Avoiding the Risks of International Business

One of the biggest motivators for starting a small business is to venture beyond your home country and make it big by expanding new products and services. For example, you might create a company that fuses elements of your culture, heritage, language, and technology and want the world to see and use your product. But how can you know how to avoid the risks of international business? Read more to find out.

What Is International Business?

International business is exactly what it sounds like: any business involving two or more countries. For example, if you're an American company that produces toys in China and sells them in Europe, you have an international business. If you're a Brazilian company that imports industrial parts from the U.S. and sells them to companies in your own country, you also have an international business.

You can conduct international trade in several ways. You might export products from your home country to other nations. Or you might import products from another nation, which requires buying goods from manufacturers abroad and selling them at home. In some cases, a company will do both exports and imports—this is called foreign trade.

The Growth of International Business in the Twentieth Century

International business has been around for centuries, but it didn’t take off until the nineteenth century. Fast forward to the twentieth century, and global trade is flourishing. Here are some of the main reasons for international business growth.

New World Order

The first world war ended in a lasting peace between countries regarding trade. For example, the United States and China have been at peace since 1949. The new world order was created after the second world war, including the United Nations and numerous regional alliances such as NATO, SEATO, and ASEAN. This new order promoted international commerce and global peace.

Increased Use of Technology

Technology development also made it easier for companies to expand across borders. Shipping container technology, for example, allowed goods to be transported faster and cheaper — a considerable benefit to international businesses that needed to move large quantities of goods quickly.

And advances in communications technology made it easier for people on opposite sides of the world to communicate. This was especially important when it came time to negotiate contracts or resolve disputes between partners in different countries.

Benefits of International Business

More Customers

The main benefit is that you will have more customers, and you will be able to get people from all over the world to buy your products. At first, this might seem like a bad idea because then you will have to ship worldwide, which could cost a lot of money. However, as long as your product has enough demand in another country, then it will be worth it for you in the end.

More Sales

The obvious benefit is getting higher sales and revenue by selling to a broader market. By expanding your reach, you'll attract new customers and reach untapped markets that can increase your sales. You may even have the opportunity to become a significant player in a new market, especially if there's not already a lot of competition.

Ability to Scale Your Business

As you expand into new countries, you'll also be able to take advantage of new opportunities such as better tax rates or manufacturing locations that can lower your costs and give you more revenue per sale. You may also find ways to cut overhead costs by taking advantage of cheaper labor in another country, which means more savings!

Introduces New Goods and Services

When countries trade with each other, they get access to new goods and services they didn't have before. When people in different countries start trading, they start learning about new cultures, which will enrich their lives by allowing them to learn something new.

Risks of International Business

Commercial Risk

Commercial risk refers to the threat that a foreign transaction will have a negative financial effect on your company. For example, if you enter into a long-term contract to purchase goods in another country and the price rises unexpectedly, your company may be forced to pay more than it originally anticipated.

Another example of commercial risk arises when you can't sell the products you bought in that foreign country. The investment you make in those products will not earn a profit, and they could depreciate while they sit unsold.

Cross-Cultural Risk

Cross-cultural risk is the threat that cultural differences between your company and its customers will create unfavorable conditions for business transactions. This type of risk is prevalent among smaller companies that do not have extensive experience working with other cultures. 

Country Risk

Political instability, armed conflicts, and authoritarian regimes can make it difficult for businesses to operate in certain countries. The government could impose new tariffs or seize private assets without warning. This risk is difficult to mitigate because you can't predict how governments will act.

To reduce country risk, use political forecasting agencies to determine if a country's political situation will likely improve or worsen over time. You can also negotiate an exit clause with your partners that allows you to break your contract if the local government begins taking actions that might render your investment worthless.

Currency Risk 

A strong dollar and weak foreign currency might not seem like a risk, but they could create problems when repatriating profits back into U.S. dollars. The current exchange rate might make doing business in the foreign currency unprofitable. You can avoid this by negotiating all contracts in dollars and insisting on dollar-denominated payments from customers.

Working with a Trading Company to Minimize the Risk of International Business

100% Of Export Documentation, Logistics, and Overseas Payment Liability

Working with a trading company to minimize international business risk is an effective way to limit your liability while continuing to expand your global business. A trading company knows trade regulations, laws, and practices in the countries you aim to ship to.

They also handle all export documentation, logistics, and payment, which means that they take care of the shipping, customs clearance, and delivery. Trading companies also have skills in negotiation and foreign languages, which can be helpful for companies selling products overseas. 

Financing and Understanding Foreign Import Requirements

If you're selling a product in another country, it's essential to understand how much money you will have to spend on things like shipping and storage space. This could mean taking out loans or investing your capital into the business in some cases. However, if you're working with a trading company that already has an established presence in the area, they will be able to do this for you while minimizing your risk.

Contracted Shipping Rates and Shipping Consolidation

The shipping cost is always substantial, but when you're dealing with international sales, it becomes even more critical. A good trading company will get you the best rate possible on all of your shipping needs by consolidating orders into one shipment and negotiating deals with carriers over time based on their experience working with them.

Direct-To-Retail Customers

To avoid having your products placed in retail outlets that will not sell them, a trading company will have a list of established relationships with retail chains that have demonstrated their ability to sell your product. This means that you don't have to worry about how to find these customers yourself or whether they'll be able to sell your product once it's in their stores.

Foreign Customer Agreements

A trading company will handle the foreign customer agreements and take care of all the legal aspects of dealing with foreign businesses. This means that you won't have to waste time and money learning about local legal issues in each country where you want to do business.

Marketing, Advertising, Promotions, Trade Shows, Events

A trading company can handle all of these details for you. This frees up your time to focus on running your business rather than spending time on marketing efforts that may not pay off but are required nonetheless.

Working With American Trading International

What is ATI

American Trading International, Inc. (ATI) is a full-service export management company. We develop markets for U.S. manufacturers wishing to sell their products overseas.

For over 20 years, we have been the bridge between U.S. companies and the world marketplace, both in traditional and new industries, always representing our clients' interests with professionalism and integrity. Many of our manufacturers have been with us for more than ten years and are leaders in their respective industries.

If you are a manufacturer looking to grow your business overseas or a customer looking for quality American-made products, please do not hesitate to contact us. We will be happy to help you succeed in achieving your goals.

How ATI Helps Businesses With International Business

If you're looking for new ways to expand your business and learn how to sell internationally, ATI can help. We’ve been helping businesses for over 40 years take advantage of increasing global trade opportunities.

As a small business owner, you need to focus on running your business. That's why we specialize in international shipping and logistics.

ATI has a team of experts with years of experience in international shipping and logistics. We provide freight forwarding, customs brokerage, and cargo insurance. These services make it easier for your business to navigate the challenges of international shipping, such as taxes, tariffs, and border crossings.

Contact us today if you're interested in learning more about how ATI can help your business expand into new markets! Call us today at +1 (310) 445-2000 or fill out our form on the contact us page.

References

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