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International Journal of Contemporary Economics and
Administrative Sciences
ISSN:1925 – 4423
Volume :1, Issue:3, Year:2011, pp.188-207
Perception of Financial and Payment Terms Risks: The
Analysis of Aegean Exporters
Aykan CANDEMIR
1
Ali Erhan ZALLUHOĞLU
2
Erdal DEMIRALAY
3
Received: March - 2011, Accepted: July -2011
Abstract
In recent years, the volume of international trade has increased enormously due to
the effects of globalization and liberalization of trade. However, political and economic
changes, changes in consumer demand, market structures, product and market life
cycles, domestic and foreign competition and the degree of effects caused by these
changes became more and more significant. Such changes force the firms making or
intending to make business globally to implement dynamic strategies and action plans.
Considering above mentioned points, this study aims to explore the risks perceived by
the exporting firms about financial risk and payment terms within the context of
international trade. The firms are analyzed depending on various criteria (i.e. export
intensity, firm size, sectors, geographical locations, export activity, age of the firms,
export experience). The results of the study indicates that risk perceptions of exporter
firms operating in the Aegean Region of Turkey vary by operating in various sectors,
sizes, geographical location, types of export activity, age. On the other hand export
intensity and experience of exporters do not affect the risk perceptions of exporter firms
significantly.
Keywords: Risk perception, international trade, payment terms, financial risk,
exporting firms.
JEL Codes: G32, P45, F14, F31
1
Assistant Professor Dr, Department of Business Administration, Faculty of Economics and
Business Administration, Ege University, Izmir, Turkey, aykan.candemir@ege.edu.tr
2
Research Assistant, Department of Business Administration, Faculty of Economics and
Business Administration, Ege University, Izmir, Turkey, erhan.zalluhoglu@ege.edu.tr
3
HRM (Human Resources Management), Turkey, erdal@hrm.com.tr
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1. Introduction
Choosing an appropriate mode of entry into international markets is a
critical decision–making process because of its consequences. There are several
modes to enter foreign markets such as exports, licenses, joint ventures, non-
exclusive-non-restrictive contracts and etc. (Forlani et al.2008).
Exporting is the simplest way and particularly important in the world
exchange system to enter foreign market. It is largely used in the entry into
foreign markets of manufactured goods firms, especially those in the earlier
stages of internationalization as a cost effective way (Khemakhem, 2008; Vyas
and Souchon, 2003). The company may passively export its surpluses from time
to time or it may make an active commitment to expand exports to a particular
market. In either case, the company produces all its goods in its home country.
It may or may not modify them for the export market. In general, the expansion
of a nation’s exports has positive effects on the growth of the economy as a
whole as well as on individual firms (Cavusgil and Nevin, 1981). Exporting is
of vital economic importance to trading nations and their firms. Exports boost
profitability, improve capacity utilization, provide employment, and improve
trade balances (Barker and Kaynak, 1992).
McKee and Varadarajan (1995) argue that competitive advantage is the
cornerstone of strategy, and enacted knowledge is the essence of competitive
advantage. Information is an one of the critical point in marketing decisions.
Proper collection and use of information reduces the uncertainties in the
company’s decision-process regarding the overseas markets, improving the
company’s ability to cope with opportunities and threats on the export market,
and, subsequently, the company’s competitiveness (Köksal, 2008; Czinkota,
2000). It helps managers in activities such as researching foreign markets,
adapting products, finding and contacting buyers, developing foreign channels,
moving goods across great distances, and ensuring that products are managed
properly on their way to end users, pose considerable challenges to resource-
constrained, internationalising SMEs (Knight and Liesch, 2002). Export
information will significantly reduce the perceived barrier and complexity of
international activities and help to implement proactive international marketing
strategies (Vyas and Souchon, 2003; Shamsuddoha, 2009).
