Go big or stay home: Trading internationally

When we hear the phrase "small business," we typically think of products or services made or delivered by locals, for locals. Supporting local economies is undeniably a vital function that many small enterprises perform, but could it be worth business owners' while to broaden their horizons? Let's take a look at some of the arguments for and against taking your business offering overseas.

Run the numbers

Before we dive into the pros and cons of trading outside of the United States, it may be useful to have a look at some relevant percentages for context. As Webretailer explains, just under 4% of American companies trade globally. That's less than half of European small businesses.

Interestingly, the vast majority of American exporting organizations can be classified as small or medium, according to the Department of Commerce. Combined, those businesses account for a third of the country's international trade. Even so, the country ranks 39th out of the world's 40 biggest economies in terms of gross domestic product derived from exports, per US News.

So, should more small businesses be jumping aboard to sail international waters?

It makes good financial sense

Small business owners who may be hesitant about the risks involved in trading globally would do well to remember that 70% of the world's purchasing power is outside America. There are just shy of 332 million people in America, and another 7.7 billion outside the country's borders. That means a huge untapped market that could possibly result in a brand new revenue stream.

As Score explains, a study conducted by American Express found that four in five businesses said their profit margins increased dramatically just a year after going global. So much so, that international trade now comprises roughly a quarter of those companies' annual sales.

International exports could be a boon to your business.

The U.S. government has recognized this untapped potential for the American economy. According to the DoC, no fewer than 20 new trade agreements have been negotiated to capitalize on this opportunity. These deals have effectively eliminated many trade barriers, such as foreign tariffs, that would've previously discouraged local businesses from considering other pastures.

Furthermore, selling overseas has never been easier.

In previous years, sellers would have had to find, build and leverage a network with connections abroad. Now, sites like eBay and Etsy make it much simpler to take your product to an international audience. For a nominal fee, smaller enterprises can reach buyers anywhere in the world.

Another bonus to note is that a product might not sell in America, but it could be hugely popular overseas. As Ecommerce Fastlane explains, palates and other trends are always changing. What may not work in one country, or at one point in time. could be a huge success in or at another.

It's not worth it

If selling overseas sounds too good to be true, there are some people who will argue that's because it is.

The primary deterring factor to taking business abroad is a logistical one: There might simply be too many hoops to jump through. Each country has its own importing and exporting rules and regulations, which can make logistics infinitely difficult.

Then, there's the concern that even after making it past all the red tape, overseas consumers simply might not purchase the product. Perhaps a foreign country already has a local product on the market that American competition can't beat, having made the entire export process an exercise in futility.

Some advisors, like Jim Schleckser, believe it's best to exhaust every avenue domestically before going abroad. The return on investment will likely always be too low overseas, and factors like exchange rates and local markets only contribute to more instability and uncertainty amid an already risky venture. Language and cultural differences could also be an issue in cases where negotiation is required.

Then, businesses have to account for laws in countries overseas pertaining to product testing. If you manufacture soaps in America, for example, you may not be able to sell them in China without testing them there according to their legislation. Needless to say, that would be an exorbitantly expensive undertaking. Other goods might require costly modifications to meet local standards.

At the end of the day, there's no quick and easy answer to whether you should expand your business into international markets. Fortunately, the legal experts at Donald W. Hudspeth, P. C. are well-positioned to advise you on any potential business undertakings.

Reach out to us for business law advice today!

Categorised in: Arizona LLCs, Business Law, International Business Law, Starting a Business in Arizona

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