Foreign trade - what is worth knowing when owning your own business?

Rapidly developing technology, globalisation and easier communication are providing great opportunities to do business in foreign markets. The growth of a company is a natural phenomenon that makes us start looking around for new challenges. Setting out into unknown business waters, however, requires very good preparation. We should not do it ad hoc, which could entail great risks. What is worth knowing when owning your own business? What are foreign trade theories? Find out!

Foreign trade - every country is different

Do you want to know which strategy will work best for your company? A lot depends on the direction of export. Some entrepreneurs start selling in a particular country without doing a thorough analysis of the target market, which is a very big and serious mistake. What works in one market will not necessarily bring the same profits in another. It is therefore necessary to ascertain the demand for the goods in question in a given location and what type of consumers we will be dealing with. It is becoming increasingly difficult to find a niche because in the current global times, there is an oversaturation of various items and customers have a great deal of choice. In order for your products to win the hearts of the public and be recognised, they need to be unique. Ideally, they should solve a specific problem for the buyer. It is not worthwhile to engage in exporting goods that already have a solid position in a country.

Foreign trade - what is Incoterms?

Before entering international markets, it is important to know that there is a special set of regulations which describes the most important rules for trade between exporters and importers. We are talking about the so-called Incoterms (International Commercial Terms), a document created to reduce misunderstandings arising from communication between suppliers and buyers. Its first edition was implemented as early as 1939, based on the findings of the International Chamber of Commerce. The Incoterms, for example, concern the division of responsibilities between the parties to a commercial transaction. However, they are not a substitute for the sales contract, as they do not contain all the relevant provisions. Incoterms apply to EU international trade, but also to trade beyond the borders of the European Union and to domestic trade. If you are planning to enter foreign markets with your business in the near future, it is necessary to familiarise yourself with the Incoterms obligations.

Classical theories of international trade - important economic concepts

Selling across borders is not a new phenomenon, although it is becoming easier every year. Let us look for a moment at the classical economy occurring when two countries undertake a mutual foreign trade and achieve benefits. According to foreign trade theory, the following conditions should be met for a country to participate in trade:

• market rules work,
• production is carried out for own consumption, but also for export,
• a country must specialise in the production of a given product,
• there is a free market,
• it is assumed that international exchanges and specialisation in a particular field enable better use of the resources of the productive forces.

Classic theories of international trade include :

• Absolute cost theory, by Adam Smith - the concept assumes that a country only exports goods in the production of which it is more efficient than other countries, and that the primary factor of production is labour;
• The theory of the computational (relative) cost, by David Ricardo - states that countries benefit measurably from trade, even though they do not have lower costs of production. Here again, the primary factor of production is labour;
• Heckscher - Ohlin's theory of income abundance - according to which a country exports goods that require the consumption of more of that factor of production that the country has the most of. This theory does not take into account: transport costs, consumer preferences, differences in available technologies.

Where to look for information on foreign trade?

If you want to start selling on international markets, it is worth getting to know institutions that have representation abroad or in Poland. Their assistance in certain situations can prove invaluable. Here are the most important ones:

• Foreign Trade Offices,
• Trade and Investment Promotion Sections of Embassies and Consulates of the Republic of Poland.

In Poland, these include:

• National Chamber of Commerce,
• Polish Investment and Trade Agency,
• Polish Agency for Development and Entrepreneurship,
• Polish Development Fund.

Thanks to the support of the above-mentioned institutions, you can count on help in establishing contacts with companies located abroad, ensure effective promotion of your business outside Poland or obtain up-to-date market information necessary for planning and organising your export. The benefits are many, and taking your first steps in foreign trade is no easy task. Support may prove to be a key element in starting your business in other countries.