At first glance, international expansion sounds daunting. Many entrepreneurs new to the global marketplace envision lots of red tape, astronomical container shipping costs, language barriers and unexpected hiccups. In reality, with a little advance planning, small business opportunities in international trade can be both lucrative and interesting.
In this guide, we’ll look at trade flow trends, and then we’ll examine the difference between established, emerging and frontier national economies. Then, we’ll explore three of the very best small business expansion opportunities coming in 2022. We’ll also talk about international currency transfer, and how choosing the right payment partner can save you significant amounts of money.
- Trade flow trends for the 21st century
- Established versus emerging markets
- Three top small business opportunities in international trade
Trade flow trends for the 21st century
The United Kingdom exports landscape has changed significantly since the turn of the century. In 1999, 53.8% of the UK’s exports went to European Union member countries; over the next 20 years, that figure fell 10%. By 2019, 57.4% of the UK’s exports went to non-EU countries. In simple terms, the UK went from regional to global in the first two decades of the 21st century, turning its trade deficit with countries outside the EU into a trade surplus.
What does that mean, then, from a practical perspective? In short, lots of opportunity for UK firms — both small and large — to expand into foreign markets.
Established versus emerging markets
Every foreign marketplace is different, but in general, international marketplaces can be divided into three main categories: established, emerging and frontier. Economists apply the ‘established’ moniker to developed nations — economically advanced countries with thriving middle classes and mature capital markets. European countries, America, Canada, Hong Kong, Singapore and Japan all have established market economies.
Emerging economies, on the other hand, are rapidly growing and developing markets in developing countries. Income per capita is lower in these countries, but the number of middle-class consumers may be increasing. Emerging economies include China, Russia, Brazil and India. In recent years, emerging markets have been put into buckets and given acronyms, like these:
- BRIC: Brazil, Russia, India and China
- BRICET: Brazil, Russia, India, China and Eastern Europe
- MINT: Mexico, Indonesia, Nigeria and Turkey
- CIVETS: Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa
You’ll also sometimes hear people talking about the ‘Next Eleven’ — eleven countries identified by British economist Jim O'Neill as potential future powerhouse economies in tandem with BRIC. The Next Eleven lineup includes Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.
Frontier markets are arguably a subset of emerging markets: they’re a collection of national economies that haven’t begun rapid growth yet, and aren’t slated to do so in the near future. Consumers in frontier markets don’t have very much spending power, and infrastructures tend to be weaker than average. At the moment, frontier markets include Albania, Botswana, Romania and Sri Lanka.
Three top small business opportunities in international trade
According to a recent IHS Markit analysis, the global economy moved from post-pandemic recovery into growth mode in the second quarter of 2021. In other words, if you’ve been waiting to expand into international markets, now might be a good time to take the next step.
There are several ways to expand into foreign markets. Let’s talk about three of the most accessible international trade opportunities for small businesses: international ecommerce expansion, import and export developments, and international licensing.
International e-commerce expansion
Many marketplace sellers in the UK begin their international expansion strategies with ecommerce sites in other established markets like Singapore, Hong Kong or Australia, or in emerging economies in China or across Latin America. This is arguably one of the easiest ways to expand into foreign markets: if your target consumer base will wait for products, for instance, you can ship goods internationally from your existing UK base.
If the market research you do to prepare for expansion indicates that consumers in your target marketplace won’t tolerate extended delivery times, international licensing and dropshipping could provide an answer. We’ll go into that in more detail below.
Import and export
Companies in the UK export a lot of different products every year. In fiscal year 2020-21, UK businesses sent machinery and transport equipment worth £113.4 million to markets all over the globe. Other large-scale UK exports include chemicals, raw materials, fuels, foods and live animals.
Import and export businesses involve more paperwork and have more complex logistics structures than domestic businesses, but they can still be lucrative ventures. You’ll need to get an Economic Operators Registration and Identification (EORI) number before shipping goods, and you’ll need to operate in line with UK and foreign regulations.
To find out more about exporting, visit GOV.UK. You can read more about government-backed financing options for small business opportunities in international trade at the UK Export Finance (UKEF) website.
In a nutshell, when you create an international licensing agreement, you give a company in another country the right to manufacture your product in return for payment. You might then decide to distribute your product in that market, or export your product to a neighbouring country — or even import it back into the UK.
Coupled with a dropshipping service, an international licensing agreement can be one of the most effective ways to run an ecommerce business overseas. Because products are locally manufactured, consumers don’t have to wait a long time for goods to arrive — and you save a lot of money on shipping costs.
Simplify international transactions with WorldFirst
We mentioned international payments and collections briefly at the beginning of this article; now, we’ll explore how businesses in the UK benefit from collaborating with an experienced currency exchange partner.
In the past, businesses used their banks to facilitate international transfers. Generally speaking, the process went smoothly and recipients received funds within one or two days — or in Southeast Asia, up to five working days later. The associated fees, however, were often substantial — and the more transfers businesses made, the more fixed wire transfer fees they had to pay.
Later, third-party payment services began to offer cheaper international transfers. Fees and currency exchange rates varied from transaction to transaction, however, which made budgeting difficult — especially for low-volume marketplace sellers.
At WorldFirst we are committed to providing our customers value for money, so we do not charge account opening fees, monthly or annual subscription fees or interest on deposits.
With robust hedging solutions such as forward contracts, you'll also be also to access fixed exchange rates for months at a time. In practical terms, that means you can lock in a favourable exchange rate and that you’ll know exactly what you’ll pay for each transaction well in advance.
To find out more about WorldFirst products and services, including same-day currency transfers to China, chat to us online or call 0207 801 1065 today.
You might also like
WorldFirst articles cover strategies to mitigate risk, the latest FX insights, steps towards global expansion and key industry trends. Choose a category, product or service below to find out more.