Points to bear in mind in international trade

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International trade increases your opportunities, but it also means greater risks, which can lead to higher costs such as payment or delivery defaults and the adaption of a product or service to a new market. Here we consider examples of risks.

  1. Commercial risk
  2. Currency risk
  3. Legal risks
  4. Risk of counterfeiting
  5. Political risk
  6. Transport risks
  7. Cultural and language differences
  8. How do you manage risks?

Commercial risk

You ought need to have good knowledge of the party you are doing business with. How are the possibilities for a good business relationship? How difficult will solving potential disputes be? Is your customer who they claim to be? Carry out a background check of your prospective business partner by taking the following measures:

  • request a copy of their company registration
  • request a copy of their export/import licence when this is required
  • ask for references regarding companies in Sweden that the company has previously done business with
  • check their website.

You will need to find out how big a risk there is that your customer or supplier will go bankrupt so that you do not risk payment or delivery defaults.

International credit rating agencies or your bank can help you to make credit checks. You can also contact the international office of Business Sweden or the country’s Invest in Agency to get help in obtaining information about your customer or f supplier.

Currency risk

If your buyer wants to pay in foreign currency, there is a risk that the value of the currency in Swedish kronor (SEK) will fall from the contact date until payment is made. The opposite applies if your supplier wants to be paid in a foreign currency. Then the risk is that the value of the currency in Swedish kronor will rise from the contract date until payment is made.

You can try to protect yourself and place the currency risk with the buyer or supplier by demanding payment in Swedish kronor (SEK). You can contact your bank, which normally has a range of solutions to reduce currency risks.

Legal risks

There may be considerable differences between the Swedish legal system and the legal system of the country you are going to trade with. You must understand these differences and how they can affect your possibilities of trading with the country.

What are the possibilities to How easy is to the access the courts or a system for dispute resolution? Some countries may not permit local dispute resolution or may place restrictions on what type of legal demands can be made.

If there are no legal possibilities or if it would be too expensive to exercise your legal rights, such as protecting your intellectual assets, you should take this into account.

Risk of counterfeiting

Protecting your intellectual property such as patents, trademarks, designs and copyright (and geographical designations of origin) can protect you from copies or imitations by your competitors on your new market.

Certain countries are also known as sites of a great deal of counterfeiting. You should weigh the risks of establishing operations on such markets. One way of protecting yourself is to be sure to apply for patents, register trademarks, etc. in the markets where you want to operate.

If you import or export goods and services, you should also ensure that you are not infringing the rights of some other party.

Political risk

If you trade with countries that are unstable politically, socially or economically on account of economic factors, natural disasters, civil disobedience, war or conflicts, there are risks of payment or delivery defaults and other measures that can make it more difficult to trade with the country concerned. Your own personal safety and that of your staff or your business partners may also be affected.

Bureaucracy at local, regional and national level and international sanctions can also make it more difficult to trade with the country.

Corruption and a lack of human rights can also make trading with the country concerned a doubtful proposition.

Transport risks

You should make sure that the goods are insured throughout the transport. There is always a risk of goods being damaged or disappearing. If your carrier or forwarding agent has deficient knowledge of, for example, marking or packaging for shipping or customs procedures, the goods may be stopped or it may take a longer time for customers to receive the products.

Cultural and language differences

Features that attract buyers in Sweden, may not do so in other countries. You should find out about cultural practices and assess whether it will be possible to sell your product or service on the new market.

You should find out whether your logotype, product name, company colours, marketing material, etc. are of any importance for the local culture.

Seek advice on cultural matters from people who have worked in or exported to the country concerned so that you can avoid expensive mistakes.

You can also contact Business Sweden’s local office and other actors in the country you plan to export to so as to get help to avoid cultural and linguistic clangers. You can identify these organisations using our tool Checking out different markets.

How do you manage risks?

You must identify and assess the likelihood and possible consequences of the risks. In certain cases you can avoid them; in others you can minimise the risks or make sure that you can manage their consequences.

To reduce payment risks you can, for example, request advance payment, payment through a letter of credit or a payment guarantee from a bank.

Read more under Being paid with international transactions

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Responsible: Swedish Agency for Economic and Regional Growth

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