Advantages and disadvantages of international trade: Countries, states, brands and businesses can buy and sell in international markets through international trade. Domestic customers could receive a wider range of goods and services through this trade. It allows for growth and expansion while avoiding the dangers of in-house R&D. There are certain downsides to trading. By exporting rather than importing goods and services, a country can earn a lot of money. It can also be used to undermine domestic markets by providing cheaper, but equally valuable items.
International trade, in all its forms, has many advantages and disadvantages to consider. It will be discussed in this article.
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What is international trade?
The exchange of goods and services between countries is known as international trade. In other words, it refers to the export and import of products and services. Export refers to the sale of products and services outside the country while import refers to the movement of products and services within the country.
Export trade, import trade and warehouse trade are the three main categories of international trade. We have already talked about export and import trade. Entrepot Trading, also known as re-export, is a mix of export and import. It involves importing products from one country and adding value to them before exporting them to another.
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Benefits of international trade
1. It is the basis for international growth: Companies that export can achieve levels of growth that they could not achieve if they simply focused on their home markets. This helps brands and businesses generate consistent revenue from a diverse portfolio of customers in multiple areas rather than a small customer base in a single home market.
2. International trade improves financial performance: Brands and businesses that expand into international trade can improve their financial success. This allows them to increase the return on their investment in research and development.
The trading life of any opportunity can be extended by rotating items or services in the global market, extending what existing products and services can offer. Even if a domestic market is no longer interested, this advantage can be realized.
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3. It distributes the risk that a brand and a company must bear: Due to the extent of diversification that can be accomplished through international trade, businesses can better protect themselves against risk. A company with an international presence can withstand and even maintain its profitability in the face of a financial calamity, such as the economic crisis of 2007 to 2009, or a natural disaster, such as Hurricane Katrina. Even if the domestic market is unstable, overseas trade can keep the company’s brand healthy.
4. International trade fosters market competitiveness: When a brand and a company are competing in multiple markets at the same time, they need to focus on their competitiveness to succeed. Brands and organizations can focus on improving product quality, design and development by studying a wider range of trends through their expanded access to the global market, allowing them to improve and to constantly diversify.
5. International exchange rates can be advantageous for a company: Leveraging currency exchange rates can help brands and companies involved in international trade further reduce their risk.
If a company does most of its trading in US dollars, trading with Japan to spread the risk of the yen-dollar exchange rate can potentially increase revenue. The euro or the pound could be compared to the dollar in the same way.
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6. It can be used as a way to circumvent high levels of domestic competition: An internal market may contain several items or services similar to those offered by a new brand and company. Instead of competing for a limited share of the domestic market, an organization can use international trade to target similar foreign markets with less competition.
Over time, lessons learned in the international market could help a company establish a stronger national presence.
7. Better use of natural resources: International trade helps every country make the most of its natural resources. Each country can concentrate on producing the things best suited to its resources. There is no waste of resources.
8. Accessibility to a wide range of goods: It allows a country to receive things it cannot create or produce due to higher costs by importing them at reduced costs from other countries.
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Disadvantages of international trade
1. Inconvenience of Customs and International Shipping Duties: Shipping packages to virtually anywhere in the world is simple with international shipping companies. However, one of the disadvantages of international trade is that the majority of customs authorities in these destination countries levy additional charges on goods sent to them. Although each government sets its own rates and taxes, they are often based on the value of the goods being shipped (item, insurance plus shipping).
The description of the item may also impact these charges, depending on its composition and usage. A company needs to know how much the international shipping service will pay the end customer for the amount of their merchandise.
This number is also known as “landed price.” For larger shipments, some carriers may not be cost effective. Businesses can hire freight forwarding companies to help save money and deal with the paperwork that comes with it.
2. Language barriers: Despite the existence of translators on the Internet, language remains one of the main obstacles to international trade. Although translation technologies can be used to create instructions and communications in a different language, they are not without flaws.
There are many examples of mistranslated products with names that have been misinterpreted into another language on the market. Consider hiring a marketing firm in the targeted area or region to review all company documents before launching the product or service.
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3. Cultural differences: One of the main disadvantages of international trade is that cultural differences are often overlooked. Unwritten business norms exist in the country that are hard to uncover and even harder to solve.
In Western societies, for example, the word “yesusually denotes agreement. However, in some Eastern cultures it may imply that the person understands but does not necessarily agree with what you are saying. When I visited India, I noticed individuals turning their heads to the side to indicate “yesand up and down to indicate “Nopewhich is the opposite of what these gestures represent in Western cultures.
4. Customer Service: How will international consumers be served once they have made a purchase while they are so far away? To remedy one of the fundamental drawbacks of international trade, linguistic and cultural differences must once again be recognized.
Your organization should be prepared to communicate with these consumers in different time zones, preferably in their native language, from the outset. If you don’t have the resources to staff around the clock, set expectations for when you’ll get a response upfront.
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5. Return of products: Because not all foreign customers will be satisfied with a company’s products, a mechanism for returning and processing a refund must be in place. Although credit cards and online money tools have made the financial side of the equation easier, the actual return shipping can be just as complicated and expensive as it used to be.
A business must consider how a product will be returned and who will pay the shipping costs. Companies sometimes offer a refund to the consumer rather than requiring the return of the item because the cost is too high. Every company should plan their return policy in advance.
6. Intellectual Property Theft: The greater the reach of a product, the more likely it is to be illegally copied by a competitor. This can take the form of confidential data or branding.
It is extremely difficult for a company to sue when there are international borders. Copyright in the United States, on the other hand, can help protect a company if the country where the product is sold has signed an international intellectual property treaty. Some countries also have their copyright and trademark protections which may be registered to protect businesses selling goods in their own country.
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With proper market research and an understanding of foreign cultures, the pros and cons of international business can be effectively managed. In every trade deal, there will always be some brands and companies that will thrive more than others. The goal should be to assess these essentials to fully understand what to expect and accurately determine levels of participation.
Edeh Samuel Chukwuemeka ACMC, is a law student and certified mediator/conciliator in Nigeria. He is also a developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is determined to change the legal profession by creating web and mobile applications that will make legal research much easier.