Trading across country borders has become commonplace in a globalised and interconnected world. Even small businesses and stores now have the opportunity to trade globally using their own e-commerce websites or third-party platforms such as Amazon or Ebay. Global trade is no longer an option to be considered only by large corporations, and understanding the pros and cons of international trade is now more important than ever for any business owner.
Pros of Global Trade
Most companies start trading globally attracted by the following characteristics of international trading.
Trading Globally Increases Your Target Audience
The main and most obvious benefit of trading globally is that you won’t be restricted to the audience in your domestic market. For example, you may be producing a product that is considered an everyday commodity in your domestic market… but it’s a luxury somewhere else. Or you can take advantage of selling to customers in richer countries, while enjoying the rewards on your home country with lower living costs. It is also easier to compete when the entire world is your target audience than if you are limited to local markets.
It Will Save You From Having All Your Eggs In One Basket
Economic downturns can be deadly for businesses whose only market is a single country, but if you trade globally you can offset a slowdown in sales in a country with increase of sales in another. For example, luxury brands soon discovered that during the early 21st century economic downturn new markets in Asia and America were indispensable to keep sales up as Europe and the United States markets slowed down.
Trading Internationally Makes Your Business Look Good
A company that trades internationally already has an advantage over their competitors in terms of perception: it enhances your brand appeal and makes your products more attractive. Also, you may discover markets where your product is more popular than others, due to social preferences and different competitors.
You Can Enjoy Higher Returns
Nowadays starting a global trading business is much easier, with more and more treaties being signed between countries to facilitate this. For this reason, it makes sense to consider the world as a global market, and trade internationally to focus your efforts in regions which offer a better ROI or more growth, instead of restricting yourself to a mature market in your own country.
Cons Of International Trade
If you want to start trading internationally, better keep in mind the following to avoid problems later on.
Human Rights and Exploitation Issues
While outsourcing your production to a third world country with lower wages may sound like a great business idea, it can land you in PR-nightmare land later on. Developing countries may have instability issues that could affect your business. The solution? Don’t put all your eggs in the same basket, keep abreast of developing news and keep an eye on the entire manufacturing and sales process, not just the bits you haven’t outsourced.
Shipping your goods to a foreign country have its costs in terms of environmental damage, and if you aim to become a green, eco-friendly company you should focus on serving your local audience. For example, eco-conscious consumers have coined the term Food Miles to signify the distance food needs to travel from producers until it reaches the consumer. You can do your bit for the environment and take environmentally friendly measures to offset your carbon footprint.
Trading in the international market adds a new layer of complexity to most business. Marketing strategies need to be tweaked, translations need to be made, customs and taxes need to be paid and conversion rates can affect profits. For a very small business it may not make sense to deal with the increased levels of complexity but a larger one may find hiring the extra staff required a good compromise.
While it’s true that humanitarian and economical concerns can make the idea of a global village a gloomy one, many companies will discover that trading internationally offers them a lifeline at some point or another when things don’t go as expected in their local economies. A closer look at the pros and cons of international trade will allow you to decide whether it would work for your company, or you prefer to stick to trading locally.