Export Risk Management Plan

Risk management is a process of thinking analytically about all potential undesirable outcomes before they happen and setting up measures that will avoid them. There are six basic elements of the risk management process:
• Establishing the context
• Identifying the risks
• Assessing probability and possible consequences of risks
• Developing strategies to mitigate these risks
• Monitoring and reviewing the outcomes
• Communicating and consulting with the parties involved
A risk management plan helps an exporter to broaden the risk profile for foreign market. For a small export business, an exporter must keep his risk management analysis clear and simple.

Export Risk Mitigation Export risk mitigations are the various strategies that can be adopted by an exporter to avoid the risks associated with the export of goods.

– Direct Credit: Export Credit Agencies support exports through the provision of direct credits to
either the importer or the exporter.
– Importer: a buyer credit is provided to the importer to purchase goods.
– Exporter: makes a deferred payment sale; insurance is used to protect the seller or bank.
Guarantees
– Bid bond (tender guarantee): protects against exporter’s unrealistic bid or failure to execute the
contract after winning the bid.
– Performance bond: guarantees exporter’s performance after a contract is signed.
– Advance payment guarantee (letter of indemnity): in the case where an importer advances
funds, guarantees a refund if exporter does not perform.
– Standby letter of credit: issuing bank promises to pay exporter on behalf of importer.
Insurance
– Transportation insurance: Covers goods during transport; degree of coverage varies.
– Credit Insurance: Protects against buyer insolvency or protracted defaults and/or political risks.
– Seller non-compliance (credit insurance): Covers advance payment risk.
– Foreign exchange risk insurance: Provides a hedge against foreign exchange risk.

Hedging
– Instruments used to Hedge Price Risk
– Stabilization programs and funds.
– Timing of purchase/sale.
– Fixed price long-term contracts.
– Forward contracts.