When we expand our business to foreign countries we can do it in very diverse ways. We can define international trade as the “exchange of goods and services between two or more countries or economic areas” But how can we market these products? Which way is more suitable for my company?

When studying an international business master we learn that one of the most important steps when expanding our company is to decide our strategy before we start the internationalization process. In this post we are going to talk about the different options and forms that we have when doing international trade, let’s see which one suits you best.

Traditional forms of international trade: Export & import

Here we can find the export and import of our products or services. As we all know, the export refers to the shipment of our products and services to anywhere beyond the frontiers of our country for commercial purposes. This leads to cross-border transactions.

Depending on the presence or not of an intermediary agent the export will be considered direct or indirect. The direct model is usually used in European business and between large companies, holding the transaction directly between the exporting and receiving country. This requires a better knowledge of the foreign market as well as access to fairs and advertising campaigns in order to attract and maintain direct contact with potential customers.

In the indirect export model the producer sells his goods to a national intermediary specializing in international trade. This way, the risks of distribution are assumed by the intermediary, hence the advantage of this model for small and medium businesses that can’t afford to build a distribution network abroad.

“The indirect export and import models are more suitable for small and medium businesses how can’t afford to establish a distribution network abroad and can’t assume all the risk of the operation”

The import, however, is defined as the purchase and sale of foreign goods and services for the consumption in a certain country or territory or for further processing. We can also find two models in here. The direct importation is when the transaction happens without intermediaries, mainly used for raw materials and unfinished products.

Nevertheless, the indirect importing model an intermediary is in charge of purchasing to the foreign producer. This is useful for small and medium companies who prefer a temporary import rather than taking a constant flow of goods. Moreover, it usually offers a smaller cost than maintaining branches abroad.

Special forms and agreements for international trade:

These are the complementary forms to the traditional ones, but due to their economic nature, magnitude or legal character they can’t be included within the import and export models.

Direct international investments: Capital investments that companies from a country can make in foreign regions. The purpose is usually to establish long lasting economic relations with foreign companies.

Clearing operations: A way of external relations with production and sales cooperation characteristics but with different effects. The aim is to import without spending much on currencies and make payments through other goods or services. This is also known as “Business reciprocity”.

Processing operations: An operator refines raw materials or semi-finished products on behalf of a foreign partner in exchange of a wage.

Manufacturing under license: It consists on giving licenses of your products and services to other companies. It’s an alternative to exporting and it’s mainly used when a company has no financial or human resources to settle in a certain market.

Franchise: A form of collaboration between companies. There is a franchisor (the owner of the brand, product or service) who offers to the franchisee the possibility of creating his own business based on the brand in exchange of some remuneration.

Cooperation: Grouping of several legally and economically independent companies in order to perform activities such as running major overseas orders together or leading a joint venture in both countries, or even in a third one.

As you see there are many possibilities when internationalizing our business and selling our products and services beyond our frontiers. Knowing and understanding this variety of international trade forms is key for the successful internationalization process of a company.