International Trade Basics

International Trade Basics

Trade exists because one group or country has a supply of some commodity or merchandise that is in demand by another. Although trade between cultures and countries has existed for millennia, advances in technology have made international trade more accessible. Perhaps for this reason, even small business owners are looking to foreign shores to boost revenues.

The numbers tell the story. U.S. Department of Commerce reports reveal that in 2010, imports accounted for nearly $2,329.7 billion in goods and services, while exports hit $1,831.8 billion in products. Total trade activities spanned 240 partner countries.

According to the U.S. Census Bureau the top 10 nations with which America trades (in order of largest import and export dollars to smallest) are:

  • Canada
  • China
  • Mexico
  • Japan
  • Germany
  • United Kingdom
  • South Korea
  • Brazil
  • Taiwan
  • Netherlands

Resolving Differences

While the Internet has forged new pathways in international trade, challenges for small business owners continue to exist. Fortunately, technology makes some of these easier to manage.

  • Language. Your web site may be formatted in English, but not everyone speaks the language. Consider offering online translation options; and publish marketing materials, instructions and warranties in the language spoken by your primary foreign market.

    While translation software is available, results can be a bit quirky. Think about hiring a translator to do the job, or at minimum, check what your program already has translated. Your professionalism is on the line, so you want to avoid misunderstandings as much as possible.

  • Payment: Although you can require that all payments utilize U.S. dollars, you’ll probably be dealing with different currencies. For this reason, it’s important to know current exchange rates. A daily update is posted on the on the IRS web site (www.irs.gov), and several sites will calculate exchange rates for you.

    You may want to use a service that offers global payment options such as PayPal (www.paypal.com) or the Federation of International Trade Associations Global Payment Services (www.fita.org/payments.html) to ensure smooth and timely transactions.

  • Shipping: Not all carriers ship everywhere, and some have weight and size limitations. Attractive rates are available to some areas but not to others. Do your research to find the best options.

Cultural Clashes

Another big difference between doing business domestically and internationally lies in cultural diversity. Research has suggested that some American companies fail because their owners and employees don’t adapt their behaviors to accommodate these distinctions. Here are some guidelines that will help you avoid embarrassing gaffes when conducting international business.

  • Build a relationship before you get down to business. Getting to know your customer or vendor first can facilitate commercial transactions later.
  • Don’t impose time limits. Americans are inclined to watch the clock, but other cultures may treat time more casually. Keep the schedule loose and flexible to reinforce your negotiating position.
  • Study your market. Learn at least a few facts about your trade partner’s country, and memorize some basic words and phrases. This demonstrates respect for your colleague’s cultural heritage.
  • Get acquainted with the national etiquette. Some nations frown upon hand-shaking, hugs and other American customs, as well as too much informality in business settings. Play it safe and exercise restraint.
  • Bring your own interpreter. A translator you hire will more likely work for your best interests.
  • Dress professionally. If your colleague’s country is restrictive for religious reasons – requiring head coverings on women, for instance – you should know what is expected – or accepted – from foreign visitors.

Getting Started

Expanding your business to global markets can be rewarding, profitable and challenging. What’s more, venturing into the international arena can protect you – in part – against the decline in domestic markets, as well as significantly improve your overall growth potential. Most international business development experts suggest starting the process systematically:

  • Prepare an international business plan to evaluate your needs and set your goals. This will assess your readiness and commitment to grow globally.
  • Identify international markets. The Department of Commerce (www.commerce.gov) is an excellent source of information on foreign markets for U.S. goods and services.
  • Evaluate and select methods for product distribution. These range from opening company-owned foreign subsidiaries to working with agents, representatives and distributors, and setting up joint ventures.
  • Learn how to set prices, negotiate deals and navigate the legal morass of exporting. Cultural, social, legal and economic differences make exporting a challenge for business owners who have only operated in the United States.
  • Assess the best way to collect payment. Fortunately, the government’s interest in boosting exports, coupled with centuries of financial innovation, has expedited fiscal processes.
  • When you’re ready to ship, make sure you package and label products in compliance with your target market’s regulations. While the globalization of transportation systems helps, regulations still differ from region to region.
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