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International business management

Foreign trade in the 21st century

Pablo Gopp  Client Specialist

Pablo Gopp  Client Specialist

Activities related to political changes, technological progress and globalization have undergone radical transformations since the second half of the 20th century.

Foreign trade has not escaped these transformations, causing an accelerated growth that is changing the way countries and companies trade with extraordinary speed.

Today, there is not a single nation that can be considered self-sufficient. Every country has some dependency on global trade. Even the wealthiest nations need resources they lack. Through bilateral negotiations and agreements countries can purchase goods and services to meet their needs from other regions.

This new reality has also changed the topography of world trade. Emerging powers such as China, India, Brazil, Mexico, Indonesia, Malaysia, and South Africa are increasingly influencing the structure and scope of world trade by creating new supply and demand pressures. The evolution of trade between developing regions, such as Latin America, the Middle East, China and Southeast Asia, has increased in the last 20 years at a much faster pace than trade between more developed regions such as North America, Western Europe and Japan. Trade between these powers previously represented around 60 percent of world trade; it is now expected to account for only about one-third by 2020. Twenty years ago, trade between developing countries had barely reached 10 percent of world total, is now expected to rise to one-third by 2020.

For this reason, the importance of international relations in the commercial, political or cultural fields have reached a deeper level of importance, which transcends the scope of the strict exchange of goods and services.

Foreign trade companies

Not long ago, companies that relied on foreign trade activity prioritized conquering new sales and new markets. At present, this model has evolved to where these same companies expect their partners to present new opportunities. Partners are expected to develop strong alliances in multinational businesses where there is a clear division of functions between who produces, who sells, who distributes and who advises.

In addition, the free and massive mobilization of capitals have maximized the concept of internationalization for businesses. How? By investing directly or indirectly in any business or country that offers attractive terms of return as well as economic and political stability.

Undoubtedly, businesses that have not been able to adapt to these changing conditions have ended up losing markets.

Protectionism vs free market

The paradigm shift in relation to how countries are integrated has accelerated the process of internationalization for businesses.

The opening of external markets through free trade agreements proposed the total elimination of tariffs and authorizations to import or export. The adequacy of the laws within an international standard that promotes the activity and prioritizes the protection of the consumers has changed, too.

Free Trade Agreements have grown significantly from the 12 existing treaties in 1964 to the now 423 agreements in force as of 2016 with 212 additional agreements in negotiations.

Proactive consumers and brand advocates

The position of the consumer in today’s free markets has also undergone major changes. The passive consumer, who simply consumed what the market offered without having an opinion or say in the product development, has now matured into a proactive consumer who is much more informed and has higher expectations for their products and services. This new consumer has benefited from globalization – being able to receive offers of goods and services from all over the world, maximizing their power of selection and comparison.

Another aspect of the modern day consumer is their focus and attention for detail, helping them identify the smallest differences between products. These consumers recognize these differences and reward those brands with customer loyalty, ultimately becoming satisfied consumers and ambassadors for those brands.

Your product’s value proposition

Foreign trade has forced companies to specialize. In international markets, the only way to survive is a strong relationship between quality, price, opportunity and adaptability.

Specialization allows businesses to better meet consumer demands while, at the same time, providing opportunities to improve production process efficiencies and reduce operating costs.

In short, the global trade race today focuses on:

  • Defining the best geographic location for production;
  • Performing under the best possible conditions (price, opportunity)
  • Selecting the best suppliers not only for their pricing but for their quality and turnaround time

In this scenario, normalization emerges as a trend that has been increasing in recent years. Suppliers of goods and services are forced to certify their processes to ensure their supply of goods meet international quality standards.

Given these circumstances, the greatest challenge that any company has in order to best position itself in this unique global market is competitiveness. This competitiveness is obtained through the continuous improvement of processes which include:

  • The standardization and certification of process flows
  • The reinvestment of profits instead of taking them out of business;
  • The projection, perspective, objectivity, specialization and delivery of goods and services

The future of foreign trade

The emergence of new players, the rapid growth of preferential agreements, the increase in world trade in intermediate products, the expansion of global production chains and the increase of non-tariff measures show very clear trends. Any Company that dreams of thriving in the 21st Century must be incorporated into globalization in every way.

Undoubtedly today there are tasks ahead in all areas to achieve a global, efficient and competitive single market. Below are just a few of these tasks:

  • Customs – The global trend is to go from a very complicated and bureaucratic customs process to a more simplified and functional customs process. Allowing operators (buyers and sellers) to maintain fewer inventories and greater predictability in the flow of goods.
  • Logistics – For the longest time the term logistics meant the delivery of goods and services in the shortest possible time. Currently, the objective of logistics teams is to optimize the performance of the entire supply chain, reducing operating and production costs. Being able to meet the times, service level and price, under the required delivery quality, is only possible through the use of systemic tools to support the management of the entire supply chain.
  • Automation – Looking back we can realize how different tools were incorporated in the commercialization process, which quickly went from being optional to mandatory, and then being overtaken by new technology. Faced with this obvious evolution, companies must modernize and use all the technology that is within their reach to streamline processes, lower costs and maintain the highest quality of standards.
  • Human Resources – The salary factor goes hand in hand with these changes. Competitiveness does not require low-wage policies, but it does require that resources be up to speed in these areas. The best defense of the worker will be his productivity, quality, and loyalty to the company. Laws that protect inefficiency and discourage productivity stimulus hamper international competition
  • Governments – Regardless of the progress of globalization, states will not disappear, but their role should be focused on improving macroeconomic policies to make them competitive at the global level.
  • Marketing – 21st Century businesses seek to win customer loyalty, which is why companies focus on prioritizing the service level above the level of goods.

The success formula in these scenarios will include processes to incorporate automation systems, to associate with actors that contribute specialization, to integrate products with inputs from any part of the world, prioritized by their quality based on their normalization, and being competitive for themselves, not waiting for governments to solve their problems.

Learn more

Get more answers on managing global trade on our Tax & Accounting blog.

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