A look at opportunities in cross-border trade
According to the U.S. Department of Commerce, only 1 percent of U.S. companies are seeking new business opportunities beyond our borders. Given the benefits of trade to businesses large and small in an increasingly connected world, it is logical to ask why so few U.S. companies are involved in cross-border trade.
It’s possible that some businesses may not be aware that 95 percent of the world’s consumers now live outside the U.S. And that by 2030, the middle class is projected to triple, empowering a new group of consumers in emerging economies who want the same products and services they see people enjoying in developed economies.
“The reason that trade is leveraged so little is more likely due to the vast difference that exists between seeing opportunity and seizing it. ”
The impediments to cross-border trade include excessive regulations, customs bottlenecks, tariffs and paperwork. Our people solve our customers’ problems related to these obstacles every single day. A bit of collaboration goes a long way.
Regulations. Everyone understands the need for health, safety and environmental standards, as well as consumer-protection regulations. But regulatory differences create costs that businesses would love to avoid.
Customs regulations and documentation requirements often needlessly differ from country to country. They add time and confusion to the process, particularly for small- and mid-sized businesses, which may not have the resources or capability to address them. For example, when a pharmaceutical plant must be inspected twice by both European and American inspectors, or when a company that makes automotive parts must have two production lines to make different parts for markets on both sides of the Atlantic, those are regulations that eat into a company’s resources and budget.
These same delays and complications hamper countries’ macroeconomic growth. Mexico, for example, has production power that could rival China. Its strategic geographic location is ideal for international trade across the Americas. Improving regulations and streamlining border processes could bring tremendous opportunities.
“ The impediments to cross-border trade include excessive regulations, customs bottlenecks, tariffs and paperwork.”
Fees and Duties. Many international customers do not understand that they can be responsible for additional fees and duties on their orders once they arrive. So it’s not uncommon for customers in faraway places to decide the additional costs are not acceptable … and simply abandon the package. When they do, the costs associated with each abandoned package become the shipper’s responsibility.
Paperwork, paperwork, paperwork.Then there’s all the paperwork required of exporters. I recently heard a retailer lamenting the need for one of their employees to navigate 2,000 pages of rules in order to ship a drill to another country. No wonder some businesses throw up their hands and remain on the global trade sidelines.
Why it’s worth the effort
Despite the obstacles, all the research tell us that cross-border trade is more than worth the effort. According to the Small Business Administration, companies participating in international trade are 20 percent more productive and have 20 percent better job growth than those that don’t. Our company’s own research found that approximately two-thirds of small- and medium-sized businesses begin to see a return on their export investment in less than two years. Thirty-four percent of those surveyed saw a financial return in less than six months.
Opening the door to trade’s benefits is the goal of two major agreements being negotiated by the U.S. – the Transatlantic Trade and Investment Partnership and Trans-Pacific Partnership. These agreements will simplify procedures, remove discrepancies between regulations and harmonize customs-related laws among participating countries. Together, they could significantly reduce trade barriers among countries that comprise more than 60% of global GDP. They’ll also add jobs and stimulate global economies.
“ While obstacles can be formidable, there are a number of resources for U.S. businesses that need help creating and implementing a cross-border strategy.”
While obstacles can be formidable, there are a number of resources for U.S. businesses that need help creating and implementing a cross-border strategy. The U.S. Commercial Service is the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration. It has trade professionals in more than 100 U.S. cities and in more than 75 countries who can help U.S. companies get started in exporting or increase sales to new global markets.
The U.S. Agency for International Development, the Export-Import Bank of the United States, the U.S. Trade and Development Agency and the U.S. Chamber of Commerce also are valuable resources.
UPS is also here to help. More than 400,000 of our problem-solving UPSers around the world are supported by an integrated network of ground, air and ocean freight transportation services. We have the expertise to help our customers develop supply chain strategies that include staging products in the right locations, selecting the right mode for delivery, accessing data, managing inventory, ensuring compliance and protecting goods in transit.
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Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.