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Authored by Brett Dougherty & Yue Wang
International Trade & Retail: How Geopolitical Trends Affect Businesses Operating in the U.S.
Brett Dougherty & Yue Wang
Introduction
In today's interconnected global economy, the international trade and retail sector plays a pivotal role in driving economic growth. However, businesses operating in this sector are increasingly influenced by geopolitical trends that can reshape market dynamics, disrupt supply chains, and alter consumer behavior. Having a knowledge of these trends allows businesses to adapt, generate a competitive advantage, and maximize profits. This article explores the key issues faced by the industry, major considerations for businesses, and the role of business consulting in navigating these challenges.
Key Issues in the Industry
Licenses to sell products internationally may be required by various governments (national and local)
Roughly 95% of all items exported from the U.S. do not require licenses from the federal and local governments. However, companies must be aware of the specific products and necessary licenses that may be required. Compliance with both national and local regulations is essential to avoid legal issues and maintain market access.2 The three major lists of export-controlled items are the Commerce Control List (CCL), the United States Munitions List (USML), and the Nuclear Regulatory Commission Controls (NRCC).3 These lists require licensing to export items such as defense and military equipment or services, dual-use goods and technologies, as well as certain pharmaceuticals and chemicals.
Market reception/consumer preferences may differ (consumers may live differently or have income disparities from the U.S.)
Consumer lifestyles and income levels often differ from those in the U.S., affecting product demand and preferences. Understanding these differences is crucial for tailoring products and marketing strategies to local markets. A notable example of this is KitKat, which has released flavors in Japan such as matcha green tea.4 These unique flavors cater specifically to local tastes and would likely be more well-received.
Identifying platforms to sell the products, including larger retailers, online, or through local companies may be different from the U.S.
Identifying appropriate platforms for product sales, whether through larger retailers, online marketplaces, or local companies, is a critical challenge. Adapting distribution strategies to fit local market conditions can impact a business's success. Retailers should choose to focus on retailing to specific countries or areas. To identify which specific countries to trade in, retailers should utilize resources such as country-specific risk assessment and market analysis. It is important to look at indicators such as population, GDP, and the value of your company's type of products exported from the US as well as exports from all countries.5 To identify appropriate trade areas, businesses need to gain a comprehensive understanding of the demographics, infrastructure, safety, and potential customer base to best select locations. In addition to that, attention to the local labor market is also crucial to make sure there are enough qualified workers and avoid labor shortages.
Bribery and corruption are rampant in certain countries
Corruption and bribery remain prevalent in certain regions, posing ethical and operational challenges. Businesses must navigate these issues carefully to maintain integrity and comply with anti-corruption laws. Opportunities for investment in new markets can be appealing but risky, meaning conducting market research is crucial to understand the new competitive landscape better and identify potential barriers or risks. Investing in cybersecurity measures, diversifying supply chains, and seeking out new market opportunities help to mitigate geopolitical risks.6 Ongoing conflicts around the world also hinder opportunities for investment from the U.S. due to bribery and corruption.
Shipping costs may be high
High shipping costs can significantly impact profitability, driven by factors such as distance, logistics, and fuel prices. Efficient logistics management is essential to control these costs and maintain competitive pricing.
Tariffs and other trade barriers
Tariffs and other trade barriers can increase costs and limit market access. Businesses need to adapt pricing strategies and explore alternative markets to mitigate these impacts. Recent U.S. tariffs and sanctions placed on Russia are examples of restrictions on exporting certain products, including technology, oil exploration, and various equipment. These sanctions have implications for U.S.-based retailers as they may be prohibited from exporting certain products or must pay higher fees for exporting. Recently, the Biden Administration imposed Section 232 Tariffs on imports of steel and aluminum. These tariffs raised the price of many consumer goods and hurt American exports, a shift that should be noted by all businesses involved in trading metallic goods. Additionally, many recently imposed tariffs affecting American traders come from China. China has implemented provisional import tariffs on 1,010 commodities, including healthcare products, certain medicals, and agricultural products, since January 1st, 2024 which imposed lower rates compared with the Most Favored Nation (MFN) tariffs.
Major Considerations for Businesses Operating in this Sector
Risk Management
Developing robust risk management strategies to address geopolitical volatility is crucial. Establish means for detecting and overseeing political uncertainties; incorporate geopolitical risk into the company’s risk management framework. Evaluate how such uncertainties might affect the business operations to provide comprehensive guidance on important decision-making such as market entry and expansion. Capacity building from top-level leadership to day-to-day operations such as technology development and data-driven approach. Diversifying supply chains and market portfolios can help mitigate risks.
Regulatory Compliance
Staying informed about changing trade policies and regulations is vital for compliance and avoiding penalties. Due to geopolitical concerns, there is a list of countries that U.S. businesses cannot export to. This list includes states that are been categorized as “state sponsors of terrorism” by the Department of State. Be aware of how U.S. trade agreements with some foreign countries might affect international business transactions. Leveraging expertise in international law can help navigate complex regulatory landscapes. The Foreign Corrupt Practices Act (FCPA) prohibits making payments to foreign officials to gain business advantages.
Market Entry and Expansion
Assessing geopolitical stability is essential when considering new market entry. Local government stakeholders must be assessed and local partners selected (with consulting support). Strategic planning is needed for successful market penetration and expansion. Companies must understand local norms and values, including consumer preferences.
Supply Chain Resilience
Building resilient supply chains that can adapt to disruptions is critical. Local sourcing and strategic partnerships can enhance supply chain stability.12Investing in building local production bases helps maintain sales to regional markets and eliminating intermediaries allows businesses to save money.
Consumer Trends and Preferences
Adapting to regional consumer preferences and trends is important for market success. Emphasizing sustainability and ethical practices can align with consumer values and enhance brand loyalty. Different regions might prioritize various global issues, which can significantly influence consumer behavior and purchasing decisions. For instance, "Latin Americans are particularly concerned about water scarcity, whereas Asian countries focus more on littering and landfills. In North America, ocean pollution is a key emerging issue, especially in Canada and the U.S".13 Businesses should be aware of these preferences and use them to their advantage.
How Business Consulting Can Help Companies Operating in International Trade & Retail
Risk Assessment and Mitigation
Business consultants at CIAG can provide expertise in geopolitical risk analysis and mitigation. They help develop comprehensive risk management plans tailored to specific business needs.
Regulatory Guidance
Our consultants assist in navigating complex international regulations and ensuring compliance. Advisory services can help businesses stay updated on regulatory changes
and avoid legal pitfalls. CIAG also offers training for legal and regulatory requirements that assist the process of navigating complicated procedures.
Strategic Planning
Business consultants at CIAG help formulate effective strategies for market entry and expansion. They offer insights into optimal supply chain configurations and operational efficiencies as well as growth forecasting to help businesses properly plan their strategies.
Technological Integration
CIAG consultants can support the implementation of advanced technologies to improve operational efficiency. They address cybersecurity and data privacy concerns, ensuring robust technological integration.
Sustainability and Ethical Practices
CIAG consultants can guide businesses in adopting sustainable and ethical practices. Enhancing brand reputation through responsible operations can build consumer trust and loyalty.
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