Free Trade and Venture Capital
Free Trade and VC funding can work together to help a region profit financially. Venture capitalists like Efraim Landa are looking for markets that are expanding and companies that are growing to meet the needs. These are the types of businesses a VC firm wants to invest in. Free Trade can be a compliment or a detriment to a region’s economy. Governments have a large role to play in the world of Free Trade and venture capitalists have to be careful to invest where they know there is going to be a return. Is it possible for Free Trade and VC firms to work together for the betterment of a region economically? Here are some things to think about.
What is Free Trade?
Free trade is where purchases and sales between countries is unrestricted by tariffs, quotas and duties. Most feel that free trade is a “win” for everyone involved because it lets each nation focus on and capitalize on what their strengths are in terms of goods and services. There is also a healthy competitive edge existing in free trade that maximizes the economic growth and output for each nation’s citizens.
Free trade lets each nation concentrate on manufacturing goods or providing services where they have an advantage. Free trade policies enable countries to generate foreign finances that allows them to purchase products and services that they cannot produce inside their own nation. The free trade process works a lot better when there are not a lot of barriers for imports.
Most economists express the sentiment that free trade helps make the world richer. As each country is allowed to specialize, their workers become more productive, allows more choices for consumers and helps reduce costs. They also say that free trade benefits smaller countries since the impact of them joining larger markets is felt more by their consumers and producers.
Positive Impact of Free Trade
There are arguments on both sides of the court on whether Free Trade is a positive or negative influence on a nation’s economy. Many argue that opening up to Free Trade costs jobs. But others stand by the argument that when there are no barriers to Free Trade small businesses can thrive. It opens up their market to be able to expand to a global reach.
For many businesses, Free Trade is beneficial since it allows them to export products to more locations on a global level. For the venture capitalist it means the possibility of increased revenue. This gives a top venture capitalist more reasons to invest in a small business since there is more room for expansion, growth and profits. This just makes sense since a company that can produce products and goods to send around the world will need to expand in order to meet a higher demand. In the long run, it means profitability for the company and the investing VC firm.
Negative Impact of Free Trade
On the flip side, in some regions Free Trade can have a negative effect on small businesses. Free Trade does not pose a fair proposition across the board for every region. Some countries may put tariffs or other restrictions on goods coming from other countries. This makes imported goods far more expensive which takes the edge off of the competitive market. It means consumers are less likely to purchase imported goods and buy from their own region. Another enemy to Fair Trade is subsidizing domestic businesses by local governments. This is an action committed by a government to ensure that local goods remain cheaper than imported goods. With this kind of government support, businesses are going to do well. But they will also not need the help of a venture capitalist. It also means that poorer countries don’t have the opportunity for financial growth through the expansion of the market.
Balancing VC and Free Trade
Free Trade can be a positive influence on a region and help boost the economy. A region which allows exports without placing financial barriers or restrictions will experience economic growth. This is one factor a venture capitalist looks for in a company they are considering investing in. By allowing Free Trade uninhibited, financial growth is unlimited and venture capitalists are more likely to invest in a growing business. The VC firm can look at a startup business and assess their rate of growth and pursue investing in the company rather than keeping their funds in their pocket for fear of growth being squelched by government subsidies or restrictions.
Posted on June 25, 2015, in History of Venture Capital, Venture Capital and tagged Free Trade, Global economics, International VC Market, regional economic health. Bookmark the permalink. Leave a comment.