It is difficult to manage a business in foreign countries. Each country has its own culture, religions, beliefs, environment and values. Some countries may have different communication styles, even though they are both developing and advanced. Tradesmen should be aware that there are potential risks when doing business with international countries. It is important that tradesmen are prepared to meet all challenges with cross-cultural teams.
Before beginning international trade, most tradesmen have to take out political risk insurance. The policy provides financial protection for investors, businesses and any financial institution that is affected by political events. It provides financial protection for businessmen who might face financial difficulties due to the government’s political actions. The trade can easily do both national and international business if he/she takes out political risk insurance.
Niche Trade Credit can help you with credit and political risk insurance to protect your business. NTC is a trusted credit insurance broker in Sydney, Australia with over 30 years of industry experience. NTC provides full protection to export clients as well as financial support for tradesmen facing difficulties due to some of their default clients.
Types Of Political Risks
For a better understanding, we have listed some of the potential political risks. These risks can also have a financial impact on a businessman.
If there is no legal reason, the international government can seize or confiscate a company’s investments. Without any reason, the foreign government may list a series of rules. Foreign businesses could suffer financial loss as a result. This could result in them losing overseas assets or investment.
Example In 2020, Indian Railway terminated the contract with China’s Beijing National Railway Research and Design Institute of Signal and Communication Group. The World Bank founded the company. The project was worth millions. The decision had nothing to do the LAC. The Indian Railways made the decision at random.
Conversion and Transfer
The government can either restrict hard currency’s movement into another country or prohibit local currency conversions if there is an economic crisis. This law is imposed jointly by the central bank and foreign governments. In countries that are experiencing economic instability, non-convertible currencies may be seen.
Example In various events, currencies such as the North Korean won or the Angolan Kwanza and the Chilean Peso were stopped. These were several decades ago. These events are rare nowadays. Because more countries are open to foreign trade, this is a good thing.
International trade can be restricted by war, terrorism, or other forms of violence against a country. It causes damage to the company’s assets, and stops the business from conducting important trading.
Example In 2017, after violence broke out in Ethiopia, and protestors began targeting international businesses, the government declared multiple emergencies. Because the government showed favoritism towards certain international companies, violence erupted. This had a significant impact on international businesses.
Companies can reduce these risks by participating in various strategies. Political risk insurance is one strategy that protects tradesmen from financial loss.