How do I manage potential risks?
Listed below are a number of steps you can take to manage risks. When you enter into commercial agreements you need to be aware that there will be potential legal issues and you are advised to seek specialised legal advice.
Build an advisory team
Gaining an overview of commercial risks associated with export is valuable, but you can’t expect to become an expert on every issue. This makes it important to assemble a team of experts you can call on for advice. Such a team might include:
- A New Zealand based lawyer with experience in international trade. Ask business colleagues for recommendations. The larger legal firms often have useful connections with legal firms overseas. Remember lawyers with no connections or experience in your targeted market(s) may find it difficult to stay in touch with local legal developments. Once you have short-listed firms, get an appointment to talk with the firms (the first consultation is usually free). Question them about issues important to you.
- Experienced exporters. Talk to New Zealand exporters who have done business in your target market. They have ‘been there and done that’ and can often provide valuable tips and alert you to critical pitfalls.
- Local country experts. A lawyer in your targeted export market can be a great help. Lawyers working in larger cities are likely to have more experience dealing with foreign businesses. Ask fellow exporters for recommendations of local lawyers.
- Board members. Members with experience exporting will be invaluable sources of information.
- Business mentors. If you are thinking of exporting seek a mentor with export experience.
Check your customer is genuine
Some warning signs that the customer is not genuine may include:
- you (or your local agent) can’t find a physical location for the company
- they ask for a gift to pass on to others to secure a contract
- the deal seems too good to be true, or the promises are extravagant
- they try to rush you into making a decision.
Some legal and accounting firms, and credit agencies may be able to assist you in confirming the bona fides of inquirers and potential partners/customers.
Credit checks
If you believe the trade opportunity is genuine then a credit check on a business can be useful.
Due diligence
Due diligence (research on a potential customer) is a more thorough investigation into a potential business partner, such as a customer or an overseas distributor.
Due diligence is essential. You need to be sure that the people and businesses you will be working with are credit worthy, reliable and can do what they say they can do. Local consulting firms in your target market specialising in due diligence can help you verify the credentials of businesses and business people.
Checks may include:
- getting public information from government agencies and other authorised bodies such as law firms
- doing legal background checks on ownership, structure and registrations
- looking for evidence of any liabilities particularly unpaid taxes or on-going litigation
- checking what intellectual property they own (such as patents)
- examining the accounting records and the filings
- asking for the names of a company’s international clients and having them independently verified.
Compliance with international regulations and standards
Failure to comply with international regulations and standards, or those specific to your chosen market, product or service, can cause legal and financial problems.
For example, toys will need to meet a country’s local health and safety standards such as paint, the minimum size of the parts (so they can’t be swallowed), the potential for the toy to harm a child, and packaging.
Undertake thorough research of local requirements around your products or services and send prototypes first for inspection by local experts to see if you need to make modifications.
Modify your goods or services to meet local regulations or standards to avoid disputes. Even if the modification seems to be trivial or nonsensical to you, be flexible on this issue to avoid later problems.
International accreditation
Getting your product accredited to international standards will make it easier and faster for you to move into new markets.
Signing contracts
When you have agreed to a deal, draw up a contract outlining key issues to make it legally binding. However, contracts associated with international trade can be complex. You need to take into account cultural and language barriers and different laws. To reduce the risk of misunderstandings and disputes it is very important to get advice from a lawyer who specialises in international trade.
It also pays to learn as much as possible about the culture, business practices, trade agreements and the laws of your target market.
Develop a risk management plan
One of your business’ best defences against crime and fraud and other risks when exporting is a risk management plan.
A comprehensive plan sets out ways to identify possible negative outcomes before they happen and establishes procedures to help avoid or minimise their impact.
Establish the context
Will your plan cover the entire exporting part of your business? Or, will it focus on risks in one or a few of the countries in your business’ export market? Identify your business’ objectives, resources, competencies and key stakeholders.
Identify the risks
List all the risks you can think of within the context of your risk management plan. Ask a range of people involved in the business, including key stakeholders, to help you identify all relevant risks.
Assess the probability and consequence of risks
Identify and assess the likelihood and the consequences of each risk based on how serious the negative impact on your business is. From this point you should be able to rank and identify the most material risks to your business.
Develop ways of managing these risks
Identify ways of preventing or reducing the chance of each risk happening. Develop a contingency plan for each risk in case it happens. Outline ways of reducing its impact on your business. Assign people to take responsibility for mitigating each risk. Give those people resources and set a timeline for implementing each stage of the contingency plan.
Monitor and review the outcomes
Identify triggers for each material risk, so you know when one has occurred and when you will need to put a contingency plan into action. Design and evaluate record keeping systems to provide transparency.
Communicate with other parties involved
Communicate and work with other parties to help you identify new risks and risk management strategies. Update your risk management plan on a regular basis.
Further information
This guide is provided subject to our terms of use.
Use of the information contained in this guide is at your own risk and we are not responsible for any adverse consequences arising out of such use. This is a complex area and we recommend that you seek legal advice before taking any related action.