2. Risks In Internalization Process
The usage of a method in a foreign trade transaction depends upon the
duration of relationship and trust between the buyer and seller. To succeed in
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Volume :1, Issue:3, Year:2011, pp. 188-207
190
today’s global marketplace and win sales against international trade presents a
spectrum of risk, which causes uncertainty over the timing of payments between
the exporter (seller) and importer (foreign buyer). For exporters, any sale is a
gift until payment is received. Therefore, exporters want to receive payment as
soon as possible, preferably as soon as an order is placed or before the goods
are sent to the importer. For importers, any payment is a donation until the
goods are received. Therefore, importers want to receive the goods as soon as
possible but to delay payment as long as possible, preferably until after the
goods are resold to generate enough income to pay the exporter.
The international business/strategic management literature lacks a generally
accepted definition of international risk (Miller, 1992). Risk usually refers to
unanticipated or negative variation in revenue, cost, profit, or market share
international risk generally could be defined as the dangers firms faced in terms
of limitations, restrictions, or even losses when engaging in international
business (Zafar et al. 2002). Risk is also defined as (1) the uncertainty
associated with exposure to a loss caused by some unpredictable events and (2)
variability in the possible outcomes of an event based on chance. The degree of
risk depends on how accurately the results of a change event could be predicted;
the more accurate the prediction, the lower the degree of risk (Jackson and
Musselman, 1987). Risk perception is the perceived degree of risk inherent in a
certain situation. Risk taking is defined as one of the three dimensions of
entrepreneurial orientation of a company and refers to the willingness of the
management to commit significant resources to opportunities that might be
uncertain. Risk taking depends on risk propensity and risk perception. The
higher the risk propensity and the lower the risk perception, the more likely it is
that risky decisions will be made (Leko-Šimi´c and Horvat 1999). Being
generally fully and clearly unknown or projected, variability by time, being
manageable, having negative effect on outcomes of the operations are the main
features of risk are (Fıkırkoca, 2003)
Risk management is described as the performance of activities designed to
minimize the negative impact (cost) of risk regarding possible losses (Schmit
and Roth, 1990). Redja (1998) also defines risk management as a systematic
process for the identification and evaluation of pure loss exposure faced by an
organization or an individual, and for the selection and implementation of the
most appropriate techniques for treating such exposure. The process involves:
identification, measurement, and management of the risk. The objectives of risk
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management include: to minimize foreign exchange losses, to reduce the
volatility of cash flows, to protect earnings fluctuations, to increase profitability
and to ensure survival of the firm (Abor, 2005).
3. Perception of Financial and Payment Terms Risks
Trade is a two sided transaction that might be performed by seller and
buyer. The seller’s obligation is to deliver the goods at given amount, at
specified quality and in a informed period of time according to sales contract.
The buyer’s obligation is to pay value of the goods. Therefore, exporters want
to receive payment as soon as possible, preferably as soon as an order is placed
or before the goods are sent to the importer. For importers, any payment is a
donation until the goods are received. Therefore, importers want to receive the
goods as soon as possible but to delay payment as long as possible, preferably
until after the goods are resold to generate enough income to pay the exporter.
The importer or exporter should review several issues such as the reliability,
credibility of the trade partner, credit and payment terms, delivery terms,
political and economic conditions within the importer’s and exporter’s
countries, value of the goods etc. before selecting the most appropriate method
of payment (Onkvisit and Shaw, 2004).
3.1. Payment Terms Risks In Trade
Gatti (1997) discusses various techniques that importers and exporters can
use to reduce the costs they incur in international trade transactions. Chatterjee
(2001) describes the role and caveats to be followed in the usage of L/C
payments. Collins (2002) mentions various methods of collecting money by an
exporter from a foreign buyer, and how some methods work better for the
exporter and others benefit the buyer. He describes that next to advance
payment, a L/C is likely the safest option.
Although payment terms except for Letter of Credit are not exactly arranged
by ICC (International Chamber of Commerce) or by any other agreements, most
common types used in international trade are Cash-in-advance Payment (Cash
Payment), Cash against Goods, Cash against Documents, Letter of Credit and
Credit Acceptance Payments.
3.1.1. Cash-in-advance Payment (Cash Payment)
Payment by cash in advance requires that the buyer pay the seller prior to
shipment of the goods ordered (Hinkelman, 2008). With the cash-in-advance
payment method, the exporter can avoid credit risk or the risk of nonpayment,
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192
since payment is received prior to the transfer of owner¬ship of the goods.
