The core principle of conducting business is to maximize the sales and profits of a business while at the same time reducing the exposure the business faces and managing the risk. International trade is trade across the borders. The globalization phenomenon has increased the chances and opportunities of international trade. With the advent of innovative technology in communication as well as transport, international trade has become the norm instead of the exception (Demir, 2014). Businesses develop their strategies and business models with an international outlook. The international market provides an outlet for expansion and growth as businesses seek to exploit the potential in other countries and markets. However, the international trade poses several risks to the business; these include the political, legal and marketing risks. Most importantly for this dissertation, the international trade faces massive financial risks.
International trade is the norm in today’s market place. The technology and innovation in the transport and communication as well as business management have enabled the expansion of several multinationals into different countries and regions in the world. Advancement in the supply chains has also seen the delivery systems to improve and become timelier than before. This means goods can be ordered online and delivered to the customer destinations in record time (Jung, Park & Chung, 2015). This has reduced the global market into the proverbial “small village”. However, international trade requires significant financial ability for a business to establish a functional SCM and production that can ensure customer satisfaction. This also includes the spending on the marketing strategies to ensure the business’ services and products are known by the target market. Some of the sources of the financing of international trade include thrifts and private banks, individuals and private equity firms as well as international and public institutions.
Statement of the Problem
Financing is one of the major challenges that face start up businesses throughout the world. Businesses need resources to transform innovative business ideas and proposals into functional and proper businesses. This challenge id doubly more challenging in international trade compared to local small businesses. The vast territory and markets covered means that the firms require equally vast resources. The challenge is in finding partners to ensure the businesses stay afloat as they establish the businesses and the reputation in the market to enable them to be profitable. This dissertation aims to establish the relationship between financing or lack thereof to the international trade. It seeks to establish the influence of the financing bodies and firms in the world to the conduct and vibrancy of such international trade. The dissertation also seeks to establish whether the power held by the financing bodies is health for the international trade or it negatively affects the business environment by controlling what risks businesses can and cannot take in the market.
The financial crisis of 2009 was one of the demonstrations of the importance of international trade. The crisis started in the US and then quickly spread to Europe, Asia and then the rest of the world. It indicated that international trade is crucial and is a major driver of the global economy (Foley & Manova, 2014). The banking crisis was a massive blow to businesses that could not get loans or the skyrocketing interest rates did not seem feasible for their business models and their profitability during and after the crisis.
External and internal financing sources play a massive role in the success or failure of international trade. The issues of financial dependency affect the conducting of businesses at an international stage. Small businesses making an entry into international businesses face massive challenges of sourcing funding or financing (Helpman & Razin, 2014). The regional or geographical locations of these businesses also determine the successes of these businesses obtaining financing. Businesses from Asia, South America, and Africa face massive challenges obtaining funding compared to businesses from Europe and North America.
The study adopted a quantitative approach. The study conducted a survey of the international business environment to determine the levels of international trade financing, the influence of financing, sources and its impact on international trade (Wild, J, Wild, K & Han, 2014). The study collected both primary and secondary data. The questionnaire was the tool used to collect data for this study. Snowball sampling was used to choose or decide on the study’s sample.
Results and Analysis
International trade financing is important. It is influential to the multinational businesses and the international trade. Businesses and countries participating in international trade contribute massively to the interrelations that the international community has created (McGovern, 2015). This has created a strong bond and a degree of interdependence that means that countries depend on each other for trade and crises such as the 2009 financial meltdown are highly likely.
International trade can only run with sufficient financing. Several sources of financing firms and organizations facilitate international trade. International trade plays a crucial role in the development of countries and their gross domestic products (GDP). However, the financing issue is one of the biggest limiting factors to the trade. Firms need to establish alternative sources of financing to excel in international trade and to reduce dependence on these lending firms.
Demir, B. (2014, October). Trade financing: Challenges for developing-country exporters. In CESifo Forum (Vol. 15, No. 3, p. 34). Institut für Wirtschaftsforschung (Ifo).
Foley, C. F., & Manova, K. (2014). International trade, multinational activity, and corporate finance (No. w20634). National Bureau of Economic Research.
Helpman, E., & Razin, A. (2014). A theory of international trade under uncertainty. Academic Press.
Jung, W. O., Park, S. O., & Chung, H. (2015). Debt Financing and Voluntary Adoption of the International Financial Reporting Standards: Evidence from Korean Unlisted Firms. Emerging Markets Finance and Trade, 1-13.
McGovern, E. (2015). International trade regulation (Vol. 2). Globefield Press.
Wild, J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.
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