Differences between domestic and international trade
Alibaba.com OCTOBER 19, 20207MIN READ

Thanks to technology, trade on a global scale can now be achieved by both large-scale corporations and independent wholesalers. As humans, we have been trading for centuries, whether it be livestock and building materials in the middle ages, or Bitcoin and technology in the 21st century. Trading seems to be part of our DNA.

When it comes to setting up and expanding a wholesale business, you may be interested in selling your products or services to an international market. There are many differences between domestic trade and selling within your home country and expanding your business and shipping products overseas.

To help you understand what makes domestic and international trade different before you pass on expanding into global markets, we’ve put together this simple guide. We’ll give you a basic overview of what domestic trade is, and how international trade has the potential to unlock more opportunities for you and your company. Then we’ll explain how you can set yourself up online for cross border e-commerce.

What Is Domestic Trade?

Domestic trade is the exchange of domestic goods within the boundaries of a country. Domestic trade may also be sub-divided into 2 categories: wholesale and retail. When you think about domestic trade in relation to a wholesale business, you may be investing in stock from local manufacturers and dealers and selling them on for a small profit to businesses within the same country. A domestic wholesale company will often buy in a large quantity to enjoy a discount from a local supplier.

Let’s say you are based in the US and you run a wholesale business selling stationery and printing supplies to local schools and offices. You will invest in a range of products and buy in bulk from the US. You may then brand the products and sell them on for a profit to US kindergartens, colleges, universities and offices.

What Is International Trade and How It Is Different?

International trade is trading goods, products or services across international borders or territories on a global scale. From trading spices and silk in the Middle East to shipping technology and devices from Asia to Europe, international trade has helped the world to rapidly develop and grow. Nowadays, in most countries, international trade represents a significant share of gross domestic product (GDP).

There are many benefits associated with international trade, and it has become one of the major contributors to the growth of global economy and the reduction of poverty. International trade enables greater diversity of goods and services to flow on a global scale, which really improves the quality of life. It also trends to promote efficiency in resource allocation and production, and is also likely to increase employment and encourage innovation.

For small business owners, venturing out of your comfort zone to expand into foreign markets can make your business stronger and more profitable. Your business is less likely to suffer from changing trends in the local market so as to expand the lifespan of your products. You will be less dependent on a single market and thus can help you counterbalance the effects of risks factors such as economical downturns and other political, environmental events.

Let’s go back to the previous example of a wholesaler in the US, supplying stationary equipment. As many schools are closed across America due to the on-going pandemic, a wholesaler who relies on the US education industry as a business may suffer a significant drop in sales. If they continue to focus on domestic trade, they may face closure. But, if they swift to cross border e-commerce business, international trade could help turn their business around. They may be able to start supplying stationery supplies to countries whose schools have re-opened.

However, international trade can be more complicated. Here we summarize some key differences between domestic trade and international trade.

  • Area of operation: Domestic trade operates within the home country, while international trade activities are spread across the globe.
  • Different currencies: International businesses deal with multiple currencies and the fluctuation of exchange rate can affect the profitability of your business.
  • Policies and regulation: Businesses participate in international trade will have to face the unique regulations, policies, law taxation, tariff and quotas imposed by different countries.
  • Target market and customers: It is much easier to conduct market research and study your customers when doing business domestically. Cultural and language differences can also become barriers to your business and market research on a global scale.
  • Shipping and logistics: Trading to foreign countries will have to deal with the complications and risks involved in international transportation and logistics. For example, the complexity of Incoterms can present challenges for both importers and exporters.

As the world becomes more connected, and technology helps us to communicate and trade, there are many global trade opportunities that you can now take advantage of right as a wholesaler. Although it can seem like a bit of a minefield to navigate international trade due to its complexities, there are some pretty innovative solutions that can help you unlock the potential to trade on an international level.

Global Trade Opportunities

The on-going global pandemic has hit many economies hard, impacting all kinds of industries. As some countries manage to keep the rate of infection low and others struggle to control the outbreak, for international trade, now may well be an opportunity to thrive online. As technology makes communicating with global supplies easier than ever before, if you’ve been considering expanding your business and either selling to different markets or sourcing products and supplies from overseas, now is your chance.

Here are 5 reasons why now is a massive opportunity to use cross border e-commerce to your advantage.

  1. Covid-19 has impacted the global economy and so many manufacturers have considerably reduced their prices. As a wholesaler, it’s time to invest in stock and save money.
  2. The world is changing. The global pandemic has changed the way we work. Businesses need different supplies and products to protect themselves and their customers. In fact, medical product import and exports totalled $2 trillion in 2019 alone, which is 5% of the total world merchandise annual trade figures1.
  3. Lockdown has rendered 31% of small businesses in the US non-operational. Don’t be restricted by domestic trade or risk closing down too2.
  4. Many people used lockdown to pursue their passion and open up a new business. This has caused a demand for reliable wholesalers who can provide high-quality products and services. In fact, millennials and Gen Zers are more likely to start a side-hustle or become an entrepreneur3.
  5. As large corporations lose their grasp on the global economy due to their massive expenses and Covid-19 makes for a grim economic future for global trade, this dark cloud actually paves the way for smaller companies and independent traders to shine4.

Cross Border eCommerce

To professionally master cross border e-commerce, and transform your profit margins, you’ll need a reliable and trustworthy platform to source overseas suppliers or sell your products internationally. Alibaba.com provides business owners like you with an easy to use a cross border e-commerce platform to trade confidently around the world. Buyers and sellers on Alibaba.com can communicate effectively and instantly without the need to take expensive business trips, have cold calls or send emails back and forth.

Alibaba also empowers seller with industry analytics data and demand signal tool to help you find the untapped market for your products. You don’t have to be a sophisticated cross-border trader. Nor do you need to have any online selling experience. Our end-to-end services and expert knowledge help you effortlessly navigate the cross-border eCommerce world and grow your sales.

Want to know more about how Alibaba.com can help you trade globally and expand your business? Speak to an expert now.

Further reading on international trade:

 

Reference:

1. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf

2. https://www.forbes.com/sites/maneetahuja/2020/05/19/31-of-small-businesses-have-stopped-operating-amid-coronavirus-sheryl-sandberg-shares-how-facebooks-latest-product-aims-to-help/#76874e0d2096

3. https://smallbusiness.co.uk/5-best-ideas-to-start-a-small-business-post-coronavirus-2550485/

4. https://www.wto.org/english/tratop_e/covid19_e/trade_costs_report_e.pdf