Domestic vs International Trade: 5 Key Differences
Ever since the rise of human civilization, we have been involved in trades. It started with the barter system of exchanging goods and services. With the advent of currencies, we have started using money in our trades with other people.
As technology has opened new routes for trading on a global scale, we are witnessing large-scale organizations and individuals involved in buying and selling products and services in domestic and international markets.
While the essence of trade remains the same, there are differences when it comes to domestic and international trade.
A wholesale business that has been operating in a domestic market will need to understand the nuances of international trade while expanding operations overseas. Understanding the differences between markets will ensure businesses make the best use of the unlocked new opportunities while expanding and serving more customers in different markets.
What is Domestic Trade?
Domestic trade is the exchange of goods and services within the borders of a country. These trades can either be wholesale or retail. In wholesale trades, you may be involved in buying goods in large quantities from a local manufacturer and distributing it to businesses within your country.
Domestic trades have fewer regulations when compared to international trades. Since the trades happen within the country, a lot of aspects can be controlled by the local government. An example of domestic trade is a fashion clothing wholesaler buying in large quantities from a local manufacturer and selling them to stores within the country.
What is International Trade?
International trade is the exchange of goods and services between two entities across international borders. The world has rapidly grown due to international trade.
By selling products that are naturally abundant or easier to make in one country and buying products that are naturally scarcer or difficult to make in the country, consumers in the country can enjoy the best of what other countries have to offer.
International trade has contributed to the growth of global economies. Countries like China that are global suppliers of electronics and clothing have grown their economies and improved the quality of life of their people. Global trades have led to improved employment, better innovation, increased productivity, and higher efficiency.
Traders who venture into foreign markets can grow their businesses and make them more profitable. The changing domestic market trends will not affect the business and it will no longer be dependent on a single market. Political, social, and economic downturns will not have a major impact on the business if it is diversified globally.
An example of international trade is a fashion clothing wholesaler who not only supplies to domestic businesses but also to businesses in international locations. If there were political and economic factors that trouble the wholesaler locally, he can shift his focus to the international market and not suffer a significant drop in sales.
5 Key Differences Between Domestic and International Trade
International trades are complicated but they can be extremely rewarding. Here are five key differences that separate domestic and international trades.
1. Operational Area
Domestic trade is restricted to areas and happens within one country. Meanwhile, international trade is open and spread around the globe.
2. Policies and Regulations
Domestic trades have fewer policies and regulations. This is because all the trade activities fall under the authority of one government. Meanwhile, international trades have a lot of policies, regulations, taxation laws, and tariffs.
Different products have different tariffs and rules that have to be met in order for the trade to be successful. Failure to meet policies and guidelines by any one country will result in the product not being shipped or refused to be cleared by customs.
3. Transportation and Logistics
There are complications involved in shipping and transportation in international trades. They are inherently risky and the complexity of Incoterms, established by the International Chamber of Commerce (ICC), can be challenging for importers and exporters. Meanwhile, domestic trades do not have major transportation and logistical challenges.
4. Market Research
It is far easier and more accurate to conduct market research when your business deals with domestic customers. Cultural and social differences act as barriers to effective market research and targeting of international customers.
Domestic trades involve the local currency for all transactions. However, international trades can include multiple currencies and the fluctuations in exchange rates can impact the profitability of your business.
While international trades are filled with regulations and challenges, optimizing your strategy can deliver better results and higher profits. There is no reason why you should not expand to international markets. You can leverage better margins and reach more customers by entering overseas markets.