5 Risks Of Exporting Manufactured/Processed Goods And How To Avoid Them
Exporting commodities can present various forms of risks and rewards. and while shipping raw commodities comes with its own perks, shipping processed or manufactured goods can either make your company grow faster with its higher profitability potential or cost you your entire investment.
While it might be tempting to take advantage of the huge profits that manufactured goods present, it’s important that you understand the risks involved and put in measures to be on the winning side of the every trade.
That said, here are 5 risks of exporting manufactured or processed goods and how to avoid them:
1). Product Quality Risk:
Manufactured/processed goods, unlike raw materials usually have a list of requirements the manufacturer must meet before the goods can be acceptable by the buyer. In the process of meeting these requirements, manufacturers could tend to miss one or two parameters even if the final product looks exactly as requested, and depending on the agreement with the buyer, this mistake could cost the manufacturer a lot of money.
To prevent this, first ensure that you have the ability to produce the commodity in accordance to the buyer’s requirement and also, ensure that the contract gives leeway for a plus or minus 5% accuracy in the final quality of the goods requested.
2). Logistics Risk:
Some manufactured commodities require special care and/or speed in their transportation. For instance, shipping fresh food products require that they are transported in a reefer container because if they’re transported in a general-purpose container, the entire consignment would get spoilt before it arrives its destination.
Also, some commodities like vegetable oils are best transported in flexitanks and many others are required to be shipped within a certain timeframe, else the end quality of the product requested would have dropped, in the process, affecting the out-turn and value of the commodity to the buyer.
Before you go on to manufacture or process any raw commodity for export, you must ensure you have a logistic system in place that can get the goods delivered on time and in the right way to avoid compromising its value.
3). Border Control & Sales Laws:
Various world ports have their local policies, licensing tariffs, and more on what type of commodities can be imported or not and what they cost to be imported. Beyond this, they also have sales & distribution laws that can determine if those commodities can be sold or not in their respective countries.
Before you manufacture or process any raw materials to finished goods for export, you must understand the policies of the foreign port and its local market. Find out what licensing requirements must be met, what the customs duties are, and what it would take for you to legally be able to distribute the commodities in the market.
If you’re simply exporting to an importer, then finding out all that information is the buyer’s obligation. But if you plan to break into the local market, you’d need to gather as much information as you possibly can.
4). Currency Exchange Rate Fluctuation:
When you’re either importing or exporting, you’re very likely dealing in US dollars and as such would be converting from and to your local currency. In this situation, it’s important you understand what direction the currencies are trending towards and plan to hedge properly against any sudden fluctuations. You could do this by seeking financial advice from experts or better still, secure an export credit insurance policy that will protect you from any sudden currency fluctuations.
5). Shipping A Product Few People Want:
If you’re exporting manufactured products as a strategy of expanding your product line into a foreign country, it is important that you first do highly detailed market research in that country by an experienced local consultant to determine if people truly want what you have to offer and what size of the market is available for you to take advantage of.
Shipping nice and flashy products can be tempting, but without a specified target market and an effective strategy to take advantage of them, you will export products that will either struggle to sell or end up as a loss on your balance sheet.
What are your thoughts on these 5 risks of exporting manufactured or processed goods? Let me know by leaving a comment below.
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