Payment before shipment eliminates risk of non-payment. However the exporter
may lose customers to competitors over payment terms (ICC, 2006). Although
cash payment may seem as having minimum level of risk or no risk for the
exporter the date of the payment may create risk. The buyer has a power to
cancel the contract until the date of payment. Until the date of payment, if the
seller already ordered the raw materials and any other inputs for production or
already started to produce the goods, all the spending until payment date the
seller will face to lose the value of the goods until this time.
3.1.2. Documentary collection (D/C) (Cash Against Documents (CAD))
Documentary collection (D/C) or with other name Cash against documents
is a transaction whereby the exporter entrusts the collection of a payment to the
remitting bank (exporter’s bank), which sends documents to a collecting bank
(importer’s bank), along with instructions for payment (ICC, 1995). Funds are
received from the importer and remitted to the exporter through the banks in
exchange for those documents. D/Cs involve using a draft that requires the
importer to pay the face amount either at sight (document against payment
[D/P] or cash against documents) or on a specified date (document against
acceptance [D/A] or cash against acceptance) (ICC, 2006).
The exporter retains the title to the goods until the importer either pays the
face amount at sight. When the documents arrives the collecting bank,
collecting bank (the consignee) invites buyer to receive endorsed (ownership
transferred to buyer) documents. The buyer has to pay total value of the goods
before receiving the documents. If the buyer does not want to pay the value of
the goods or don’t have a good financial position to pay the value of the goods,
there is not any authority to pressure or to put under obligation to pay the value
of the goods.
Cash against documents is recommended for use in established trade
relationships and in stable export markets. This payment is riskier for the
exporter, though D/C terms are more convenient and cheaper than an L/C to the
importer. Bank assistance is needed in obtaining the payment. The process is
simple, fast, and less costly than L/Cs. Banks’ role is limited. Although the
banks control the flow of documents, they neither verify the documents nor take
any risk. They can, however, influence the mutually satisfactory settlement of a
D/C transaction. Although the title to the goods can be controlled under ocean
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shipments, it cannot be controlled under air and overland shipments, which
allow the foreign buyer to receive the goods with or without payment.
3.1.3. Cash Against Goods (CAG)
Cash Against Goods also named as open account transaction is a sale where
the goods are shipped and delivered before payment is due, which is usually in
30 to 90 days. Obviously, this option is the most advantageous to the importer
in terms of cash flow and cost, but it is consequently the highest-risk option for
an exporter. Because of intense competition in export markets, foreign buyers
often press exporters for open account terms. In addition, the extension of credit
by the seller to the buyer is more common abroad. Therefore, exporters who are
reluctant to extend credit may lose a sale to their competitors. However, though
open account terms will definitely enhance export competitiveness, exporters
should thoroughly examine the political, economic, and commercial risk as well
as cultural influences to ensure that payment will be received in full and on
time. Exporters may also seek export working capital financing to ensure that
they have access to financing for production and for credit while waiting for
payment.
Cash Againts Goods includes maximum risk when compared with other
payment terms. The exporter must consider this risk level before accepting this
payment term. Total value of the goods is under the risk. Additional finance
techniques and tools can be applied for risk minimization.
3.1.4. Letter of Credit (L/C)
The letter of credit (by which the necessary trustworthiness of the importer
buyer is guaranteed by his bank) is the most widely used method as a form of
payment in export activities (Katsioloudes, Hadjidakis, 2007). A L/C is a
commitment by a bank on behalf of the buyer that payment will be made to the
beneficiary (exporter) provided that the terms and conditions stated in the L/C
have been met, consisting of the presentation of specified documents. The buyer
pays his bank to render this service. An L/C is useful when reliable credit
information about a foreign buyer is difficult to obtain, but the exporter is
satisfied with the creditworthiness of the buyer’s foreign bank. This method
also protects the buyer since the documents required to trigger payment provide
evidence that the goods have been shipped or delivered as promised (ICC,
2006). If the exporter fulfils all the conditions of the L/C - the bank will pay,
regardless of the situation of the buyer. If the seller did not comply with the
conditions in the L/C, the bank will pay only if buyer expressly agrees to it.
