Trade Finance

Without trade finance, there wouldn’t be Indian spices, clothes, or jewelry in the United States. Or Apple’s iPhones in China, much less any other international product at any respectable distance from its origin. In fact, according to Investopedia, the World Trade Organization (WTO) estimates that international world trade has expanded 80%-90% thanks to trade finance. For this to continue, companies need to include trade finance in their business development strategies.

Market penetration and market development are key parts of a business development strategy. Market development involves selling more of your service or product to repeat customers. While market penetration is about expanding your product or service to other cities and provinces, it can involve inland trade finance. As you may have to renegotiate local and provincial trade deals. For instance, let’s say you sell jewelry. A business from a neighboring city may purchase your jewelry and sell it to its customers. You have a long history with this client. And know that your product is selling quickly in your customers’ shop. In which case, you could propose selling the client more jewelry for a bulk price. After negotiating, the client agrees. However, despite the long, positive history you’ve had with the client, the client may not feel comfortable paying you before you export the jewelry. This is where a trade financier or banking institution comes in, providing a letter of credit promising that you will export the jewelry upon payment.

With repeat customers, you’re doubling the number of products the repeat client is importing. And, with new clients, your new product or service will expand your client base. It’s important that you first create new products for your repeat customers before jumping to new customers, as it involves more risk. Again, trade finance can help cultivate more trust during this period of growth. Since trade financiers or banking institutions can create letters of credit, laying out the terms the importer and exporters must follow.