Difficulties Faced in External Trade Part 2

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In internal trade generally, buyers and sellers meet together and transactions take place as per their convenience. But in external trade the situation is completely different. It takes a long procedure to buy and sell the goods and services. The business people generally face a number of problems in the process of foreign trade. The various difficulties, which are faced by the buyers and sellers engaged in external trade are described below.

Difficulties Faced In External Trade

Difficulties Faced in External Trade

Difficulties Faced In External Trade

Distance

External trade involves transport of goods over long distances, except for neighbouring countries. Distance between various countries makes it difficult to establish quick and close trade contact between the importers and exporters.

Greater Risk

In external trade goods are exposed to greater degree of risk. Risk in transit of goods is more because of long distance. Goods are transported by ship, which may sink due to storm or collide with submerged rocks. The ships or goods may also be captured by the enemies. These risks may be covered through marine insurance, but that increases the cost of goods.

Difficulties of Transport and Communication

Long distances incidental to external trade create difficulties of proper and quick means of transport and communication. Though modern means of communication have solved this problem, it is quite costly and cannot be used for securing all sorts of information. Loading and unloading of goods often takes long time and also involves large expenses which increases the cost of goods.

Restrictions

External trade is subject to various restrictions by way of customs, tariff, quotas and exchange regulations, which restrict the scope of external trade.

Lack of Personal Touch

In external trade, the transactions are made with unknown persons through correspondence and other means of communication. There is no direct contact between the buyer and seller. So, the risk of dispute and bad debts are always there.

Study of Foreign Markets

Markets for different products have their own characteristics as regards demand, intensity of competition, buyers’ preferences, etc. Thus, an extensive study of foreign markets is required for success in external trade. This is not easily possible from an individual exporter’s or importer’s point of view.

Cost

Both import and export of goods involve very costly operations due to high cost of transport, insurance, intermediaries and cost of formalities to be completed.

Change in Rules and Regulations

Every country has framed its own rules and regulations for its external trade, to protect its economic and political interest. These rules change from time to time. So, the traders find it difficult to acquaint themselves with the rules and regulations and procedures followed by different countries.

Frequent Price Change

In external trade the price of the product changes frequently due to change in foreign exchange rate, change in import and export duties etc.

Facilitators of External Trade

In the previous section we discussed about some of the problems and difficulties which are faced by the importers as well as exporters. After knowing all these do you think that the traders will alone be able to carry out the business successfully. The answer is obviously NO. The traders need support from others in the process of buying and selling. The persons or institutions that provide various kinds of support are termed as facilitators of external trade. Let us learn about some of such facilitators.

Facilitators of External Trade

Facilitators of External Trade

Facilitators of External Trade

Indent Houses/Indent Firms

They help importer and exporter in sending and receiving the order of goods along with other instructions.

Export Houses

These are organisations involved in export promotion activities, such as STC, MMTC, Handicrafts and Handloom Export Corporation (HHEC) and Central Cottage Industries Corporation (CCIC) etc.

Forwarding Agents

They act on behalf of exporters to complete all the formalities of loading the goods on the ship.

Clearing Agents

Clearing agents act on behalf of the importer and complete all formalities required for clearing the goods from the port of destination. He takes delivery of the goods from the customs authority and sends the goods by rail/road to the place of importer.

Shipping Company

It carries goods on payment of freight charges, and undertakes to deliver the same to the importer.

Insurance Company

It bears the loss or damage to the goods against insured risks right from the godown of the exporter to the godown of the importer.

Trade Commissioners

These officials are appointed by the government in its embassy to represent the country’s trade-interests abroad. They collect information relating to trade relations and disseminate the same among traders. They also advise the traders on matters relating to imports and exports.

Trade Representatives

These officials provide guidance to exporters abroad on behalf of the government of their own country. They make efforts to secure payment for goods and also advise on legal matters.

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