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3.1.5. Credit Acceptance Payment
Credit acceptance payment is usually used in the documentary collection
(D/C) type of payment term and is a transaction whereby the exporter entrusts
the collection of a payment to the remitting bank (exporter’s bank), which sends
documents to a collecting bank (importer’s bank), along with instructions for
payment. Funds are received from the importer and remitted to the exporter
through the banks in exchange for those documents. D/Cs involve using a draft
that requires the importer to pay the face amount either at sight (document
against payment [D/P] or cash against documents) or on a specified date
(document against acceptance [D/A] or cash against acceptance). The draft
gives instructions that specify the documents required for the transfer of title to
the goods. Although banks do act as facilitators for their clients under
collections, D/Cs offers no verification process and limited recourse in the event
of non-payment. Drafts are generally less expensive than letters of credit (L/Cs).
(ICC, 2006).
For risk analysis avalization is key determinant for payment obligation.
There are two cases for avalization. The case where only the buyer signs the
draft named as buyer avalised credit acceptance. Only buyer is under obligation
of payment at due date. Exporter has no control of goods and may not get paid
at due date. In the second case the buyer and collecting bank (importer’s bank)
sign the draft named as buyer and collecting bank avalized credit acceptance.
Additionally collecting bank is under obligation to pay at due date.
3.2. Financial Risks In Trade
In recent years, risk management has received increasing attention in both
corporate practice and literature. This is particularly true for the management of
financial risks, i.e. the management of foreign exchange risk, interest rate risk
and other financial market risks (Abor, 2005:306). Finance is one of
determinants were identified which satisfied the definition “tangible export
performance determinants” (Valos ve Baker, 1996) and lack of export finance to
hinder export success (Bilkey, 1978).
3.2.1. Foreign Exchange Risk
Foreign exchange risk is the exposure of an institution to the potential
impact of movements in foreign exchange rates (Bank of Jamaica, 1996).
Foreign exchange risk management has become increasingly important since
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the abolishment of the fixed exchange rate system of Bretton Woods in 1971.
This system was replaced by a floating rates system in which the price of
currencies is determined by supply and demand of money. Given the frequent
changes of supply and demand influenced by numerous external factors, this
new system is responsible for currency fluctuations (Abor, 2005).
The adverse movement in the exchange rate can unfavorably affect a party
in the transaction that is involved in either payment or receipt of foreign
currency at the later date, but over a short time horizon (Sirpal, 2009). Foreign
exchange risk arises from two factors: currency mismatches in an institution’s
assets and liabilities (both on- and off-balance sheet) that are not subject to a
fixed exchange rate and currency cash flow mismatches. Such risk continues
until the foreign exchange position is covered (Bank of Jamaica, 1996). This
risk may arise because of trade contracts, which are denominated in terms of
either the exporter’s or the importer’s currency, will only deliver the goods at a
future date. Since movements in exchange rates are unpredictable, this can
create uncertainty about future profits from export trade. As a result of risk
aversion and future profit uncertainty, exporting firms that are exposed to
exchange rate movements would be forced to shift away from risky markets.
Hence, this would result in a lower volume of foreign trade (Wong and Tang,
2008)
Foreign exchange risk appears in emerging markets’ portfolio investments
because of potential of high returns. Altough its risks, it can be managed in
various ways such as futures, swaps and options contracts, payments netting,
prepayment, leading and lagging and hedging with derivatives (Al Janabi, 2006;
Abor, 2005; Wong and Tang, 2008; Sirpal, 2009).
3.2.2. Interest Rate Risks
An interesting issue appeared in the financial asset pricing literature is the
impact of interest rate risk and pricing in the stock markets for financial
institutions. Definition of interest rate risk has several approaches for different
categories such as accounting, banking or insurance and etc. Most commonly
interest rate is the possibility that the value of an asset will change adversely as
interest rates change.
