INTERNATIONAL
Trade
I
nternational trade is the exchange of goods or services between different countries. This type of trade creates a world economy and the prices can be affected by political changes or global events. By being able to trade globally, it gives consumers and countries the chance to purchase and be aware of goods and services that may not have been available previously. The World Trade Organisation (WTO) deals with the laws of trade between different countries at a near global level. The organization was set up to negotiate trade agreements and to sort out any trade problems that countries have with each other. It is not just a negotiating platform though as it is also based up of rules which have been signed by each country who join the WTO. They are binding agreements to keep their trade policies within agreed limits. The main purpose is to let trade flow as freely as possible without adverse side effects. The WTO started in 1995 but before then the General Agreement on Tariffs and Trade (GATT) was also in place that dealt with trade in goods. The WTO and its agreements now cover intellectual property. Currently there are 160 members of the WTO, of which 117 are developing countries. The head office of the WTO is based in Geneva, Switzerland with an annual budget of $180 million. The WTO has many benefits that are global and not just benefiting individual nations. Its members are able to come to a resolution over trade disputes without resorting to violence or war. As each WTO member agrees to avoid setting up trade barriers, it prevents the increase in trade restrictions that could help an individual country temporarily but actually damage word trade overall. The Great Depression of 1929 is an example of how global trade barriers can worsen a worldwide situation. If a country breaks the rules of the WTO, a penalty is enforced which provides a safer trading ground for those involved. Without the WTO being in place, many countries would be less developed due to the lack of services and products they can import. There may be more disputes and wars due to high tariffs and unregulated imports and exports. Embargoes An embargo is an official ban on trade with a particular country. For example in 1807 an embargo was placed by the US when both Britain and France were engaged in war. The US wanted to remain neutral and trade with both countries, but neither Britain nor France wanted to other side to receive American supplies. The embargo was placed in the interests of America and to avoid them being dragged into a war. Quotas This is a limit on the amount of a particular good or product that can be produced abroad and then imported. The primary goal of import quotas is to reduce imports and increase domestic production of a good or service. It then protects domestic production and restricts foreign competition. Creating more of the product in your own country, rather than importing high amounts expects an increase of employment. Tariffs Tariffs are a duty or tax that is paid on imports and exports of goods. It is sometimes known as an international trade tariff or a customs duty. Their purpose is to raise revenue and to also protect domestic industries and employment. The tariff could also be placed to protect consumers, for example South Korea may place a tariff on imported beef from the United States if it thinks that the beef could be tainted with disease. Economic Blocs Also known as trade blocs, is a type of intergovernmental agreement that is often part of intergovernmental organisations. Their purpose is to reduce or eliminate regional barriers to trade between any participating states. These blocs bring manufacturers in different countries closer together which does result in more competition but at the same time the added competition promotes efficiency within businesses. European Union The European Union (EU) is made up of 28 countries that was formed in 1958 by just 6 countries. The aim of the EU is to promote harmony through a single market, enabling the free movement of goods, services and people. A Nobel Peace prize was awarded to the EU in 2012 for helping to promote peace and international co-‐operation. Trade has increased within the EU due to the removal of non-‐tariff barriers to reduce costs and prices for consumers. The increase in trade has also resulted in more jobs and a high income for those staff.
A
s I have already mentioned, GATT stands for “ General Agreement on Tariffs and Trade” which regulated international trade. Its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis”. It was formed in 1947 before forming into the WTO in 1995. Some of the benefits of the GATT agreements meant that trade could be done globally on a cheaper basis than before. The trade barriers were brought down along with the tariffs. This increase in global trade brought new employment opportunities worldwide. Some of the negatives of the GATT were that companies started to cut their costs to compete with others around the globe that ultimately resulted in some people losing jobs they had been employed in for many years. Child labor was very prominent in some of the poorer countries as they tried to compete with others in the cheapest way possible. There was also an increase in pollution due to the amount of pesticides being used. Past research has shown that in international trade leads to more pollution and environmental degradation through increased economic activities. LEDC’s have been known to use chemicals without adequate understanding of the correct dosages and how the chemicals should be disposed of. Fortunately in modern days the WTO has a Committee on Trade and Environment (CTE) to promote environmental measures and sustainable development. Industries that suffered under the GATT agreements are textiles, steel ad footwear industries as they declined due to foreign competition. As a whole the mission of GATT and WTO is to manage trade barriers throughout the world and create stable markets with fair prices for trading. The UKFT stands for UK Trade and Investment and they help UK companies accelerate their global growth through online channels. They set up conferences to allow fashion companies a toolkit to help them export to all of the digital markets that are available out there. Making people aware of cross border e-‐commerce in countries such as Japan and Asia is a main focus as most British companies are not aware of the wider audiences available and how to connect with them at what cost.
