Kirk Galster, M.S, M.B.A. is an international business services professional. With his extensive experience and background in International Studies, Law, International Business, and Economics he is a great asset to any international management team.