According to financial theory changes in interest rates should affect the
value of the firm. Hence there has been much interest in evaluating the level of
exchange rate exposure or interest rate exposure a firm or industry faces. The
issue of exposure to interest rate risk is of importance to individual investors
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and firms. For example, changes in interest rates can affect an investor holding
a portfolio consisting of securities from different countries. Changes in interest
rates will alter the firms’ financing costs, affecting the amount of loan interest
and principal payments and impacting cash flows of the firm (Hyde, 2007).
Ameer (2009) stated in his research that the banks used options, futures,
swaps, forwards, and other synthetic derivatives to hedge their foreign-currency
and interest-rate exposures. This is important to point out that all the sample
firms except banks disclosed that trading in derivatives is not allowed under
their financial risk management policy. Therefore, the notional amount of
derivatives for banks is the sum of the notional amount of hedging and trading
(non-hedging) derivatives.
Kolb (1983), advises the managers to consider the maturity of the hedged
and hedging instrument, the coupon structure of the hedged and hedging
instrument, the length of the time the hedge will be in effect, the risk structure
of interest rates (yield differences between instruments due solely to default
risk) and the term structure of interest rates (the shape of the yield curve) as key
factors to be considered.
3.2.3. Liquidity Risk
Liquidity refers to the level of cash and near-cash assets held, as well as
cash inflows and outflows of these assets. McMahon and Stanger (1995)
emphasize the importance of liquidity in a small firm as being “a matter of life
or death for the small business” since a small business can “survive for a long
time without a profit, but fails the day it can’t meet a critical payment”(Ekanem,
2010). The concept of liquidity can be summarized as the ability for traders to
execute large trades rapidly at a price close to current market price. The
liquidity risk refers to the loss stemming from costs of liquidating a position. To
manage the liquidity risk a good risk measure is needed to account for the
impact of the liquidity shock on tradable securities and portfolios (Zheng and
Yukun, 2008). Liquidity management takes the form of cash management and
credit management. Whilst the most important aspect of cash flow management
is avoiding extended cash shortages, credit management involves not only the
giving and receiving of credit to customers and suppliers, but also involves the
assessment of individual customers, the credit periods allowed and the steps
taken to ensure that payments are made in time (Poutziouris et al., 1999;
Ekanem,2010 ).
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4. Methodology and Findings
The main objective of this study is to analyze the risk perception of exporter
firms in the Aegean Region in Turkey when operating in international market
including payment and financial terms. Thereby, perception level of risk which
can be categorized as financial and payment terms risk by exporter firms in the
Aegean Region. Also we research, what kind of methods are used to minimize
and eliminate perceived risk from financial and payment terms risk and what
are the usage density level of these methods. In this study, the factors such as
sector, size, foundation year, export experience, export intensity etc. are
analyzed to see whether there is any effect on risk perception or not.
In this study, exporters located in the Aegean Region of Turkey are
analyzed. An e-mail survey was conducted used to generate data in order to test
the hypotheses. With its organized industrial zones and free zones, Aegean
Region is one of the important centers for manufacturing and trade of the
Turkish economy. In Aegean Region, the total number of exporters is 3775, but
only 2889 firms registered their e-mail addresses as contact information was
selected from the Aegean Exporter’s Union and other governmental institutions
database system. The sample included businesses from a wide range of
industrial sectors. A web based questionnaire were prepared also e-mailed as
attached document to the firms and expected to be answered by the top
managers, export managers and export specialists. Two weeks after sending the
e-mails, a follow-up e-mail was sent for non-responses. In total, out of 224
firms 19 were deemed ineligible (e.g. not properly filled) and 205 firms were
taken for analysis. Limitations of the study were stems from the company
policies restricting information flow to third parties.
In this study, NUTS classification which was created by the European
Office for Statistics (Eurostat) as a single hierarchical classification of spatial
units used for statistical production across the European Union is used to
determine for compare perceived risks of each terms between sub regions.
Sub sectors consist the exporters were gathered into three main sectors i.e.
agriculture, industry and mining in accordance with the classification of Under
secretariat of Foreign Trade of The Republic of Turkey.