The Cambridge Satchel Company is perfect example of a British born company that is expanding globally in a short amount of time. By using methods such as pop up stores and taking part in a recent tour to China with the Prime Minister to showcase British brands they have been able to trade with a variety of people from different backgrounds and ages. Plans to take part in a Chinese exhibition are also underway to promote their brand further within China. The government organization, UK Trade & Investment (UKTI) set up events abroad in countries such as China, Mexico and Dubai. Allowing British businesses to take part in these events (although at a cost), gives them an opportunity that they may not have otherwise had. Many businesses have tried to break the global market before and failed, so having this organization backing you will increase your chances. The gov.uk website has a section dedicated to UK Trade & Investment giving businesses information on how to apply for overseas business opportunities and register for organized events. You can arrange to meet with a reputable export advisor and take on board advice for exporting to countries with different guidelines. The most recent event that was held overseas was the “Great Festival of Creativity”. It was based in Shanghai over the period of two days with The Duke of Cambridge in attendance at The Long Museum. The UKTI website states that “on average, companies earn £100k in additional sales within 18 months of working with UKTI, and the advice given by our CAMBRIDGE SATCHEL AWARD trade experts is free”.
C
ocoa farmers in Ghana and a UK fair trade company called Twin Trading set up divine Chocolate in 1998. The cocoa farmers in Ghana actually own 45% of Divine Chocolate that made it an unusual business start up model for the UK. Since then, Divine Chocolate has also been launched in the USA and its popularity has grown globally. You can now buy Divine Chocolate in Scandinavia, Netherlands, Czech Republic, South Korea, Hong Kong, Japan and Australia. The growth of Divine Chocolate has not always been easy though as in 2008 and 2009, the global financial crisis. During the global financial crisis the value of the pound fell and the cocoa and milk prices rose. This COCOA FARMERS OWN DIVINE CHOCOLATE had an impact on UK supermarkets that had to cut back on the amount of luxury chocolate brands they could buy in and allow space for on their shelves. Fewer people at this time were able to afford the higher prices that Divine expected for their fair trade chocolate and so fewer sales resulted in less promotional work and other brands were able to gain an advantage. Divine’s marketing and distribution is based within the UK but they sub-‐ contract the chocolate manufacture with the farmers supplying the cocoa, which is then delivered to the factory. All of the supply chain is traceable and sustainable with the cocoa farmers investing in improvements in their local community. Divine say that their business has always had an international outlook especially as it has never been solely based in the UK due to the nature of its goods. By connecting with other fair trade specialists across the globe they have been able to grown foreign markets quite well. The UKTI has also been used by Divine Chocolate also as their support allows a stronger presence at food trade fair exhibitions. Another factor that Divine chocolate has had to consider is that people around the globe have different tastes. For example, northern Europeans prefer to have a smoother chocolate which has a caramel flavor COCOROSE STOCKISTS IN ASIA whereas southern Europeans tend to prefer a bitter chocolate such as dark. Cocorose London is a shoe brand based in London. Their shoes have a luxury British heritage image surrounding their brand as they are all made in England. Founded in 2007 by Janan Leo, they have won many awards and are known as an international brand. They have retail boutiques in both Europe and Asia and are also stocked within department stores around the world. In an interview with The Guardian, Janan says that she never planned to launch her building abroad as “I didn’t have a clue about exporting”. The brand was actually first launched abroad by an Italian distributor who saw the shoes in an East London boutique just 8 months after the brand was launched. As the business had not initially planned for exporting abroad there were a lot of costs to take into account. According to UKTI, Cocorose is one of the few brands that they call “born global” as they have grown dramatically faster overseas than in the UK. The Guardian published another article in 2014 regarding Mothercare whose shares soared by 16% after a trade boost both in the UK and abroad. They put this improvement down to a few factors including an improved spring clothing range, more exclusive products and better weather encouraging consumers to buy new products. 5-‐YEAR VIEW OF MOTHERCARE SHARES
F
rom researching these three RESEARCH YOUR COUNTRY OF EXPORT companies and looking at how they entered the global market I feel that there are different points that you should always take into account before expanding abroad. The business should ensure that that the people they have hired are passionate about the business and are willing to work hard to make it succeed, especially with a small new business that has less manpower to go around. Plenty of research is required so that you do not come up against any import or export laws or blocks against your product. Taking advice from a legal export agent will guarantee that you have covered every legal aspect and will give your international trade venture a better chance of global success. A good point to remember is that your business does not have to be fully established in the UK before you export which Cocorose has proved. Regardless of business size or length of running, if the opportunity is available then it should be investigated. For a small business you must ensure that you are exporting to the right country though as exporting to the wrong country with the wrong target market could affect business profits and success. Problems that you may face when expanding abroad also depends on the market that you are entering. Brazil for example is still an evolving country so depending on your target market could be quite difficult to break. As the country has had a lot of media focus on it due to the World Cup and the Olympics, sports brand may be able to expand a lot faster than a luxury chocolate brand. As the main language is Portuguese in South America, whichever business wants to break into this market will have to overcome the language barrier. Partnerships as I have mentioned earlier will be a great way to break into a new market like this that is still growing as it will make communications easier. India is one of the poorest markets to enter but there is a lot going on economically as they already ship many products out across the world including to the UK. Due to the size of some of the areas in India, it can be daunting for smaller businesses to consider exporting to these areas. The Guardian recommends that approaching the smaller cities could be more beneficial as a starting point. China is very densely populated especially in the cities, which means that demand has increased considerably as compared to even just 5 years ago. By using the UKTI you can find trading partners to help you make an impact on this competitive market. A product with a unique selling point would do very well in China, and products that are influenced by PREPARE TO OVERCOME TRADE BARRIERS technology would also do well.