Overcoming The Obstacles Of International Trade

Born of the availability of resources and comparative advantage, trade between countries has existed for centuries. Whether in the context of negotiations and agreements, embargoes or sanctions, international trade continues to dominate economic headlines today.

A common misconception is that, modern international trade is stimulated only by big business; proliferated by the engineering giants and multi-national manufacturers of the world.

Clearly the likes of Walmart, Toyota, Shell and Apple have an essential role to play in facilitating international trade flows between countries, but so do the millions of small and medium sized businesses that link their global supply chains.

These smaller, more agile businesses buy and sell goods and services, create jobs, train employees and generate economic output. They also generate huge social benefits for the local communities they operate within, the world over.

Digital technology is transforming international trade amongst such businesses like never before. Today, at the click of a mouse or the swipe of a tablet, SMEs have access to consumer markets across the world.

Yet, identifying new customers by leveraging the power of technology is not by itself advantageous for smaller businesses. The desire to target new markets or find new suppliers, must be coupled with the ability to finance and transact, and – ultimately – to exchange such goods and services.

Of course not every SME is a business suited to trading internationally. There is a clear distinction between businesses that have the desire to trade overseas in search of their next spurt of growth and those that have propositions suited to such trade.

It’s perhaps for this reason that just 7% of respondents surveyed in our 2017 Global Business Monitor see international trade as a means of growth, compared with more than one in ten (12%) that believe their domestic market is a more viable opportunity.

However, it is likely that the majority of SMEs that are suited to but don’t yet partake in international trade, will see the barriers and threats as too great to overcome. The perceived risks of trialling a new target audience or route to market clearly outweigh the potential benefits for many business owners.

These barriers manifest themselves in a number of guises. While there are range of location-specific factors such as time zones, cultural nuances, border regulations, legal practices, languages and currencies, there are also a set of universal challenges that transcend geography.

These common challenges and concerns are borne out in our Global Business Monitor report.

Barriers to trade

Across the study, SME owners identified the current political situation in the U.S., Brexit and conflict, war or terrorism as the three key issues threatening global growth in 2017.

In relation to their own businesses, almost half (49%) see a shortage of skilled staff as the greatest challenge, followed by rising costs and government red tape. While not specific to businesses looking to trade internationally, such challenges are often the key drivers behind business owners retaining their focus on domestic markets only.

Though less than one in 10 see international trade as a key means of business growth over the next year, foreign exchange fluctuation is seen as the main barrier to trading internationally. In fact, one in five SMEs say currency fluctuations discourage them from expanding globally.

Government regulation is also cited as a key challenge in relation to international trade, supporting World Trade Organisation (WTO) findings pointing to the burden of non-tariff barriers, due to the fixed costs associated.

In its 2016 report entitled ‘Levelling the Trading Field for SMEs’, the WTO also found that a “Lack of, or insufficient access to, finance can strongly inhibit formal SME development and trade opportunities.”[1]

The Global Business Monitor findings highlight a varied financial landscape for SMEs in different countries. Across the study, over one in ten SMEs (12%) have been rejected for finance in the past. While perhaps lower than many would expect, there are significant differences based on geography.

Where just 5% of SMEs in the UK state they have been rejected for finance, this rises to almost a quarter (23%) and a fifth (19%) for their counterparts in the Czech Republic and Poland, respectively.

While more than half (52%) of business owners in Canada would describe the availability of finance as good or excellent, just a quarter (25%) of French SMEs would agree.

It is little surprise that there is not a homogenous a supply of finance for SMEs across the world, but access to specialist working capital can often be the difference between business survival and growth; the transition from national to international business.

A year on from our inaugural study, findings show that there are persistent obstacles preventing many SMEs from importing or exporting.

What is clear, however, is that when SMEs have the right support at their disposal, be it financial, technological or informational, there are opportunities available for them to explore beyond their own shores.
Source: Bibby Financial Services

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