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Risks in international trade

3 months ago
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This note has been prepared to assist you to think about the risks that you might face when engaging in international trade or investment. Whilst some of the risks may apply more broadly, this fact sheet does not attempt to cover all aspects of business risk.

Many entrepreneurs and managers either assume that risks are small or possibly do not think about them at all. Certainly, few businesses ever undertake any sort of risk assessment or put in place mitigation plans, unless they are pressed by a customer or funder. But the recent health crisis has reminded businesses of the importance of looking at risk. Moreover, businesses cannot begin to mitigate the risks until they have identified them – and there are many risks to consider once you start to trade internationally.

Thinking about risk

Whilst it does not reduce the number of risks, many businesses find it helpful to categorise risk, partly because that offers a more systematic way to consider risk (including the likelihood of the risk coming to pass and the potential impact if it does) and partly because risks in the different categories can be addressed in different ways. Risks can be divided into three categories: ‘firm risk’, ‘market risk’ and ‘environment risk’.

Kaplan & Mikes (2012) classify them as preventable risk (which they define as risks arising within the business), strategy risk (risks taken to improve returns) and external (uncontrollable) risk, though firm risks are not always preventable and market risk may be about more than strategy risk.