Going Global: The benefits of international trading

International trading is often perceived to be confined to the realms of large businesses, but there can be generous benefits for small and medium sized enterprises too. International business can create avenues of opportunity previously unattainable in domestic markets.

Before starting out

To ensure that your objectives are realistic, in-depth market research is essential. You should consider the following key areas:

• levels of demand in your intended market
• your competitors
• your business’s current performance
• tax and legal obligations.

 

What are the potential benefits of trading overseas?

Increased market share – expanding your customer base offers the opportunity to improve financial performance and greater potential for long-term growth

Lower production costs – entering into a larger international market should result in greater economies of scale, which could also benefit your domestic business

Spreading the risk – dispersing business risks across a wider area could lead to greater resilience in times of difficulty

Increased product lifespan – selling items that are near maturity at home to an international market, which will result in additional resources for creating new domestic products. Excess products not selling in the domestic sphere can also be sold abroad without lowering their cost.

What does it involve?

Understanding your new market

You must ensure that you are aware of the cultural and commercial differences between the UK and your intended market. This is important to ensure the best possible marketing success. Think about employing an interpreter or investing in some language training, and try to steer clear of idioms that may not be understood abroad.

Sales

You can take a number of approaches to selling your product or service abroad, including:

Using a foreign distributor – who will take title of your goods once the sale is completed and will then be responsible for any profit or losses made. This is a popular option with many small exporters.

A sales agent will sell the products on your behalf, leaving you responsible for profits and losses. The sales agent will charge commission to sell your goods.

A joint venture with a local business is another option but these can be both complicated and costly, as can setting up your own premises in that country.

Logistics

Clarification on issues such as responsibility of transportation of goods, insurance, duties and customs clearances are essential. Draw up an incoterm, a standard trade contract covering the purchase and shipping of goods internationally. Most businesses use a freight forwarder to organise shipments – look for one who frequents the country you are exporting to. Remember to consider how you will package and label your goods for transportation.

Pricing and getting paid

If your products or services are pitched at the wrong level, it could mean losing money unnecessarily, or failing to secure business contracts.

Many exporters convert the domestic price of their product into the currency of the foreign country, but it is important to remember the domestic competition you face there too. The price of your goods should be based on cost, competition and demand.

When trading in an international market, there is an increased risk of late or non-payment. Payment terms should always be agreed and credit checking carried out in advance, to eliminate any issues. Insurance should also be taken out in case anything goes wrong.

You will need to have a long term plan in place, as returns will not always be seen straight away. Financial investment and an increase in your workforce may be required. We can help you develop your strategy and then produce detailed financial forecasts and budgets.

Contact us for guidance on the best course of action for you.

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