Explain five problems associated with foreign trade. – NABTEB QUESTION

Problems associated with foreign trade:

(i) Language difference: There is need for an interpreter when selling to countries speaking different languages

(ii) Tariffs: Goods may be subject to high import duties.

(iii) Varying customs/cultures/religions: There is the problem of knowing these in order to determine what to sell to them.

(iv) Foreign competitions: Other producers of similar products in other countries may compete. There may be more difficulty in securing foreign market or agents.

(v) Differences in weight and measures: Some countries use metric system while others use imperial system

(vi) Distance/transport/communication: It takes long to travel from a country to another and the problem becomes more where there is no efficient communication.

(vii) Prevailing social, economic and political conditions: The exporter is faced by these, which may vary from time to time

(viii) Exchange control regulations: Inability of the buyer to pay, or refusal of a foreign government to release foreign exchange

(ix) Documents: Documentation is more complicated in foreign trade than in home trade

(x) Difference in technical specifications for different products

(xi) Insurance: Higher premium is paid to effect insurance cover in foreign trade.

(xii) Physical hazard during transportation: There is grater of corrosion of steel goods, damage in rough weather or jettison and thefts in transit

(xiii) Currency: An exporter needs to change his own currency for those of other countries

(xiv) Artificial barriers/Restrictions: An exporter faces these barriers, which restricts the volume of foreign trade