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Weighing the Advantages of International Trade Against Its Disadvantages

The advantages of international trade may make the idea of expanding globally an attractive one for your business. But have you considered the disadvantages of international trade? They may help shape your global expansion strategy.
March 27, 2018

In an increasingly global world, the advantages of international trade can give your business a substantial boost.

According to Abhi Golhar, serial entrepreneur and co-founder of Nurse Practitioners Clinical Rotations, chief among the advantages of international trade are market-risk diversification and less competition.

“If there happen to be increasing regulations in the business owner's home country that may inhibit the sale of the business's widgets, identifying other markets with less regulation could be vital for the longevity of the business," Golhar says. “Also, the business owner may find that by expanding into a different market, there may be fewer competitors, which can result in higher profit margins and more business volume."

Added to the advantages of international trade are lower production costs. 

"Business owners should consider international trade when the cost of labor or products they can source locally negatively impacts their bottom line," says Scott Kacmarski, CEO of business process outsourcing company Reps Direct.

Go and visit the companies with which you'll be working. You'll get a better feel for the people when meeting face to face and you can also inspect their facilities personally.

—Scott Kacmarski, CEO, Reps Direct

Additionally, becoming proficient in international trade in the early stages of your business can help you avoid prohibitively high costs down the line—another perk of expanding globally.

“The cost of one product or service may seem like a small issue at the beginning," Kacmarski says. “The problem comes when you have many products or employees. High costs then lead to cash-flow problems, and it's harder to go international once your business is more mature and operating at a larger scale."

International Trade Has Its Downside

Of course, there are disadvantages of international trade as well.

For one, if you don't have what Golhar calls “boots on the ground," it could increase your probability of failure.

“When my father opened a business in his hometown in India, his brother—who he trusted completely—assisted him," he says. "Without a partner with an established track record and contacts, international trade can be enormously difficult."

Cultural differences are also among the disadvantages of international trade.

“These can be hard to detect, but it's critical to understand that not every country works at the same pace and conducts business in the same way," says Kacmarski. “A business owner really needs to be on top of constant communication."

And, if a problem occurs, you could be out of luck.

“Recourse against a foreign company that does you wrong is much harder," Kacmarski says.

Initial To-Dos for the Business Owner

When engaging in international trade for the first time, it's important to understand your new market's inherent volatility.

“Change in governmental power or currency fluctuations will have a dramatic impact on a business owner's ability to conduct trade," says Golhar. “Spending time in the new market and developing good relationships with potential clients will put business owners in a better position to be successful."

Kacmarski agrees, stating that thorough investigation of potential trade markets is essential.

“Go and visit the companies with which you'll be working," he says. "You'll get a better feel for the people when meeting face to face and you can also inspect their facilities personally."

You can use in-person visits to learn more about how foreign laws apply to your business. Kacmarski cites the examples of tariffs and working holidays.

“When quoting prices, you need to know exactly how much you are paying to receive a product. You also need to know the days other countries shut down as it varies a great deal. You don't want to be on deadline for products and have no one working!"

Getting a feel for international trade options takes time and patience, so engage in knowledge-gathering without rushing. As you begin your initiative, keep an open mind when it comes to strategy and execution. While your end result may look quite different from your original plan, you might be pleasantly surprised by the outcome.

Read more articles on risk assessment.

Photo: Getty Images