What Are the Pros and Cons of International Trade?

When you head to your favorite shop in town, you may not realize that the purchases you make effect communities far from where you live. If you buy foods, clothing, books and toys that aren’t manufactured in your area, you benefit not only the store which carries them but the corresponding companies that produce the goods you use daily. For decades, our relations with foreign nations have shaped the way people here do business, yet in recent times the call to support local farmers and manufacturers has gained strength. As a consumer, it’s good to know the pros and cons of international trade as they effect you, your community, and the country.

Does trade with other nations hurt or hinder domestic economy? The novice student of international relations will be aware of which countries do well importing into and exporting from the Americas, while domestic workers may charge that foreign industries take away jobs. There are pros and cons to global industry, some of which are detailed here.

Pros of International Trade

  • Trade may offered goods and services not readily available through domestic or local distributors. There are certain plants, produce, and resources indigenous to foreign countries that we may not be able to make here. Even if it is possible, product quality may be better in the imports brought into the States. While it is nice to enjoy wines grown in California and Virginia, for example, some varietals of grape grow best in Italy and France, so if you want them you will need to connect overseas.
  • Some foreign imported goods may come at a better price in the long run. Even with shipping and transportation costs, some products may be ordered at affordable rates, depending on what you want. If that particular manufacturer is able to create bulk numbers in a reasonable time, domestic businessmen may benefit more.
  • Trade connections can increase awareness of and interest in American products. The more businesses deal with outsiders, the lines of communications are open to sell products as well as buy.

Cons of International Trade

  • Perhaps the biggest obstacle to overcome, speaking of lines of communication, is the language barrier. When dealing with distributors in countries where English is not a main tongue, one can become frustrated by such roadblocks. This in turn could lead to problems with delivery and orders.
  • Natural disasters and international conflicts may cause delays and breakdowns in supply chains. Retailers who previously bought coffee from Haiti and products from Japan likely had to rearrange their inventories until both countries are fully operational again.
  • As mentioned briefly above, domestic employment factors into trade as well. Jobs may not be completely lost to other countries, but many workers may find they need to alter their lives to suit changes in the economy.

One can see both sides of international trades – the benefits and challenges. How you make global business relations work for me depends on what you need, where your market is, and how you can overcome obstacles that threaten your business.

How To Fund International Trade And Overseas Businesses

International trade is one of the best ways to better your company’s bottom line, but breaking into an international market requires time as well as resources. You need to do a thorough research into the feasibility of selling to a particular local market, as well as scout for funds. This article discusses some ways to finance overseas business.

International Trade Loans:

The Small Business Administration in the US has many funding programs for businesses that want to break into the international market. You can borrow loans for investing in real estate or equipments from the SBA.

Export Working Capital Program:

Export capital working program help you translate your export ideas into reality. The program finances labor and supplies, and finances the receivables generated from the retailing of these materials.

Confirming Houses:

Confirming houses are lending institutions that finance small businesses by lending money in addition to what banks may lend. The services of confirming houses are generally related to cash loans and letter of credits to those who wish to open an office overseas. Confirming houses are also useful in helping in transportation, and provide transportation costs on a per project basis.

Confirming houses should not be your primary source of funding, but they can help in smaller matters like rentals, moving goods to another location etc. Apart from interest on the loan provided, confirming houses also require some sort of fee.

Invoice Discounting:

Through the invoice discounting facility, financiers can buy and discount trade debts of corporations. The credit is lent based on receivables, not assets of the corporation. Invoice discounting is an ideal way of getting short-term loans. The loan is sanctioned almost immediately, making it a great source of funds when you need funds immediately. The amount you can borrow under invoice discount depends on sales volume.

Factoring:

Another source of funds for overseas business is factoring. Factoring refers to purchase of company’s receivable by the purchaser as soon as possible. This creates a continuous cash flow. The major advantage of factoring is that while the purchaser is responsible for the credits to the company, he or she does not interfere in the management of the company. Unlike other kinds of financing, factoring does not involve loans, but direct purchasing of receivables to provide funds to the company.

These are just some ways to finance international trade ventures; you can also look into the possibility of grants, venture capital and joint ventures with local companies. If you need more information on how to fund international trade and overseas business, you can consult a small business advisor.