Transitioning from domestic to international trade offers many benefits to small- and medium-sized enterprises (SMEs).
However, it's not easy to make that transition. Companies in emerging markets have to face many obstacles and unstable financial and economic landscapes. So how can they overcome these problems?
Why Should Businesses Trade Internationally?
There are plenty of reasons for making the move from domestic to international markets despite the challenges of global trade.
1. Increased exposure
Moving into international markets gives companies the potential to gain global brand exposure. It allows Suppliers to get their name well known and offer products to more Buyers.
Expanding into new markets means that companies can identify 'untapped' regions with fewer competitors, giving them a unique market position.
International trading can often be more cost-efficient than trading domestically.
Suppliers can also form strategic alliances with international Buyers to:
- Improve efficiency;
- offer a broader range of products;
- lower operational costs; and
- increase price points.
Expanding internationally removes some of the financial risks of operating only in a single market, such as exchange rate risk and dips in the domestic economy.
3. Financial support
Domestic Suppliers expanding internationally can receive financial support from governments and external providers. This could include Export Promotion Programmes (EPPs) or producing, importing and exporting goods in 'free trade zones' where no customs taxes or VAT is charged.
Also, institutions willing to finance cross-border trade can provide working capital to businesses that have been rejected for bank loans due to having a limited or poor credit history. Invoice financing, for example, gives Suppliers advances on unpaid invoices and doesn't depend on their credit history.
4. Overcoming existing challenges
Companies can overcome domestic challenges by taking their operations global. They can find markets that allow higher prices to be charged or overcome seasonal fluctuations. For example, a producer of winter clothes can generate year-round demand by trading globally.
Key Considerations Before Cross-Border Trading
The benefits of international trade are clear but there are still potential challenges. These may include the following.
- Cultural or linguistic challenges, where communication and etiquette are different.
- Legal rules and regulations which differ from country to country.
- Business owners with insufficient time and knowledge of overseas markets to make the switch.
- The risk of corruption which leads to distrust in certain markets and can translate into financial losses.
- Lack of support in funding, grants and loans from certain governments.
- Logistical issues like finding enough facilities to stock goods.
- Tariffs and tariff rises, such as the US' Section 232 tax exemption for steel imports.
- Which trade zones and countries have the best legislation in terms of ease of international trade, so as not to incur excessive tariffs on exports.
Overcoming International Trade Challenges
International trade poses financial as well as logistical challenges. For Exporters, offering products and services to international Importers often means working with deferred payments. But many SMEs in emerging markets don't have the financial resources to offer deferred invoice payments, even though it is likely to attract more international Buyers.
Economies have been hit particularly hard due to the Covid-19 pandemic, global price increases and geopolitical tension stemming from the war in Ukraine. Furthermore, tighter global financial restrictions have made it even more difficult for companies trading in emerging and developing economies.
However, Suppliers who navigate these obstacles can see financial benefits like improved cash flow and also accessibility in key markets.
Some final pieces of advice to consider before making that switch from domestic to international trade:
- Have a contingency plan in place.
- Look at ways that costs can be reduced where possible.
- Partner with local agencies or specialists in the emerging markets you're entering.
- Consider working with translators or international trade bodies.
- Ask the nearest Chambers of Commerce what support is available.
If you are interested in learning more about invoice factoring, Stenn has a dedicated FAQ section where you can find more information about our invoice financing services. We also provide videos which explain the company and the financing process in detail.
About the Authors
This article is authored by the Stenn research team and is part of our educational series.
Stenn is the largest and fastest-growing online platform for financing small and medium-sized businesses engaged in international trade. It is based in London, provides financing services in 74 countries and is backed by financial giants like HSBC, Barclays, Natixis and many others.
Stenn provides liquid cash to SMEs within the global financial system. On stenn.com you can apply online for financing and trade credit protection from $10 000 to $10 million (USD). Only two documents are required. No collateral is needed and funds are transferred within 48 hours of approval.
Check the financing limit available on your deal or go straight to Stenn's easy online application form.
© Stenn International Ltd. All rights reserved. Any redistribution or reproduction of part or all of the contents in any form is prohibited other than the following:
- You may copy the content to your website page but only if you acknowledge this website as the source of the material and provide a backlink to this article.
- You may not, except with our express written permission, distribute or commercially exploit the content in any other way.
Disclaimer: The above article has been prepared on the basis of Stenn's understanding of the subject. It is for information only and doesn't constitute advice or recommendation. Whilst every care has been taken in preparing this article, we cannot guarantee that inaccuracies will not occur. Stenn International Ltd. will not be held responsible for any loss, damage or inconvenience caused as a result of anything published above. All those applying for credit should seek professional advice when doing so.