Foreign trade is more complicated as compared to home trade of a country. There are many difficulties which are faced by a trader engaged in foreign trade. The following are the special problems or difficulties of foreign trade:
1. Distance:
Usually foreign trade involves long distances. Distance between various countries is a great difficulty in a foreign trade. Due to long distances it becomes difficult to establish close relationship between the buyer and the sellers.
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2. Diversity of Languages:
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Different languages are spoken and written in different countries of the world. The difference of language creates another problem in the foreign trade. It becomes difficult to understand the language of traders in other countries. All correspondence has to be done in foreign language.
3. Transport and Communication:
Long distances in foreign trade create difficulties of proper and quick transport and communication. Both of these involve considerable delay as well as cost. The high cost of transport is a great hindrance in foreign trade.
4. Risk and Uncertainty:
Foreign trade is subject to greater risk and uncertainties as compared to home trade. As the goods have to be transported to long distance they are exposed to many risks. Goods in transit overseas are susceptible to the perils of the sea. These risks may be covered through marine insurance but this involves extra cost in foreign trade transactions.
5. Lack of information about foreign traders:
In foreign trade since there is no direct and close relationship between the buyers and the sellers, the seller has to take special steps to verify the credit worthiness of the buyer. It is difficult to obtain information regarding credit worthiness, business standing and financial position of persons living in foreign countries.
6. Import and Export Restrictions:
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Every country has its own laws, customs and import and export regulations. Exporters and importers have to fulfil all the custom formalities as well as follow rules controlling exports and imports.
7. Difficulties in Payments:
Foreign trade involves the exchange of currencies because the currency of one country is not the legal tender in the other country. Exchange rates are determined for different currencies for this purpose. But exchange rates go on fluctuating. Moreover there is a wide gap between the time when the goods are dispatched and the time when the goods are received and paid for. Thus, there is a greater risk of bad debt also in foreign trade. Remittances of moneys for payments in foreign trade are time consuming and expensive. Hence payments in foreign trade create complications.
8. Various Documents to be used:
Foreign trade involves the preparation of a large number of documents both by the importer as well as exporter. These documents may be required either under law or under customs of trade of the two countries.
9. Study of Foreign Markets:
Every foreign market has it own characteristics. It has its own requirements customs, traditions, weights, and measures, marketing methods etc. An extensive study of foreign markets is required to be successful in foreign trade, which may not be possessed by an ordinary trader.