A paradigm shift has occurred in which companies that once built domestically to sell internationally now look globally for raw materials, services and finished goods to sell into a defined marketplace. This shift is happening because of reduced barriers to trade and investment, lower transportation costs, ease of information flows, new enabling technologies, and the emergence of economies (e.g. China, India).
Another factor is variation in foreign exchange rates, as G7 Nations have seen a steady increase in the value of their currencies vis-à-vis new developed economies. Developing economies invited Foreign Direct Investment (FDI), Vertical and Horizontal, as it brought in major FOREX flows. For example, this was important to India, as it reduced India’s foreign debt, and increased the foreign exchange reserves in the Balance of Payment Account.
In the midst of this shift, the vast majority of global exporters are still small-and medium-sized enterprises.
Trade gives these businesses access to larger markets for their products and services and more varied sources for cost-effective inputs, technology and investment.
This, in turn, delivers increased efficiency, productivity and competitiveness, all of which translates into jobs and higher incomes for all citizens.
However, the increase in opportunities may be accompanied by an increase in obstacles as domestic commercial interests seek to protect their markets from new entrants. These obstacles are commonly referred to as trade barriers.
What are international trade barriers and how can I overcome them?
Barriers to market entry and access may be anything that prevents entry into a market or makes a company substantially less competitive in a new market. It is worth noting that barriers are not always or only bad. The greater the barriers to entry, the greater the reward for those who overcome them.
Barriers may be physical, arising from distance and geography. They may be cultural, religious and linguistic. Barriers may be erected because of political or economic factors, such as domestic demand for protection of local industries (e.g. Canadian marketing board products, Japanese rice).
Based on the nature of the barriers that the company perceives in the target market, it has to decide whether it can manage, reduce or overcome those barriers.
If not, perhaps the best move for the company is to put the opportunity on hold until either the nature of the barrier changes or the company’s ability to overcome the barrier improves.
Another possibility would be transplanting production to a more favourable nation, and selling the final product to the country imposing the barrier, as regional value content would allow the final product to enter at terms that are more favorable.
You can’t overcome barriers if you don’t know about them
Although the world of commerce is trending in the direction of decreased barriers through such mechanisms as the North American Free Trade Agreement (NAFTA) and the Trans Pacific Partnership (TPP, under negotiation), it remains essential to conduct careful research into potential obstacles ranging from prohibitive tariffs to changing environmental standards, which could drastically affect the financial viability of an initiative.
If these barriers are not identified and mitigated during the planning stage of an export, the consequences could range from lowered margins (tariffs incorrectly calculated) to complete failure of the initiative if a quota cap, domestic content limit or lack of correct standardization/certification should be encountered.