How can you manage risks in supplier negotiation for international trade?

I assume we're talking about performance risk - that is the risk of not getting the exact products we ordered to the specifications we requested and/or in a timely manner. An old and useful tool is to have an irrevocable confirmed letter of credit that stipulates all the minute terms that must be met to ensure payment to the supplier. Mitigating those risks requires that the buyer pay a visit to the supplier to see the brick and mortar of the operations, walk the production floor, talk to the staff - not the sales staff only - and, ideally meet and talk with some of that suppliers' customers.

Managing risks in international supplier negotiations is paramount. Start by researching your potential supplier thoroughly, and assessing their reliability and credibility. Additionally, ensure transparency during negotiations by clarifying pricing, quality, and delivery terms. Defining expectations in the contract minimizes misunderstandings. To enhance risk management, develop contingency plans, involve experts, stay informed about market conditions, and foster strong supplier relationships. These steps empower you to negotiate confidently and mitigate risks in the complex landscape of international trade.

In addition to the suppliers KYC or KYS. One aspect I have usually found missing which is a huge mistake most Exporters make in this part of the world is not documenting and signing a contract with their local suppliers with adequate defaulting clauses and penalties. Proper documented supply contracts will serve as a deterrants to the local suppliers. In most cases, due to my position when complaints are raised by stakeholders, it is usually difficult to treat or resolve these complaints legally because there are no admissable binding contracts with defaulting clauses and penalties.

Always have you vendor list updated by scheduling a time around the holidays for an annual re-qualifying period. Some vendors fall out of scope of your quality standards and others remain in good standing. Make sure to check your own certifications as well, new tech is added to out industry everyday to combat new scams such as fraud or counterfeit electronic parts and finished products.

The best way to get to know your suppliers, is by getting references from other companies, you can do all the research possible, but references from other buyers is what will get you to really know them and identify the red flags. After the reference is in place, move forward with the research, are they certified? Is there a digital presence? Any local system in their country that rates companies? The internet makes the research of a company easy and efficient this days, but reference is the hard one to get.

To negotiate effectively in supplier relationships for international trade, it's vital to comprehend the market dynamics influencing your product and industry. Familiarize yourself with supply and demand fluctuations, competitive forces, pricing trends, and any regulatory shifts that could have repercussions on your negotiation. Additionally, compare your supplier's proposal with alternative options available in the market to gauge your negotiation leverage, set a target price, and establish a bottom-line figure.

This is a must, if you don’t know your industry, if you are not an expert in your market, you shouldn’t be in the procurement department to begin with, every industry is different and has different regulations, I think this is a first step before knowing your supplier, if you don’t know your market, you won’t know where to even start to look for information to achieve the right objective.

Specifically it is so important to establish that the other party knows and understands INCOTERMS 2000 ( or whatever the latest edition is ). This is international trade language which outlines the responsibilities and risks for both buyer and seller, it is a set of rules that should be common to all countries, importers and exporters. It focuses on how each party should act in a sale and should be shown in all international sale and purchase contracts

When I was looking after the International Procurement, I was managing the risks for new suppliers by negotiating the payment terms and mode of delivery on our terms rather than theirs like this they were bound to deliver and further we would cross check their bank details by calling their finance department and through emailing acknowledgements. We would also ask for details like with which companies are they working here in Pakistan so we could cross check with them for their working experience with the supplier.

In my personal experience, it is absolutely essential to make sure that everything is recorded via E-mails so that a hard proof of the communication and mutual agreements are always there in case of any ambiguity that arises in future. As for the telephonic conversation, once they are done then an E-mail is to be exchanged between both parties citing the discussion that has taken place along with a separate summary of important points. Also, in such kind of E-mails a polite note is also added for other party to send acknowledgement message.