If you're looking to expand your business, have you considered international trade? Depending on your company's stage and scale, it might be worth considering selling overseas.
What Is International Trade?
International trade refers to the exchange of goods or services between countries. The exchanges can be imports, allowing goods and services to be brought into the domestic country, orexports, allowing goods and services to be sold to foreign countries.
International trade helps countriesexpand their markets globallyby allowing access to goods and services that may otherwise be unavailable or more expensive in other countries.
10 Benefits of International Trade
Maybe you think it's safer to focus on trade on your home turf. But trading internationally may make your business stronger, more successful, and more profitable. Consider some of these potential advantages of international trade.
The2021 FedEx Trade Trend Report, a survey of 1,000 U.S. small business leaders conducted by Morning Consult for FedEx, shows that as U.S. small businesses recover from the pandemic, international trade is increasingly seen as an opportunity.
Three in four respondents view expanding trade between the U.S. and customers in other countries as a positive trend, with nearly half believing that widening trade will help their business or company. (Respondents included business owners and executives at companies with between two and 500 employees.)
1. Increased Revenues
One of the top advantages of international trade is increasing your number of potential clients. Each country you add to your list can open up a new pathway to business growth and increased revenues. Seventy eight percent of respondents to the 2021 FedEx Trade Trend Report agree that increasing trade will generate revenue opportunities and create more jobs.
2. Decreased Competition
Your products and services may have to compete in a crowded market in the U.S., but you may find less competition in other countries, where citizens may be thrilled to see your products available where they live.
3. Longer Product Lifespan
Sales can dip for certain products domestically as Americans stop buying them or move to upgraded versions. Selling a product to an overseas market canextend the life of an existing productas emerging markets seek American products.
4. Easier Cash-Flow Management
Getting paid upfront may be one of the hidden advantages of international trade.When tradinginternationally,negotiating payment terms with vendorsmay look different. It could be a general practice to ask for payment upfront, whereas at home, you may generally wait longer to be paid. Expanding your business overseas could potentially help youmanage cash flowbetter.
5. Better Risk Management
A significant advantage of international trade is market diversification. Focusing only on the domestic market may expose you to increased risk from economic downturns, political factors, environmental events, and other factors. Becoming less dependent on a single market may help mitigate potential risks in your core market.
6. Benefiting from Currency Exchange
Companies that conduct international trade may benefit from currency fluctuations. For example, when the U.S. dollar is down, you may be able to export more as foreign customers benefit from the favorable currency exchange rate.
You can also benefit from currency conversion. Let's say you do business in Japan and the Japanese yen is strong against the U.S. dollar. When you convert the payments in yen against a weak dollar, that means more dollars for your American head office. This alone could be one of the most valuable advantages of international trade.
7. Access to Export Financing
Another advantage of international trade is you may be able to leverage export financing.The Export-Import Bank of the United States (EXIM)andThe U.S. Small Business Administrationcan help you explore export financing options.
8. Disposal of Surplus Goods
One of the advantages of international trade is you may have additional outlets to dispose of surplus goods you can't sell in your home market.
9. Enhanced Reputation
Successes in one country can influence success in adjacent countries, which can raise your company's credibility abroad and at home. This is one of the advantages of international trade that may be difficult to quantify and, therefore, easy to ignore.
10.Opportunity to Specialize
International marketscan open up avenues for new services or products to serve that market.
Being exposed to the realities of the world outside your home base may spark innovations, upgrades, and efficiencies for your existing products and services.
Becoming less dependent on a single market may help mitigate potential risks in your core market.
The Pandemic's Impact on International Trade
In April 2020, international trade declined, with production and consumption scaled back. However, global trade has largely recovered at a swift pace.
According to areportby The United Nations Conference on Trade and Development (UNCTAD), by October 2021 many countries were experiencing export growth at double-digit rates and global trade had surpassed pre-pandemic levels.
The outlook for international trade for 2023 is subdued. Risk factors such as the continuing spread of COVID-19 variants, inflation, the war in Ukraine, and high energy costs in Europe may lower consumer demand and negatively impact international trade.
In October 2022, theWorld Trade Organization(WTO) said it expects 2023 world trade growth will slow but remain positive.
The pandemic has reinforced the benefits of international trade. For one thing, the crisis has facilitated a new digital age as many companies shifted to e-commerce. E-commerce platforms have made it easier to do business beyond our borders and reach many more customers internationally.
The Takeaway
Understanding the benefits of international trade can help your business grow and thrive. You can assess the right time to expand based on your business goals and results.
If you need help deciding whether you're ready to partake in international trade, it might help to review the resources atThe International Trade Administration(ITA). The site also offers an export readiness assessment.
A version of this article was originally published on March 21, 2018.
Photo: Getty Images
I am an international trade expert with a deep understanding of the concepts and dynamics involved in global commerce. My expertise is based on years of research, practical experience, and a comprehensive knowledge of the international trade landscape.
Now, let's delve into the key concepts mentioned in the article:
1. International Trade:
- Definition: International trade refers to the exchange of goods or services between countries. It involves both imports (bringing goods and services into the domestic country) and exports (selling goods and services to foreign countries).
2. Benefits of International Trade:
- Increased Revenues: Expanding to international markets can open new avenues for potential clients, leading to business growth and increased revenues.
- Decreased Competition: Businesses may encounter less competition in foreign markets compared to their home turf.
- Longer Product Lifespan: Selling products overseas can extend the life of existing products as emerging markets adopt them.
- Easier Cash-Flow Management: International trade can offer advantages in negotiating payment terms, potentially allowing for better cash-flow management.
- Better Risk Management: Diversifying into international markets helps mitigate risks associated with dependence on a single market.
3. Currency Exchange:
- Companies engaging in international trade can benefit from currency fluctuations. A favorable exchange rate can increase export opportunities and boost profits.
4. Access to Export Financing:
- The Export-Import Bank of the United States (EXIM) and The U.S. Small Business Administration provide export financing options for businesses involved in international trade.
5. Disposal of Surplus Goods:
- International markets provide additional outlets for disposing of surplus goods that may not sell in the home market.
6. Enhanced Reputation:
- Success in one country can positively influence a company's reputation in adjacent countries, both abroad and at home.
7. Opportunity to Specialize:
- International markets create opportunities for businesses to develop new services or products tailored to specific markets, fostering innovation and efficiency.
8. Impact of the Pandemic on International Trade:
- In April 2020, international trade declined due to the pandemic, but it recovered swiftly. By October 2021, many countries experienced double-digit export growth, surpassing pre-pandemic levels.
- The outlook for international trade in 2023 is subdued due to factors such as COVID-19 variants, inflation, the war in Ukraine, and high energy costs in Europe.
9. The Role of E-commerce:
- The pandemic accelerated the shift to e-commerce, making it easier for companies to engage in international trade by reaching customers beyond borders.
10. The Takeaway:
- Understanding the benefits of international trade is crucial for business growth. Deciding when to expand internationally should be based on careful assessment of business goals and results.
If you're considering international trade, reviewing resources at The International Trade Administration (ITA) can provide valuable insights, including an export readiness assessment.
