International Credit Management

INTERNTAIONAL CREDIT MANAGEMENT 5

InternationalCredit Management

InternationalCredit Management

Risksinvolved in international credit management are more complex thanthose involved on the domestic market due several variables thatdirectly and indirectly international trade. Some of the factors thatexacerbate the complexity are: disruptions of the supply chain,uncertain political environments, fluctuations in exchange rates,trade sanctions, unclear lending practices and change of import andexport regulations (Miller, 2012).

  1. Financing and Supply Chains Challenges

Occasionaldisruption of supply chains complicates the process of riskdetermination. Unlike the home country, exporters to another countrymay not have accurate predictions as the occurrence of disasters.Supply chain problems resulting from natural causes (An Act of God)such as the tsunami in Japan that led to a disruption of HewlettPackard’s supply chain. Shares fell to (by) 4% (p.312). When thesupply chain is affected, cost of credit management is also affectedto that effect. While trading in a country with a high chance ofexperiencing natural disasters such as earthquakes, the cost ofcredit rises due to the uncertain nature of the market.

Suddenexchange rate fluctuations complicate the process of riskascertainment. Exporters value goods based on their local currencies.When the exchange rates for the country which the goods will beexported falls, they make a loss, but they can also make a gain inthe events that it rises. The strong dollar makes it more likely fora loss to occur than a gain.

Tradesanctions: where trade sanctions imposed target country due to somegeopolitical reasons make it costly to export goods to that country.The same happens when there are complex regulations targeting importsfrom particular countries. Information asymmetry may be a cause ofthese complexities since sanctions or regulations are sometimesinstituted when the goods are in transit.

  1. Risks in

Lenderson the international market find it difficult to determine risk dueto challenges arising from unclear lending practices in somecountries. Exporting goods to a country where lending practices arenot transparent makes it difficult to calculate risk. In the eventthat the exporter seeks a hedge over such risk, they are likely topay more than they would have paid on the domestic market due to thehigh degree of uncertainty.

  1. International credit management

Thereare credit management complexities arising from changes in import andexport regulations. In some countries, there are many regulations onimports. Exporters to that country will have to engage incomprehensive risk-return analyses in order to know whether theyshould continue or look for another destination. Due to so manyregulations, the risk on investment goes up, further complicatingaccess to credit.

Unstablepolitical environments in countries where products are to be exportedalso complicate the processes of determining risk. The country ofdestination for an exporter’s goods may not be as politicallystable as the home country. The extent of uncertainty is alsounclear hence, attaching a particular risk to credit also becomes acomplex affair.

Real-lifeexample

TheChadbourne periodical, a renowned magazine that analyzes financialmatters on the global and regional markets, reported about theeffects of the Arab spring credit financing. The report highlightedvery critical factors that agree with the analysis above. Firstly,the experts underscored the significance of the political instabilityin the Middle East on market confidence. According to the magazine,the Arab spring differentiated countries in Middle East intoresilient and non-resilient in terms of continuity of business(Springborg, 2011). Countries that were labeled non-resilient afterconsiderable research were Egypt, Syria, Bahrain, Tunisia, and Jordan(p.429). Project financiers turned requests for credit from thesecountries due to the increased political risk that was associatedwith political instability. Others such as Oman, Abhu dhabi, SaudiArabia, and Qatar were labeled as resilient because their creditratings did not change (p.430). Credit ratings did not change becausethe extent of risk remained the same. The Arab spring presentedliving examples of how countries differ in terms of credit rating dueto the complexities involved in managing international credit.

References

Miller,K. D. (2012). A framework for integrated risk management ininternational business. Journalof international business studies,311-331.

Springborg,R. (2011). The political economy of the Arab Spring. MediterraneanPolitics,16(3),427-433.