About 95 percent of the world's population lives outside the United States, but many US companies, especially small businesses, still do not engage in global trade. Why not? Do you think more small businesses will participate in global trade in the future? Why or why not?

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There are many considerations. One is language barriers. While many people all over the world either know or are studying English, there are many more who are not familiar enough with the language in order to shop. While the Internet offers basic translation services, these are sometimes imperfect and can...

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There are many considerations. One is language barriers. While many people all over the world either know or are studying English, there are many more who are not familiar enough with the language in order to shop. While the Internet offers basic translation services, these are sometimes imperfect and can lead to misunderstandings.

Another consideration is shipping costs. It costs a great deal of money to ship goods outside of the United States; often, these goods have to be insured as well. Many small companies do not wish to pay this kind of overhead to ship cheap consumer goods outside of the country. There are also currency exchanges to consider as well, though in the future virtual currency may make this easier.

Another reason is the supply of product to be sold. If one is selling products all over the world, this involves potentially having a great deal of products. This in turn can mean more warehouse space and employees. Deciding to become a global company is a major investment and many do not wish to invest this kind of money in a business that may or may not succeed. Also, financial downturns in another country's market such as China or Japan may adversely affect one's business in one's own country.

While the potential for profits is huge when one is able to trade with the entire world, there are also investment and risk considerations as well. One needs enough products to sell and the means to get the product to the consumer as efficiently as possible. There are also translation concerns in addition to being aware of political and economic problems in other countries. Though the world has been made smaller through e-commerce, many in small business choose not to trade internationally because it is not worth the risk or investment.

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Trading outside one's own country is complex, requiring dealing with regulatory environments of different countries, various tax regimes, different cultures, and different languages. Thus it involves considerable overhead for small businesses.

The United States is relatively geographically isolated. This means that trade with Canada and Mexico, simplified by NAFTA, is appealing to some small businesses, but other international trade in material objects requires large transportation costs. Although the United States is not a large portion of the world's population it does represent almost 20 percent of the world's income and thus can function on its own as a market for many businesses unlike less prosperous countries.

For many small businesses, the overhead required for global or even national trade is large enough so that it may eat into profits. The exceptions, and firms likely to go global, include luxury products with very high profit margins, and virtual goods or services which can be marketed through global platforms such as Upwork.

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Even though the global market is highly lucrative, small businesses from the US don’t engage in international trade because they fear the unknown. Most business owners are not familiar with foreign countries and their cultures; therefore, they’d rather not invest in such countries. Also, many of them are not ready to learn about new cultures because they are satisfied with their own. As a result, they’d rather do business in a familiar territory.

However, the situation could change in the future. As more Americans travel abroad and learn about foreign cultures, we could see an increase in the number of U.S. companies overseas. It will take time, but it will eventually happen. Furthermore, the internet has allowed people from different parts of the world to learn about each other’s culture and exchange ideas.

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Most companies around the world are not involved in international trade.

There are two basic reasons for this; one is rational, the other less so.

The rational reason is trade costs. It can be expensive to set up the sort of logistics and distribution networks that are necessary to get involved in world trade. Particularly for very small businesses, these costs could be prohibitive. In fact, many very small businesses only work with customers over a very narrow geographical area (such as within the same city, or even the same neighborhood) because expanding beyond that is so costly.

The less-rational reason is home bias. There is a well-documented bias in trade patterns around the world, which has been called the home bias in trade puzzle. Most countries only trade a small portion of their economy, and trade most with countries that are nearby and very similar to them. With modern distribution networks, it's implausible that trade costs are actually that high, especially for large corporations; and worse, comparative advantage should be largest with countries that are more different, not countries that are more similar.

Behavioral economics gives us some insight into this problem. The best evidence we have so far suggests that people basically identify more with those who are more similar to them, as well as those whom they have more contact with---for example Americans identify most of all with Americans, and to a lesser extent with Canadians and Europeans, and much less so with people in China or India. People are more comfortable trading with people they identify with, and are more willing to trust them (and remember, almost all transactions require some degree of trust). As a result, most trade happens between countries that are very similar to each other, because those are the countries people feel most comfortable trading with. Even if there would be economic advantages to trading with unfamiliar countries, people are simply less willing to try it.

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