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Table 1: Frequency Table I
Valid
Frequency
Valid
Percent
(%)
Valid
Frequency
Valid
Percent
(%)
Sector
Size of the Firm (classification according
to number of employees)
Agriculture
64
31,2
Small (1-49)
73
36
Industry
113
55,1
Medium (50-249)
87
42,8
Mining
28
13,7
Big (250 and over)
43
21,2
Total
205
100
Total
203
100
Type of Activity
Export Experience
Producer and
Exporter
166
81
Export Experience
Between 1-9 Years
63
30,7
Only Exporter (No
production)
39
19
Export Experience
Between 10-19
Years
51
24,9
Total
205
100
Export Experience
Between 20-29
Years
45
22
Year of Establishment
Export Experience
30 Years and More
46
22,4
1985 and before
65
31,7
Total
205
100
1986 – 1993
35
17,1
Capital Structure
1994 – 2001
53
25,9
%100 Turkish
175
85,4
2002 and later
52
25,4
Foreign invested
company (%1-
%100)
30
14,6
Total
205
100
Total
205
100
Market orientation (Foundation of the
Firm)
Location for NUTS
Founded primarily
for domestic
market
90
43,9
TR31 Izmir and sub
149
72,7
Founded primarily
for export markets
63
30,7
TR32 Aydin and
subregion
29
14,1
Founded both for
domestic and
foreign markets
52
25,4
TR33 Manisa and
subregion
27
13,2
Total
205
100
Total
205
100
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No. of Employed in Export Department
Export Intensity
1
32
15,6
%0-%25
56
27,3
2
62
30,2
%26-%50
41
20
3
34
16,6
%51-%75
23
11,2
4 and over
61
29,8
%76-%100
85
41,5
Nobody work
about export
16
7,8
Total
205
100
Total
205
100
From the frequency tables (see table 1 and 2) it can be seen that majority of
the firms are dealing with industrial production and also majority of firms are
both producer and exporter. The foundation dates of the firms are classified
according to turning points in Turkish Economy. 1987 is the year when Turkey
applied for the full membership to the European Union, 1994 and 2001 are the
years when Turkey passed through economic crisis. 1995 is the year when the
Customs Union with the EU came into force. Also from the table it can be seen
that majority of the firms are 100% Turkish.
According to the new Small and Medium Sized Enterprises definition by
the Turkish Law in accordance with the EU, majority of the firms are medium
sized (42,8%) and majority of the firms (43,9%) are founded before 1987.
Export performance has been traditionally measured by a single variable,
namely export sales as a percent of total corporate sales, called export intensity
(Cooper and Kleinschmidt, 1985). Although most of the firms have less than
four employees in export department (71,2%), half of the firms (52,7%) have
high export rates (51%-100%), this may show the export effectiveness of the
firms.
The questionnaire consisted questions to find out the characteristics of the
exporters and likert scale of 5 items (1= not important at all… 5= very
important) were developed to determine the uncertainty perceptions of the
firms. Then the 5 item likert scale was transformed into 3 item scale for
payment term questions (not important to important) in order to more
meaningful results and better interpretation. Following this transformation,
analyses were made.
According to Table 2, total risk score was calculated from all given points.
But to get more accurate solution the average risk point is calculated to compare
the perceived risk of financial terms. “Foreign exchange rate” and also “cash
against goods” terms are found out to be the most risky options perceived by the
exporters in Aegean Region.
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Table 2. Perceived Risk Point of Financial Terms
N
Mean
Total Risk score
Foreign Exchange Risks
192
4,34
834
Liquidity Risk
184
4,23
779
Interest Rate Risk
186
3,86
718
As it seen in Table 3, risk point is between 1-3 (least risky-most risky).
Given points were added and divided to total answer to find the average risk
point of each payment term. As it pointed before, paying cash is the least risky
implication in trade. As a result, exporters firstly prefer to get their payment in
cash and followed by “letter of credit” as the second best choice in payment.
Moreover, decision of the payment term is highly determined by together
(59,1%) including as buyer and seller.
