International Trade

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Overview

International Trade can be essentially described as the exchange/transfer of capital, goods, or services across international countries. International Trade is playing an ever-increasing role in globalisation.

Companies that import and export are more productive than those that do not.  They are more likely to survive in a harsh business environment and they regularly achieve enhanced financial results.

However International Trade is a complex and frustrating activity in the early stages of development. If approached in the correct manner it can become a rewarding and profitable part of your business. To expand into International Trade, a cautious step-by-step approach is recommended. The more issues that a company researches before entering a new market, the greater the chance of success.

Developing your company’s International Trade potential – some considerations:

Export or Import?
International Trade can be a two-way enterprise, whether physical goods or intellectual property are your company’s competency.

Company Capability
Does your company have the resources and commitment to export? The two main factors are financial and human resources. Without these, you risk taking focus off the domestic market at the expense of a new development activity. You will need to carefully and professionally analyze your company’s strengths and weaknesses. Conducting a SWOT analysis along with a Capability/Reward matrix is advised.

Which Markets?
This is another crucial decision. Clearly, this will relate very specifically to the product or service you wish to market. Asia, and in particular, India and China, are booming and providing focus and reward for many companies. An initial assessment combined with visits to the identified key potential market is absolutely mandatory. Do not adopt a quick ‘look and see’ attitude – go to the market fully prepared with a set of pertinent and defined objectives.

Market Research
No attempt to import/export should be taken without a full market research study. Your company will be competing against brand leaders in your category. They will have consumer recognition and confidence. The market research study needs to be precisely prepared before embarking on what will be an essential tool in your overall decision to commence the new business.

Sales and Marketing Study
This is another must have. This study focuses specifically on the product or services to be offered in terms of price, features and benefits, advertising spend in the sector and the all important USP(s).

There are many other factors, but the sales and marketing study is at the heart of the project.

Distribution Network
Depending on your products or services, a detailed understanding of the distribution network in the market(s) you are considering is essential. If you choose to go the ‘wholly–owned subsidiary’ route then the business plan produced for the project must be robust as this is a major investment and risk.

However, most companies opt for the distributor route. If your company has been approached by a potential distributor in a target market, then both companies can share the cost of producing the business plan. If the company is seeking a new distributor, then it needs to invest in a Financial Assessment of the proposed distributor. Remember, it is not only the finances, but the ‘chemistry’ between the people in both organizations that is important. A good solid cultural fit with both companies will bode well for success in future.

Export/Import Procedures
Again, an in-depth understanding of these procedures is essential. Every country has its own importing rules. Sometimes these are essentially trade barriers. The EU has made exporting to Member Countries a much simpler process.

Payments, Terms and Conditions
This is a potential minefield and something you must get right first time. Payment disputes adversely affect cash flow.

Company Funding
Entering new markets involves additional short-term expenditure in order to gain long-term benefits.  A Cash Flow Analysis is absolutely essential in a company’s financial decision making process.

Full Business Plan and a Financial Feasibility Forecast
If a company is serious about exporting, then a full study must be conducted ideally using a third party to create and act as an impartial adviser. The business plan should ideally cover all of the above subjects.

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