Articles

Why Businesses in Emerging Markets Should Consider International Trade

February 16, 2022

Many of the benefits of transitioning from domestic to international trade are well-documented. 

But the transition is rarely a simple one. Common roadblocks include linguistic and cultural differences, local legal and financial considerations, inadequate knowledge of overseas markets, a lack of managerial time, skills and knowledge, plus the obvious logistical challenges. 

These are especially complicated for businesses in emerging markets – who often already face unstable domestic, financial and political landscapes. So, how can they successfully navigate these challenges? 

 

Why Should Businesses Trade Internationally?

There are plenty of benefits of moving from domestic to international trade, including:

 

1. Increased exposure

Moving into international markets not only gives businesses the potential to gain global brand exposure but also to offer products to an increased number of consumers.

Expanding into new markets also allows businesses to identify ‘untapped’ regions with fewer competitors, where they can take advantage of their unique market position.

 

2. Cost-effective

International trading can often be more cost-effective than simply trading domestically. In part this is down to higher sales volumes, with businesses able to take advantage of economies of scale.

However, businesses can also form strategic alliances with international companies to facilitate reduced costs, improve efficiency, and diversify materials and products. Plus, there is a potential to lower operational costs and increase price points.

Expanding internationally also allows businesses to mitigate the financial risks associated with operating in a single market, such as exchange rate risk and dips in the domestic economy.

 

3. Financial support

Domestic businesses looking to expand internationally can take advantage of the support on offer from governments and finance providers. This may include domestic Export Promotion Programmes or even simply free trade zones (where they can produce, import and export goods in certain regions without paying customs taxes or VAT).

Similarly, cross-border financing specialists, like Stenn, can provide liquidity for those businesses rejected by banks. 

For example, a Chinese manufacturer worked with Stenn to fund its 90-day payment invoices. The business was then able to manufacture and deliver products to buyers in the developed North American market. Stenn has also worked with suppliers and exporters in developing markets including those in Asia and Latin America. 

 

4. Overcoming existing challenges

Moving into new markets also represents an opportunity to overcome wider domestic challenges, such as the digital divide which affects over half of Latin American households – posing difficulties for businesses in nurturing a productive and tech-literate workforce.

 

Key Considerations Before Cross-Border Trading

Before making the move, it’s important to understand the potential challenges in cross-border trading. These may include:

  • Lack of support in funding, grants and loans from the government – especially during difficult seasons.
  • Business is already navigating a turbulent domestic economy and doesn’t want exposure to further risk.
  • Cultural challenges – including linguistic clashes, communication and etiquette considerations, plus legal rules and regulations.
  • Corruption, causing distrust in certain markets, eventually translating into economic losses. This is especially notorious in Latin American markets.
  • Tariffs – or unexpected tariff rises – such as in 2019, when the US suddenly retracted Section 232 tax exemptions granted to Latin American markets, Brazil and Argentina, on their steel imports.
  • Trade wars – for example, the US on China, introducing increased tariffs and trade barriers. In the immediate aftermath of these trade war escalations, equities in emerging markets plummeted by over 8%.

However, businesses aware of these challenges can prepare themselves against their effects. Such preparation includes remaining agile in terms of supply chains and identifying contingency measures, such as digitising elements of the supply chain to facilitate cost savings or switching suppliers to avoid specific trade barriers.

Those in emerging markets are also advised to partner with local agencies or specialists in their new markets. This may include working with local marketing experts or translators, or even international trade bodies and chambers of commerce, which support trade in specific regions.

And those who successfully navigate these obstacles will see benefits that reach beyond their own business – improving cash and capital flow, driving accessibility in key technologies, and generally improving the quality of life in the wider community. 


Cross-Border Trade With Stenn

The biggest barrier to international trade is the financial demand it imposes. Working with new suppliers typically means deferred payments, and it’s a cost that many businesses from unstable markets simply cannot afford. This is where Stenn comes in, supporting cross-border trade by:

  • Offering special programs in emerging markets like Argentina, Vietnam and Mexico, providing invoice finance to businesses that need it.
  • Supporting businesses receiving minimal assistance from governments and local financers. Research suggests that rejected finance in emerging markets in South America, Asia and Africa totals around $1.5 trillion – with $350 billion in Latin America alone.
  • Offering higher financing limits – from $10,000 to $10 million (USD).
  • Supplying a faster and simpler service than banks – the application process is entirely online and requires only two documents to be signed.
  • Offering immediate liquidity – within 48-hours of documents being signed – with up to 120-day payment terms, which is especially attractive when navigating different invoice deadlines.
  • Providing non-recourse finance, so applicants don’t need to pledge any collateral and will not be responsible if the client fails to pay.

Applying for finance is simple with Stenn. To find out how we can support your move from domestic to international trade, contact our team today.

 

 

Related articles:

> Supply chain finance: how to earn from your network

> SMEs in Latin America feel a benefit of financing of up to 10 million dollars

> Argentina’s Meat Trade: A Cut Above the Rest 

> New financing program for Mexican furniture manufacturers

 

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