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Why do companies engage in international business and trade?

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International trade and business refers to the exchange of goods and services (imports and exports), knowledge, technology, and capital between at least two different countries. Global transactions can span all manner of business activities, from sales and research to development, manufacturing and distribution.

International business, trade and supply are currently undergoing significant transformation resulting from factors including the ongoing rise and evolution of e-commerce, a shift towards sustainable business practices, new approaches to venture financing, and challenging, unpredictable geo-political and economic environments.

Global trade growth is slowing according to the World Economic Forum. In this context, are there still tangible benefits for businesses seeking to operate internationally? What options are available to them? And what are the upcoming trends business leaders should keep an eye on?

What are the benefits of international business and trade?

Who do companies choose to pursue international expansion?

78% of respondents in FedEx’s Trade Index Report 2021 cited international business as a route to new opportunities and job creation. For those considering whether to expand beyond domestic markets and ‘go international’, it’s worth evaluating what it could mean in terms of increasing business growth, resilience, competitive advantage and the overall bottom line.

Some of the most common reasons behind a move to internationalisation and expansion into foreign markets include:

  • extending the life cycle of a product or technology
  • reducing business costs by outsourcing larger-scale production at lower costs, for example in developing countries (driving economies of scale)
  • seeking resources such as raw materials or technologies unavailable in the home country
  • growing market share by tapping into new markets and customer bases when existing ones are saturated
  • improving brand image, recognition and standing
  • responding to international competition
  • following multinational customers.

American Express lists further advantages to international trade and business.

  • Increased revenues – resulting from entering larger markets and revenue streams.
  • Decreased competition – products and services find a home in markets that aren’t crowded and are warmly received by potential customers in foreign countries.
  • Easier cash flow management – negotiations and payments may work differently, which can lead to money being received upfront.
  • Better risk management – as diversification can reduce dependency on a single market, supply chain or retailer.
  • Access to export financing and foreign direct investment (FDI) – can increase available financing opportunities
  • Disposal of surplus goods – due to additional avenues through which to sell goods and services.
  • Benefitting from currency exchange – currency value fluctuations can work in your favour and allow you to reap the rewards of favourable exchange rates.

Operating in international markets may also open up additional investment opportunities, service and product development incentives, partnerships and collaborations, variations to business models, career and professional development, and cultural differences and exchanges resulting in improved goods or ways of working.

Who are the key stakeholders in international business?

Stakeholders are individuals or organisations whose interests may be affected – either positively or negatively – by what another individual or organisation does. The number of stakeholder groups typically increases when domestic businesses move into global markets. 

Depending on the business, stakeholders typically include employees, competitors, interest groups, governments, non-governmental organisations (NGOs), suppliers, shareholders and investors. Conducting a stakeholder analysis helps to identify and determine the relative importance of key people, groups, and institutions that may have significant influence over your planned projects, activities or wider business ambitions.

What are the different types of international business?

Running a global business – even if you’re a relatively small business – can be incredibly lucrative, offering ways to achieve both short-term and long-term business objectives. For business leaders in the process of developing or refining their international strategy, it’s critical to understand how best to drive growth in overseas markets and shore up success beyond domestic borders. This might involve thinking about how an existing business model might need to adapt in order to drive the most growth.

For example, there are various methods international and multinational companies use when conducting business in different countries and markets. These include importing and exporting, outsourcing, franchising, offshoring, and launching joint ventures with international partners.

What are the latest trends and developments in international trade and business?

HSBC lists some of the key trends in international business including the growth of trade in services, a revolution in supply chains, embedded financing and more. Let’s look at these in more detail.

  • Growth of trade in services. Services account for approximately a fifth of the estimated $32 trillion value of global trade. As a significant proportion of total global trade, services show no signs of slowing – particularly in relation to digitally delivered services. Leaders who can embrace and adapt to changing service dynamics – for example, by harnessing digitally enabled services and developing ancillary services – are likely to be victors in the long-run.
  • Supply chain revolution. Leaders must re-evaluate traditional supply chain models. HSBC points to ‘re-shoring, near-shoring and friend-shoring’ as methods that will become increasingly widespread to increase business resilience. Above all, supply chains must be organised in a way that promotes flexibility, transparency, agility and sustainability, and feature less reliance on outdated modes that leave them exposed to vulnerabilities.
  • Embedded financing. Leaders should consider embedding financing into their business operations, alongside encouraging digitisation and direct-to-consumer models. This new method of boosting revenues could offer lucrative new sources of revenue and support wider international strategy.

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