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What Are the Different Types of International Trade Strategies?

By Peter Hann
Updated May 16, 2024
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Companies considering doing business overseas must give some thought to how their business is to be conducted and develop international trade strategies. Full information about the overseas markets must be obtained, future developments in the industry must be considered and a marketing strategy must be put in place. A business must decide if it is only to trade with importers in the other country or if it will be establishing a presence in that country. If so, the business must decide if it should establish a sales office or trade through a branch or a subsidiary company. If businesses are trading in a number of countries in a particular region, then the international trade strategy could include the formation of a regional holding company to maximize regional knowledge and coordination in hopes of qualifying for a favorable regulatory and tax position.

The potential overseas market must be analyzed in terms of all business risks that may be encountered. International trade strategies must take into account risks to revenue through a drop in demand resulting from changes in taste and fashion in the market. Risks such as rises in interest rates or property prices in the other country must be considered, and the exchange rate risk must be factored in if the overseas country uses a different currency. Political risk, such as the possibility of expropriation of assets by the foreign government or the consequences of political instability, must be recognized when developing international trade strategies.

If the company is to establish a presence in the other country through which it can trade, then the best legal form to adopt must be considered. While setting up a branch may be relatively easy, some countries will require foreign companies to set up a subsidiary company. A branch or a subsidiary will need to be registered in the foreign country, and registrations also may be required with the tax authorities. In some countries, the business may have to accept participation from a local company in the form of a joint venture or a shareholding in the company. The business also must check to see if there are any restrictions on activities by foreign investors in the industry in which it intends to trade.

In deciding on the location of manufacturing facilities in other countries, enterprises developing international trade strategies should look for any free zones or special economic zones. These zones may offer advantages in terms of reduced rent, enhanced infrastructure or tax concessions. Such zones may be restricted to certain types of business, so it is important to ensure that a business qualifies for the concessions offered by the zone. International trade strategies should take into account the customs duties that may be payable on imports of goods and raw materials into another country. The tax position in the other country and its effect on the tax position in the home country also should be considered in developing the strategy.

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