Chapter # 2 : Why International Business
When President Trump applied tariffs on steel and aluminum from Europe, China, and Canada, it hit the industries in those counties. As an example, Canada exports 75% of its steel to USA but the USA also exports steel to Canada. Tariffs hit in two directions. However, by those countries above retaliating the US farmers also got hit by duties from EU and China. Customers have spent many years to build up the relationship with and nurtured to secure future deliveries.
Suddenly the US farmers lose a large part of those customers because their price becomes too high.
US bourbon and Harley Davidson were also hit by EU.
The duty importing into EU for Harley Davidson went from 6 to 31%, increasing the cost by more than $2000. HD has factories in Brazil and Thailand too. By utilizing those factories to ship to European Union they can save in duties or even by moving their manufacturing to an EU country.
How do you prevent this from happening to you?
When you invest your hard-earned money you diversify and spread the risks, buying stocks, bonds and even properties. Not only do you buy different stocks you also diversify among different industries and different countries.
Many professionals do not have more than 5% of their stocks in one company and no more than 25-30% in one type of industry, you hopefully remember the tech bubble 2000? The tech stock just went extremely high before crashing in March 2000.
The world market is moving from west to east. When Europe and North American economies are stalling, Asian countries still have 4-7% GDP growth. That should trigger you to focus on new territories.
You do the same as a company; you do not limit the number to one customer. You also spread country exposure by being in many markets.
Today many Canadian companies have more than 75% of their business in the USA and the rest in Canada. Losing 50% of the US business means you lose almost 40% of all your business. If it had been max 10-15% in the USA, it would only account for 5-7.5% of their business. Canada is not the only country that has not spread its risks. However, many European countries are very diversified in many markets. In many cases, their domestic market is only a small portion of their total sales.
Many companies rely on too few customers and countries. To enter a new market is not overnight and in many countries it is building up a long-term relationship, taking many years to achieve.
We too often talk about exporting only instead of international business. International business is a two-way business exporting is only one, importing technology is another part of international business. You can complement your technology from other companies. You do not need to develop everything yourself. Licensing and joint ventures are others. In fact, many countries in Asia like China do not allow foreign control. You have to find a local partner.
The joint venture or licensing can be one way to limit the duties paid or import restrictions. Watch the video above for a better understanding
Are there other solutions? If this will be a long-term war, one way is to shorten your distribution chain, reducing the number of levels that have to make money on your product, i.e. less cost for the distribution. Watch the following videos about distribution and about export pricing then you understand what I mean:
Sometimes a complete product is faced with a high duty but shipping the components and assemble in a foreign country, could eliminate or reduce the duties. Get expert advice to make sure you make it right. Otherwise, the authorities can backtrack and charge you or your foreign partner retroactive.
Do not get stuck in the situation of getting hurt because you have not spread the risks Start now to expand your business and business opportunities and do not only export, add import, source product services overseas and collaborate with other companies in your international business activities.
The world markets are changing. You have to adapt, make sure you are a step ahead.
Prepare yourself for the changes in the market. Prepare yourself for tomorrow.
I hope this has given you some thoughts and ideas about why you have to be prepared. For more about the future, watch our video introduction to the chapter of our book about future markets and technologies.
There’s an enormous amount of information available.
Leif Holmvall, President
Export Pro Inc.
In our book “Export & Import – Winning in the Global Marketplace”
ISBN 978-0-9681148-1-0 those topics are covered in depth. You can also buy our book for less than $10 as an e-book visit e.g. https://www.amazon.com/dp/0968114814, where you can read part of the book.
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