What Are the Advantages of International Trade? (2024)

      If you're looking to expand your business, have you considered international trade? Depending on your company's stage and scale, it might be worth considering selling overseas. But what are the benefits of taking the plunge to trade internationally, and is now the right time for your business? Read on to learn more.

      What is international trade?

      International trade refers to the exchange of goods or services between countries. The exchanges can be imports, allowing goods and services to be brought into the domestic country, or exports, allowing goods and services to be sold to foreign countries.

      International trade helps countries expand their markets globally by allowing access to goods and services that may otherwise be unavailable or more expensive in other countries.

      10 benefits of international trade

      Maybe you think it's safer to focus on trade on your home patch. But trading internationally may make your business stronger, more successful, and more profitable. Consider some of these potential advantages of international trade.

      Research by American Express found that 51% of UK SMEs currently trading overseas plan to expand to new markets over the next 12 months. The research also revealed that the pandemic has led to over seven in 10, 72%, of SMEs seeking to diversify the markets they trade with.

      1. Increased revenues

      One of the top advantages of international trade is increasing your number of potential clients. Each country you add to your list can open up a new pathway to business growth and increased revenues.

      2. Decreased competition

      Your products and services may have to compete in a crowded market in the UK, but you may find less competition in other countries, where consumers may be more unfamiliar with your products where they live.

      3. Longer product lifespan

      Sales can dip for certain products domestically as consumers stop buying them or move to upgraded versions. Selling a product to an overseas market can extend the life of an existing product as emerging markets seek UK products.

      4. Easier cash flow management

      Getting paid upfront may be one of the hidden advantages of international trade. When trading internationally, negotiating payment terms with vendors may look different. It could be a general practice to ask for payment upfront, whereas at home, you may generally wait longer to be paid. Expanding your business overseas could potentially help you manage cash flow better.

      Managing your small business' cash flow alongside vendor and supplier payments can be a tough balancing act - especially when the end of the month draws near and bills are due. With an American Express® Business Platinum Card you get up to 54 days to clear your Card balance, giving you more flexibility in your cash flow¹.

      What’s more, the Platinum Card also comes with a complimentary annual digital subscription to The Times, worth £312 per year, allowing you to keep up-to-date with the latest economic outlook, UK supply chain trends and international trade on the whole.

      5. Better risk management

      A significant advantage of international trade is market diversification. Focusing only on the domestic market may expose you to increased risk from economic downturns, political factors, environmental events, and other factors. Becoming less dependent on a single market may help mitigate potential risks in your core market.

      6. Benefiting from currency exchange

      Companies that conduct international trade may benefit from currency fluctuations. For example, when the British pound is down, you may be able to export more as foreign customers benefit from the favourable currency exchange rate.

      You can also benefit from currency conversion. Let's say you do business in the EU and the euro is strong against the pound. When you convert the payments in euros against a weak pound, that means more pounds for your UK head office. This alone could be one of the most valuable advantages of international trade.

      7. Access to export financing

      Another advantage of international trade is you may be able to leverage export financing. This is where a business might finance the purchase of capital goods through a sovereign loan agreement, which is then granted to the importer. If you’re a business looking into trade financing, the UK Export Finance page is a good place to start [1].

      8. Disposal of surplus goods

      One of the advantages of international trade is you may have additional outlets to dispose of surplus goods you can't sell in your home market.

      9. Enhanced reputation

      Success in one country can influence success in other countries, which can raise your company's credibility abroad and at home. This is one of the advantages of international trade that may be difficult to quantify and, therefore, easy to ignore.

      10. Opportunity to specialise

      International markets can open up avenues for new services or products to serve that market.

      Being exposed to the realities of the world outside your home base may spark innovations, upgrades, and efficiencies for your existing products and services.

      Factors impacting international trade

      The pandemic, Brexit, and price increases in food and energy due to conflict in Europe have undoubtedly made it a more volatile time to trade internationally. The World Trade Organisation (WTO) predicts a significant slowdown in global trade growth, partly caused by higher interest rates to control import demand [2].

      Despite these challenges, there are some positive signs. Data shows that trade with non-EU countries has been increasing, indicating that some UK businesses have not been deterred by economic uncertainty [3].

      Assessing if international trade is right for your business

      Understanding the benefits of international trade can help your business grow and thrive. You can assess the right time to expand based on your business goals and results.

      If you need help deciding whether you're ready to partake in international trade, it might help to review the resources at UK Export Finance.

      1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.

