Disadvantages of International Trade

The global economy has made it easier to ship products or sell a service almost anywhere in the world. Overnight shipping, e-commerce, language translators, and established international marketplaces have made this accessible to businesses of all sizes. However, there are several disadvantages of international trade that you may need to be overcome if your company is to be truly successful in these marketplaces.

Here are a few of the disadvantages of international trade:

1. Disadvantages of International Shipping Customs and Duties

International shipping companies make it easy to ship packages almost anywhere in the world.

However, one of the disadvantages of international trade is that most of these destination countries' customs agencies charge extra fees on items shipped to them.

While each government determines the duties and taxes differently, it is typically calculated on the value of the products sent (item, insurance plus shipping). The item description may also affect these fees based on what it is made of or used for.

In addition to the cost of their product, a company needs to understand what the end consumer will be charged by the international shipping company. This is sometimes referred to as the “landed cost."

Larger shipments sent through these carriers may not be cost effective. Companies can seek freight-forwarding companies to help make it more economical or to handle the complicated documentation that is required.

One of the major disadvantages of international trade is that, many times, cultural differences are never documented.

2. Language Barriers

Despite the availability of online translators, language is still one of the major disadvantages of international trade. While translation tools can be used to formulate instructions and communications in another language, they are far from foolproof.

The marketplace is filled with examples of poorly translated products with names that got misconstrued in another language. To solve this, consider using a marketing agency in the targeted country or region to review all the company's materials before rolling out the product or service.

3. Cultural Differences

One of the major disadvantages of international trade is that, many times, cultural differences are never documented. There are unwritten rules of commerce in the country that are hard to uncover and can be even more difficult to solve.

For example, the word "yes," in Western cultures typically means agreement. In some Eastern cultures however, it can mean that the person understands what you are saying, but does not necessarily agree.

When I traveled to India, I found that people would turn their head side to side to mean "yes" and up and down to mean "no" – the opposite of what those gestures mean in Western cultures.

4. Servicing Customers

After international customers make a purchase, how will they be serviced when they are so far away? Again, language and cultural differences need to be considered to overcome one of the major disadvantages of international trade.

Your company needs to be prepared up front to communicate with these customers in different time zones, preferably in their language. If you're not able to staff 24/7, expectations for when a reply will be received need to be set up front.

5. Returning Products

Since not all international customers will be satisfied with a company's products, a process must be in place to return them and process a refund.

The money side of the equation has become easier through credit cards and online financial tools, yet the physical return shipment can be just as complicated and costly as it was originally.

A company needs to think about how a product will be returned and who will pay the cost of shipping it back. In some cases, companies will give a customer a refund and won't require the item to be returned since that cost is too high. I recommend every company thinks their return policy out far in advance.

6. Intellectual Property Theft

The wider a product is distributed, the more likely that it may be illegally copied by a competitor. This can be in the form of proprietary information or market branding.

With cross-country borders, it becomes very difficult for a company to prosecute. However, copyrighting in the U.S. can help protect a company as long as the country where the product is sold has signed an international intellectual protection treaty. Some countries also have their own separate copyright and trademark protections that can be filed to protect companies selling products in their countries.

Finally, there is always a political risk of international trade. Governments and their policies change over time, and sometimes companies can get stuck in the middle with different regulations that may target their sales and customers. This is why it may be good to market products to a geographic region, rather than a single country, to help balance the company's risk.

A version of this article was originally published on March 15, 2018.

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