Table 3. Perceived Risk Point of Payment Terms
N
Total Point
Mean
Cash against goods
165
447
2,70
Cash against document
159
333
2,09
Credit Acceptance Payment (Buyer avalised credit
acceptance)
111
228
2,05
Credit Acceptance Payment (Buyer and collecting
bank avalised credit acceptance)
121
196
1,61
Letter of credit
163
231
1,41
Cash in advance
186
203
1,09
As an interesting result, although exporters try to handle payment and
financial term’s risks, most of the exporters do not use any instruments to
manage their risks (Table 4).
Table 4. Most Used Payment Terms
Frequency
Cash in advance
150
Letter of credit
118
Cash against document
118
Cash against goods
113
Credit Acceptance Payment (buyer and collecting bank avalised credit
acceptance)
48
Credit Acceptance Payment (buyer avalised credit acceptance)
10
As seen from table that the most preferable tools for the exporters are letter
of guarantee and Eximbank insurance to manage their risks. Nearly half of the
exporters only use this managing tool continuously (Table 5).
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Table 5: Risk Minimization Methods of Payments Terms
N
Total point
Mean
Letter of guarantee
139
249
1,79
Eximbank insurance
131
224
1,70
Factoring
126
193
1,53
Leasing
115
160
1,39
Forward
110
149
1,35
Futures
100
113
1,13
Derivatives exchange
94
106
1,12
Forfaiting
99
111
1,12
Independent t-test and one-way ANOVA test was applied to test the
differences between descriptive variables which is stated in Table 1 for
perceived risks of exporters to the payment and financial terms. Null
Hypothesis was:
Ho= There is no difference between firms in different sectors for perceived
risks related to the financial risks and payment terms.
Bilkey (1978) emphasized that the perceived obstacles to export vary by
industry and by firms’ export stages. To support this, there is no perceived risks
difference between different sector groups but there are some differences within
the groups. Considering the exchange rate risks, the mean for agriculture sector
was 4,48 and for the mining sector the mean was 4,07 which means the
exporters of agricultural products tend to give higher importance. This is why
mining sector is based on natural resources and prices of natural resources
determine mostly by taking into account exchange rate. Also there are risk
perception difference on cash in advance and letter of credit between exporters
of agricultural and industry products. Perception of cash in advance and letter of
credit are less risky by exporters of agricultural products than exporters of
industry product.
Ho= There is no difference between firms in different sizes for perceived
risks related to the financial risks and payment terms.
Many studies have attempted to link the size of the firm with various export
aspects and little consistency in study results has been found. Smaller firms may
be more risk averse due to a lack of information, and, the relatively greater
impact of an international mistake versus what it would be for larger firms.
Decision makers in small firms perceive higher risk in international activities
(Calof, 1994; Bonaccorsi, 1992; Morgan, 1997)
There is a difference in liquidity risk between small firms and big firms
(over 250). For the big firm (3,94) it is easier to obtain financial resources (i.e.
credit) than small firms (4,38) due to their ability to payback the borrowed
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amount. Another point is that, although “cash against goods” is perceived as the
most risky payment term for most of the exporters, however big firms (2,53)
perceive “cash against goods” less risky than small (2,76) and medium firms
(2,75).
Ho= There is no difference between firms in different sectors related to the
risks in exchange rate.
Economies are getting more and more open with international trading
constantly increasing and as a result companies become more exposed to
foreign exchange rate fluctuations. Firms involved in international trade are
subject to transaction risk arising from payables and receivables in foreign
currencies (Abor, 2005). The mean of perceived exchange rate risks for
agriculture sector was 4,48 and for the mining sector the mean was 4,07 which
means that the exporters of agricultural products tend to give higher importance
exchange rates.
Ho=There is no difference between firms classified with NUTS
classification for perceived risks of exporters related to the risks in exchange
rate.
Within 95% confidence interval, one way ANOVA test was applied to the
groups for the values F=7,292, df=2 ve p=0,001. For the foreign exchange risks,
the differences between the groups were found for risks of NUTS regions. Thus
null hypothesis was rejected. For the Manisa subregion, foreign exchange risk is
perceived as less risky than the others.
Ho= There is no difference between types of export activity for perceived
risks related to the payment terms.
