6 Disadvantages of International Trade

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The global economy has made it easier than ever to ship products or sell a service almost anywhere in the world. Overnight shipping, e-commerce, language translators, and established international marketplaces have made overseas customers accessible to businesses of all sizes, potentially increasing demand for their products or services and helping to lead to profitable growth. 

However, international trade can be a double-edged sword. Navigating its complexities, such as customs regulations, language barriers, and cultural differences, can strain a company’s resources and limit its ability to scale. Supply chain disruptions, growing tariff tensions, currency fluctuations, and challenges in finding reliable international partners can all add to the potential disadvantages of international trade. 

As small businesses weigh the pros and cons of expanding globally, they may need a clear understanding of the following potential demerits of international trade.

1. Disadvantages of International Logistics and Customs

While international shipping companies can deliver your goods worldwide, it’s not always smooth sailing. The past several years have witnessed numerous bottlenecks on critical shipping lanes, which are expected to continue to disrupt shipments, making their costs unpredictable for the foreseeable future.

Another disadvantage of international trade is that some destination countries charge tariffs and other fees on items shipped to them. While each government determines the duties and fees differently, they may be calculated on the value of the products sent (item, plus insurance and shipping). 

As a result, a company should understand international shipping charges and customs duties in addition to the cost of its product. This calculation is sometimes referred to as the “landed cost.”

Currency fluctuations and trade tensions can further complicate the calculation of landed costs and ultimately impact the price the customer pays. A strong U.S. dollar can make American goods more expensive in foreign markets. When countries try to protect their markets or retaliate against trade partners, they may impose new tariffs with little warning. 

Companies can research global trading strategies to develop a clear understanding of the potential impact of tariffs and currency fluctuations, while working with a good freight-forwarding company to help make shipping more economical and handle the complicated customs documentation required.

2. International Trade 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 may not be foolproof. Misunderstandings arising from language barriers can lead to confusion in contract negotiations, potentially resulting in lost deals or unfavorable terms for small businesses. 

International trade can be a double-edged sword. Navigating its complexities, such as customs regulations, language barriers, and cultural differences, can strain a company’s resources and limit its ability to scale.

Language barriers can also impact a company’s ability to effectively market to foreign customers. Examples abound of poorly translated products with names that got misconstrued in another language.

Small businesses looking to expand into international markets should be prepared to invest in language training for their staff and partner with local experts to overcome these disadvantages of trade. For instance, consider working with a marketing agency in the targeted country or region to review all materials before launching a product or service. This extra step can help ensure that your message is accurately conveyed and resonates with the local audience, reducing the potential for misunderstandings that could harm your brand’s reputation and hinder your success. 

3. Cultural differences

One of the major disadvantages of international trade is that cultural differences may not be well-documented, leading to unwritten rules of commerce that can be difficult to uncover and navigate. 

For example, in Western cultures, the word “yes” typically signifies agreement, while in some Eastern cultures it may simply mean that the person understands what you are saying but does not necessarily agree. Failing to recognize such differences in communication can lead to misunderstandings and missed opportunities in international business dealings. To help mitigate these risks, businesses can invest in cultural training for their employees and seek out local partners who can provide guidance and insight. Consider conducting solid due diligence on any potential partner – starting with a small-scale project, for example – and developing an exit strategy in case of poor performance.

4. Servicing International Customers

After international customers make a purchase, how will they be serviced when they are so far away? Again, language and cultural differences can pose significant challenges in delivering effective customer service, which can be one of the major disadvantages of international trade.

For example, if a customer in Japan purchases a product from a U.S. company and encounters an issue, they may expect 24/7 support in their native language. If the U.S. company does not have Japanese-speaking support staff available around the clock, the customer may become frustrated and dissatisfied. This can lead to negative reviews, damaged reputation, and lost future sales.

To overcome these hurdles, companies engaging in international trade should be prepared to communicate with customers across different time zones, preferably in their native language. If a business is unable to provide 24/7 support, it can be essential to set clear expectations up front about when customers can expect to receive a response to their inquiries.

5. Returning Products

Since not all international customers will be satisfied with a company’s products, a process should be in place to return items and process a refund. While the money side of such processes may have become easier, the physical return shipment can be just as complicated and costly as it ever was.

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. Every company should establish its return policy and plan reverse logistics far in advance.

6. Intellectual Property Theft

The wider a product is distributed, the more likely it may be that its illegally copied by a competitor, which is one of the significant downsides of international trade. This can be in the form of stolen proprietary information or market branding. Intellectual property (IP) theft is a growing threat to businesses of all sizes, in all industries, all around the world.

To help mitigate the risks of intellectual property theft, businesses can implement data security best practices, such as using strong passwords, encrypting sensitive data, and limiting access to confidential information. Additionally, companies may want to consider working with legal experts who specialize in international IP law to develop strategies for protecting their assets in foreign markets.

A More Comprehensive View of International Trade

Although the drawbacks of global trade can be significant, particularly for small businesses, many companies still engage in global trade because the benefits can often surpass the challenges.

International trade can allow businesses to access new markets, diversify their customer base, and potentially increase their revenue streams. By expanding into foreign markets, companies can also take advantage of economies of scale, reducing their production costs and increasing their competitiveness both domestically and abroad. Moreover, engaging in international trade can help lead to increased innovation and knowledge sharing, as businesses are exposed to new ideas, technologies, and best practices from around the world. 

To gain a more comprehensive view, read this exploration of the advantages of international trade and how they can offset some of the disadvantages discussed in this article. By weighing both the challenges and opportunities presented by international trade, small businesses can make informed decisions about whether and how to expand into foreign markets, helping to position themselves for long-term growth and success in an increasingly interconnected global economy.

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

Photo: Getty Images

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