A company can conduct international business without being in disputes with its counterparties. However, some situations arise when the exporter or importer disagrees. Conflicts are the most significant time and money wasters, but they bring the reality of being in business. It is crucial to understand the kind of disputes you are likely to encounter in global trade, their consequences, and how to avoid them. Conflicts result in a lot of issues that can cripple your business. Therefore, understand these disputes and how they come up to know the best way to avoid them. This article will discuss several sources of conflicts in global business and possible ways of solving or avoiding them.
When making international trade, you will sign the contract in currencies and not your home currency. Therefore, there is a chance you will face foreign exchange risks since the foreign market is not predictable. Every change in the foreign exchange rate can result in a decrease or increase in profit. Therefore, if you are the buyer and your currency’s value decreases, you will have to pay more money to match the currency of the counterparty. This can always result in disputes. The currency value in your country will not be equal to another country. Therefore, it is crucial to watch the rates closely since they fluctuate at any time. Additionally, watch the inflation rate in your target country since it always affects the general price of items and services.
Dealing with payment terms is one of the sources of dispute in international trade. However, it makes you competitive when you can do it without raising any conflicts. These terms help you in negotiating the contract with the party on the other end. If you are in the export-import business, the export may ask for advance payment as part of the contract. The rest of the money may be collected once you have received your goods. It is possible to obtain payment terms that give you enough time to receive your items and inspect them before paying.
Sometimes not everything goes as planned. For example, you may not be satisfied with the quality of items or services you received because they do not meet the standards described in the contract. In search of a case, a dispute may arise regarding payment. Another issue can occur at customs when your products are not well labeled or when you must pay additional money to collect your items. It can be good to work with a customs broker in such a case. The broker will assist you with any dispute with the customs and ensure the party on the other end fulfills their duty as per the contract.
Documents in international trade can have errors. Unfortunately, some of these errors have costly consequences. For example, an importer must provide a letter of credit from their bank, which will be used in payment. This letter comes with various conditions the exporter must meet before getting the price. If the letter has an error, it can affect the payments such that they may delay, or the exporter may not get paid at all. Such discrepancies lead to conflicts that can only be solved by amending the letter of credit.
Political risks can come up when the government of a country changes its policies, negatively impacting foreign companies. Such changes can cause trade barriers that prevent or limit international business. The government might even request additional funds to protect importing items into the country. These issues can affect your revenue margins and market efficiency. In such cases of political risk, disputes may arise with the counterparties. Therefore, know the laws of the other country and watch out for any probability of policy changes that may affect business.
Letter of Assurance
Sometimes, the seller may want a letter of credit or assurance as a form of security in the contract. In such a case, a dispute can arise if the seller performs well on their end, but the buyer faked the letter of guarantee or credit to additional funds. This issue can put the seller at risk, and they may opt-out of the contract.
International trade disputes can be lengthy and costly. Sometimes it is impossible to foresee everything or any issue that can become a conflict. Therefore, it may be possible that you will overlook proactive measures when negotiating. Understanding these disputes and how they can arise, will aid in foreseeing possible problems and eventually being in a position to avoid them. It will clear the way to finding the best resolutions.