According to independent sample t-test, differences were found in
perception of cash against goods risk between the producer and exporters firms
and only exporter firms (t=-2,560, df=157, sig=0,011). From the analysis, it can
be seen that the perception for this payment term of only exporter firms (2,31) is
more risky than the producer and exporters firms (2,03). This is because the
only exporters are firstly buying goods and then delivering them so they are
taking all risks and if any problem occurs after delivering they have to solve by
themselves.
Analyses were conducted via considering risk minimizing tools through the
descriptive variables which is stated in Table 5.
Ho= There is no difference between firm size and risk minimizing tools.
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Although there are not many studies directly searching the relation between
the firm size and risk perception of exporters from the financial risks and
payment terms point of view, several studies notices contradictory results
obtained from the analyses of relationship between firm size and the attitude
towards export activities (Moen, 2000; Cooper and Kleinschmidt 1985). Some
studies suggested that company size does not affect export activities (Czinkota
and Johnston, 1983,Hirsch,1970), while the others emphasize the effects of the
company size on export activities (Reid, 1983; Gripsrud, 1990. Piercy,1998).
In this study, no difference between groups are found, however there some
differences within the groups are found. Considering the letter of guarantee and,
the mean of big firms was 1,54, small firms (1,88) and medium firms are (1,93).
As it shown in means small and medium firms are using letter of guarantee
more than big firms. Nevertheless big firms (1,65) are using “forward contracts”
more than small firms (1,22) because of special rules of usage “forward
contracts”. Besides “forward” and “letter of credit”, there is a difference
between big firms and small firms in usage frequency of Eximbank credit.
Bigger firms (1,96) use Eximbank credits more than small firms (1,52).
Ho= There is no difference between year of establishment considering the
risk minimizing tools.
Within 95% confidence interval, one way ANOVA test was applied to the
groups for the values F=4,417, df=3 ve p=0,05. For the year of establishment
the differences between the groups were found for risk for letter of guarantee
from the descriptive. Thus null hypothesis was rejected. Considering the letter
of guarantee, the mean for firms over thirty years of activity was 2,05. This
value is greater than the firms operating less than 30 years. This interesting
result shows that the younger firms are using the risk minimizing tools less than
the older ones.
Ho= There is no relation between export intensity of a firm and perceived
risks of exporters related to payment /financial terms.
The analysis shows that there is no statistical relationship between export
intensity and perceived risks of exporters to the payment /financial terms.
Ho= There is no relation between export experience and perceived risks of
exporters to the financial risks and payment terms.
Studies noticing the relation between export experience and export
performance as well as uncertainty/risk perception of exporters reveal that
experienced exporters perceive less uncertainty/risk in their exporting activities
compared with those firms characterized by relatively low levels of export
market experience (Katsikeas and Morgan, 1994)
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204
On the contrary to the studies, no statistical relationship between export
experience and perceived risks of exporters to the payment /financial terms
found after analysis of the study.
5. Conclusion
Several factors affect the foreign trade activities of firms, and their
perception and behavior patterns. These may be the country and the sector to
which the exporting firm belongs, the characteristics of the firm, its export
level, size, organizational structure, human resources, international experience,
export intensity and nature of the products to be traded. Some factors such may
be considered more important than commonly known factors such as export
experience, age of the firms.
This study examines perception of exporter’s payment and financial risks
and how to manage these risks in international trade among various firms in
Aegean Region. The survey results indicate the risk perceptions towards the
methods of payment as well as financial risks. When risk perceptions of the
firms dealing with international trade are regarded it can be said that the firms
are aware of the risks they may face but they behave fatalist when dealing with
risks since they do not use risk minimizing tools.
Firms should more intensively manage their export activities, compared to
their domestic channels, for improving performance. And thus the managers of
exporting firms should be educated and trained to anticipate the dynamics of the
payment and financial terms in which they will be operating before being faced
with decisions to be affected by risks.
Aegean Region has an important power in Turkey international trade.
However, this study presents us the measures such as hedging techniques and
usage of risk minimizing tools should be further promoted. Moreover, the
knowledge, awareness, and availability of the risk minimizing tools should also
be enhanced. Further studies may be including other dimensions of risk in trade
and how to manage them.
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