FX International Payments
By Megan Doyle
Experts say adopting a global mindset may help international businesses mitigate some of the commercial, political, economic, and cultural risks of import-export trade. A global mindset is "the ability to recognize and reflexively adjust to cultural signals so that your effectiveness is not compromised when dealing with people from different backgrounds," according to intercultural training company CultureWizard.1 Without an adequate depth of knowledge of the global marketplace, experts say international businesses are more likely to experience losses due to such risks.2
Commercial risks – in general, potential losses from unreliable trading partners or unstable markets3 – are often associated with importers or exporters who won't or who are unable to pay or deliver goods and services as agreed due to misinterpretations stemming from different cultural or geographical predispositions.5 Such scenarios arise because people tend to interpret others through the lens of their own culture, according to Harvard's Program on Negotiation (PON).6
When engaging in import and export businesses, PON suggests working to overcome this inclination by learning "as much as [one] can about the other party's culture" in order to prevent misunderstandings.
Commercial risks can also extend beyond misinterpretation. According to a report by United Overseas Bank, import and export businesses sometimes lack "adequate knowledge on the risk of the new product, local market situation, or goods' fashion" to successfully expand into another country.8 By cultivating a global mindset, organizations may be able to achieve a better understanding of how to provide more suitable products for their trading partners.
Political circumstances can change at a moment's notice in any country, so it may be important to monitor cross-border political situations. Alterations of policies and regulations, or even "wars and changes in political and economic alliances" can all affect import-export business.9 But, according to the Economic Times India, "cultural awareness helps to deal with new settings, protocols, innovative ways of communicating and interpreting ambiguous messages, which could otherwise create misunderstandings and be harmful for establishing business relationships with customers, suppliers and partners."10
For example, the potential renegotiation of North American Free Trade Agreement (NAFTA) has given some businesses in the U.S., Canada, and Mexico feelings of "uncertainty,"11 since the U.S. is both Canada and Mexico's largest trading partner.12 While renegotiations could change import-export business relationships among these three countries, a global outlook and a focus on understanding each country's respective political state can help multinational companies prepare for new protocols and regulations, make more informed decisions, and hedge against political risks.
Similar to political risk, the economy is volatile – something that can simultaneously affect both importers and exporters. Fluctuations in exchange rates, interest rates, and commodity prices can gravely influence trade.13 Unfavorable economic conditions can lead to "insolvency or inability to accept the goods or services" for importers, while exporters might see "difficulty in producing or shipping goods."14
But a readiness to adapt to international differences – a characteristic of a global mindset –might help mitigate such economic risks. For example, Export.gov says international businesses willing to accommodate and trade in their trading partners' local currencies are less likely to lose import-export business opportunities than those that insist on accepting only U.S. dollars.15
Different countries have unique languages and cultures, and the "inability to appreciate/accept cultural differences and/or language barriers may result in conflicts" – or even the dissolution of contracts, the United Overseas Bank report notes.16 Certain cultures might see business meetings as a place for small talk and make their major decisions over an evening meal, where other cultures may do the opposite, creating a disconnect.17 But understanding how other cultures negotiate can help import-export businesses communicate more effectively and possibly reduce cultural risk.
Another cultural risk stems from the fact that overseas customers may not value the same products as local customers – "and there's no bigger export risk than having a product nobody will buy," says New Zealand's division of Trade & Enterprise.18 While a product may "speak for itself" in the U.S., in other cultures it may be perceived differently – or not at all. When introduced to Japan, the stork on Pampers' disposable diapers packaging was lost in translation.19 After some research, the company realized customers were confused by the image – Japanese folklore depicts babies emerging from giant peaches or glowing bamboo sticks.20
Cultural competence and a global mindset may help import and export businesses mitigate a variety of risks associated with international trade, potentially ensuring smoother transactions, greater success, and a thriving unified global trade structure.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. Global Mindset Index Study, CultureWizard; https://www.rw-3.com/global-mindset-index-study
2. Reducing risk in cross-border transactions, Grant Thornton; http://www.grantthornton.com.mt/globalassets/1.-member-firms/malta/pdfs/cross-border-transactions--ma-process-final_online.pdf
3. “Commercial and political risk,” Nordea Bank; https://www.nordea.fi/en/corporate-customers/risk-management/foreign-operations/commercial-risks.html
5. Risk Management — improving your international trade, Nordea Bank; https://www.nordea.com/Images/33-26730/2014_TP_TF_FACTSHEET_General_2010_Risk_Management_TF.pdf
6. “How to Resolve Cultural Conflict: Overcoming Cultural Barriers at the Negotiation Table,” Harvard; https://www.pon.harvard.edu/daily/conflict-resolution/a-cross-cultural-negotiation-example-how-to-overcome-cultural-barriers/
8. Risks in International Trade & Mitigating Measures, United Overseas Bank; https://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_RisksinInternationalTrade.pdf
9. Risk Management — improving your international trade, Nordea Bank; https://www.nordea.com/Images/33-26730/2014_TP_TF_FACTSHEET_General_2010_Risk_Management_TF.pdf
10. “Intercultural awareness, a must for the success of MNCs in India,” Economic Times India; https://economictimes.indiatimes.com/magazines/panache/between-the-lines/intercultural-awareness-a-must-for-the-success-of-mncs-in-india/articleshow/59218790.cms
11. “Canada, Mexico urge quick NAFTA talks to end uncertainty,” Reuters; https://www.reuters.com/article/us-usa-trade-nafta-ambassadors/canada-mexico-urge-quick-nafta-talks-to-end-uncertainty-idUSKBN1A52B7
12. “Why Political Risks May Dampen World Economies in 2018,” Rand Organization; https://www.rand.org/blog/2018/01/why-political-risks-may-dampen-world-economies-in-2018.html
13. Risk Management — improving your international trade, Nordea Bank; https://www.nordea.com/Images/33-26730/2014_TP_TF_FACTSHEET_General_2010_Risk_Management_TF.pdf
14. Risks in International Trade & Mitigating Measures, United Overseas Bank; https://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_RisksinInternationalTrade.pdf
15. “Foreign Exchange Risk,” Export.gov; https://www.export.gov/article?id=Trade-Finance-Guide-Chapter-14-Foreign-Exchange-FX-Risk-Management
16. Risks in International Trade & Mitigating Measures, United Overseas Bank; https://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_RisksinInternationalTrade.pdf
17. “Risk for exporters,” New Zealand Trade & Enterprise; https://www.nzte.govt.nz/common/risk-for-exporters
19. “Lost in Translation: 8 International Marketing Fails,” Business News Daily; https://www.businessnewsdaily.com/5241-international-marketing-fails.html
20. “Stork, peaches, or bamboo – where do babies come from?,” Creative Culture; https://creativecultureint.com/where-do-babies-come-from/