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. But what are the benefits of taking the plunge to trade internationally, and is now the right time for your business? Read on to learn more.
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, or exports, allowing goods and services to be sold to foreign countries.
International trade helps countries expand their markets globally by 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 patch. But trading internationally may make your business stronger, more successful, and more profitable. Consider some of these potential advantages of international trade.
Research by American Express found that 51% of UK SMEs currently trading overseas plan to expand to new markets over the next 12 months. The research also revealed that the pandemic has led to over seven in 10, 72%, of SMEs seeking to diversify the markets they trade with.
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.
2. Decreased competition
Your products and services may have to compete in a crowded market in the UK, but you may find less competition in other countries, where consumers may be more unfamiliar with your products where they live.
3. Longer product lifespan
Sales can dip for certain products domestically as consumers stop buying them or move to upgraded versions. Selling a product to an overseas market can extend the life of an existing product as emerging markets seek UK products.
4. Easier cash flow management
Getting paid upfront may be one of the hidden advantages of international trade. When trading internationally, negotiating payment terms with vendors may 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 you manage cash flow better.
Managing your small business' cash flow alongside vendor and supplier payments can be a tough balancing act - especially when the end of the month draws near and bills are due. With an American Express® Business Platinum Card you get up to 54 days to clear your Card balance, giving you more flexibility in your cash flow¹.
What’s more, the Platinum Card also comes with a complimentary annual digital subscription to The Times, worth £312 per year, allowing you to keep up-to-date with the latest economic outlook, UK supply chain trends and international trade on the whole.
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 British pound is down, you may be able to export more as foreign customers benefit from the favourable currency exchange rate.
You can also benefit from currency conversion. Let's say you do business in the EU and the euro is strong against the pound. When you convert the payments in euros against a weak pound, that means more pounds for your UK 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. This is where a business might finance the purchase of capital goods through a sovereign loan agreement, which is then granted to the importer. If you’re a business looking into trade financing, the UK Export Finance page is a good place to start [1].
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
Success in one country can influence success in other 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 specialise
International markets can 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.
Factors impacting international trade
The pandemic, Brexit, and price increases in food and energy due to conflict in Europe have undoubtedly made it a more volatile time to trade internationally. The World Trade Organisation (WTO) predicts a significant slowdown in global trade growth, partly caused by higher interest rates to control import demand [2].
Despite these challenges, there are some positive signs. Data shows that trade with non-EU countries has been increasing, indicating that some UK businesses have not been deterred by economic uncertainty [3].
Assessing if international trade is right for your business
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 at UK Export Finance.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Sources:
[1] UK Government, UK Export Finance, 2023
[2] World Economic Forum, Trade: 6 things to know about international trade this month, 2022