      Sources:

      [1] UK Government, UK Export Finance, 2023

      [2] World Economic Forum, Trade: 6 things to know about international trade this month, 2022

      [3] ONS, UK trade: April 2023, 2023

      What Are the Advantages of International Trade? (2024)

      FAQs

      What Are the Advantages of International Trade? ›

      International business allows companies to expand their markets and reach a global customer base, increasing their potential for growth and profitability. It also facilitates the transfer of technology, knowledge, and resources between countries, contributing to economic development.

      What are the advantages of international business? ›

      International business allows companies to expand their markets and reach a global customer base, increasing their potential for growth and profitability. It also facilitates the transfer of technology, knowledge, and resources between countries, contributing to economic development.

      What is the primary benefit of international trade? ›

      Availability of different types of goods and services – One of the major benefits of international trade is that it enables a country to obtain goods and services that it is unable to make on their own due to lack of resources or higher costs of production.

      What are the benefits of international trade for the US? ›

      In addition, international trade helps U.S. households' budgets go further. Because our trading partners also specialize in the goods and services for which they are relatively more productive, the prices of those goods and services in the United States are lower than if we could only consume what we produce.

      What are the advantages of internal trade? ›

      Advantages vs. Disadvantages
      AdvantagesDisadvantages
      1. The sharing of resources1. Natural resource depletion
      2. The diversity of products2. The decline of domestic industry
      3. The promotion of the concept of the global village3. The loss of, or promotion of, cultural identities
      3 more rows

      What are the pros and cons of international trade? ›

      Countries that export often develop companies that know how to achieve a competitive advantage in the world market. Trade agreements may boost exports and economic growth, but the competition they bring is often damaging to small, domestic industries.

      What are the advantages and disadvantages of international markets? ›

      Competing in international markets involves important opportunities and daunting threats. The opportunities include access to new customers, lowering costs, and diversification of business risk. The threats include political risk, economic risk, and cultural risk.

      What are three 3 advantages of international trade? ›

      Beyond the modern conveniences of technology and the delicious food and drink imported from around the world, international trade creates job opportunities, contributes positively to the economy, offers multiple paths for companies to grow, and even helps to improve relationships between countries.

      What is a side benefit of international trade? ›

      Better Risk Management

      A significant advantage of international trade is market diversification. Focusing only on the domestic market may expose you to increased risk from economic downturns, political factors, environmental events, and other factors.

      Which of the following are benefits of international trade? ›

      A more efficient allocation of resources. A higher level of material well-being. Gains from specialization. Promoting competition.

      Why is international trade good? ›

      Trade contributes to global efficiency. When a country opens up to trade, capital and labor shift toward industries in which they are used more efficiently. That movement provides society a higher level of economic welfare.

      What are the positive effects of international trade agreements? ›

      Trade agreement are beneficial because they do the following:
      • Mitigate geopolitical and trading barriers.
      • Encourage investments.
      • Improve economies.
      • Create jobs.
      • Expand the variety of goods available.
      • Enhance the standard of living.

      What is a benefit of international trade Quizlet? ›

      Benefits of international trade: Consumers benefit with high-quality goods at lower prices. Producers improve profits be expanding their operations. Workers benefits with higher employment rates.

      What are the three major benefits of trade explain briefly? ›

      Trade is critical to America's prosperity - fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services.

      What advantage is the type of advantage that matters for international trade? ›

      Comparative advantage is used to explain why companies, countries, or individuals can benefit from trade. In the context of international trade, comparative advantage refers to the products that a country can produce more cheaply or easily than other countries.

      What are the five most common barriers to international trade? ›

      The main types of trade barriers used by countries seeking a protectionist policy or as a form of retaliatory trade barriers are subsidies, standardization, tariffs, quotas, and licenses.

      What are the three reasons for international business? ›

      Key Takeaways

      The five main reasons international trade takes place are differences in technology, differences in resource endowments, differences in demand, the presence of economies of scale, and the presence of government policies.

      What are the pros and cons of global business? ›

      Globalization is facilitated economically by free trade agreements, which permit barrier-free imports and exports across borders. While globalization brings many advantages—including lower prices and higher standards of living to some—it also has drawbacks, including wealth concentration and cultural homogeneity.

      What is the advantage of international business communications? ›

      Improved customer service and relationships

      One of the many benefits of great international business communication is that it leads to improved customer service and stronger relationships.

      What is the comparative advantage of international business? ›

      Comparative advantage is an economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. Comparative advantage is used to explain why companies, countries, or individuals can benefit from trade.

      References

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