XYZ Company Strategy on the Kuwait Market - Essay Example

?Our XYZ Company is an US based Automobile manufacturing company exporting various vehicles to major countries in the world. In the present paper theexport strategy we developed for Kuwait market will be analyzed. 1. Need of the importing country for our product and our firm’s production advantages Kuwait is a very small but very wealthy oil producing country with GDP of $165.9 billion in 2012, growing at a rate of 6.3 percent and GDP per capita is about $43,800 (CIA, 1). There is a strong growth in vehicle sales in Kuwait during 2012 and sales of new vehicles increased by 27% compared to last year with 102,944 units being sold and expected to grow by 25% during 2013, mainly because of booming vehicle leasing market (Market Research, 1). Due to high GDP per capita income Kuwait is an attractive market for luxury and high end vehicles. Kuwait heavily depends on importing vehicles from other countries due to lack of manufacturing facilities and the value of auto imports rose to 23% during 2012 (Kuwaitstay, 1). We are focusing on exporting luxury car segment as its demand is very strong in Kuwait. In Kuwait due to high cost of production because of lack of resources and high cost of labor, manufacturing facilities for vehicles are not profitable, therefore almost all vehicles are imported from other countries (Kuwaitstay, 1). Our vehicles have great demand all over the world and in Kuwait because of high quality, engineering and economies of scale in production. 2. Logistics infrastructure elements important to our export and their significance. Infrastructure logistics elements that are important to export of luxury vehicles in Kuwait are transportation and communication facilities, public utilities, banking services and retail distribution channels along with presence of good quality court system, protection of intellectual property rights and standards (David and Stewart, 41). 2.1 Transportation infrastructure : Good Transportation facilities are very important because international movement of goods is highly affected by infrastructure without which shipment faces delays, merchandise gets damaged and leads to inappropriately packaged product. In case of luxury vehicles quality and time is utmost important and any delay or defect will not be tolerated by the customer and results in huge loss to the company (David and Stewart, 41). However in Kuwait transportation infrastructure is well developed with international standard airports, merchant marine and ports and terminals, well connected paved roads and good warehousing facility to store imported vehicles (CIA, 1). 2.2 Communication infrastructure : For international transactions smooth communication with customers and suppliers by different channels like mail, phone or digital and electronic media is crucial for smooth business transactions, sharing of information, product promotion, timely decisions and delivery of product and in different countries importance of different channels varies (David and Stewart, 62). Kuwait is a developed country with highly developed communications infrastructure. 2.3 Public Utilities infrastructure : Public Utilities infrastructure like electricity, water, sewage and gas are crucial for operating a warehouse and establishment of corporate office because lack of adequate and reliable supply of these things disrupt the functioning of business and increase the cost of operations (David and Stewart, 65). In Kuwait electricity and gas are cheap and easily available and water supplied by desalination is affordable and reliable with good sewage system. 2.4 Banking Service and Retail Distribution Channels : Banking system is critical for financial transactions and reduces the risk of international business transactions and facilitates various services like options market hedging for hedging currency fluctuation risks. A well-developed retail distribution channel provides customers with product availability at convenience and proximity and helps a great deal in promoting the vehicle by store promotion and increase the point of purchase experience (David and Stewart, 72-87). 2.4 Judiciary and Laws and legislations: Quality of court systems, protection of intellectual property rights and standards safeguard the company from unfair trade practices, piracy, parallel economy and appealing in case of dispute for non- payment or wrongdoing by the partner, customer or the competitor (David and Stewart, 102-108). 3. Method of entry into Kuwaiti market and its justification. Our method of entry is exporting the vehicles to a renowned local distributor in Kuwait as regulations in Kuwait do not allow selling directly, importing for commercial purposes is restricted to Kuwaiti nationals only and new vehicles cannot be imported by others (embassy of Kuwait, 1). The distributor will aggressively promote our vehicle and also negotiate with the customer on various aspects like price and provide other services as well such as loan, insurance, after sales service etc., (David and Stewart, 76; Kuwaitstay, 1). A long term partnership with the distributor is tied up along with providing their staff with adequate training (David and Steward, 77). Distribution entry is best suitable also because of local distributor’s market knowledge and accessibility and it’s profitable for the company to deal with one customer in the market because of its small size and price and delivery terms can be well negotiated by the distributor (David and Stewart, 77). 4. Incoterm used and its justification. Incoterm or the terms of trade are terms that “the exporter and importer agree to use in a given transaction defines several aspects of an international sale” like “the tasks performed by the exporter, tasks performed by the importer, activities to be paid by the exporter, activities to be paid by the importer and when the transfer of responsibility will take place” (David and Stewart, 113). Incoterm is an acronym derived and was developed by International chamber of commerce (ICC) first in 1936 to standardize the terms of trade (David and Stewart, 113). The incoterm being used is CIF landed (Cost, Insurance and Freight). As international invoices are raised between us and the distributor, who is importer of our vehicles and shall carry inventory of all goods, carries much more risk, to make it attractive and more affordable, CIF landed is used as a marketing tool. In CIF landed the exporting company bears all the cost of freight, arranges for carriage and insurance because the product is of very high value and quality cannot be subjected to any damage risk or careless handling. The transfer of risk point is at the port of shipment as the goods pass over the ship’s rail and all costs of shipping are paid by us including export clearance fees, insurance charges etc., along with the unloading charges at the port of destination (David and Stewart, 113-122). 5. Terms of payment we plan to offer and its relevance. We are offering to apply open account method as terms of payment. In this method international business is conducted by the exporter same as domestic business. In this method an invoice along with the shipment is sent by the exporter to the importer trusting that he will pay within a generally accepted credit time in the importers country usually 30-90 days. It requires complete trust in the importer because goods are shipped without any guarantee of payment (David and Stewart, 142). We have chosen this method of payment because our local distributor is large, well established firm with excellent credit rating and we are looking forward for a long and ongoing relationship and this method is most appropriate in such cases. In Kuwait it is very necessary to use this payment method to partner with the distributor and make sales because they give utmost important to relationships and trust. However by using commercial insurance we will cover the risks arising from nonpayment of bills as it very difficult to recover if buyer fails to pay as litigation costs are very high (David and Stewart, 142-143). 6. Our strategy to protect against currency fluctuation risks and the method adopted. Currency fluctuation risk is inherent to any international business that agrees foreign currency use in its transactions. However this risk can be handled by the firm either by retaining or hedging or reducing the risk by determining its decision invoice by invoice basis or setting a policy for all its foreign currency transactions (David and Stewart, 187). Retaining the risk is not appropriate because of large amount of transactions; therefore the company will follow the strategy of options market hedges as it is a sophisticated alternative and we have set the same policy for all our transactions, that lets the company remain unhedged while retaining the risk and the unfavorable fluctuations in exchange rate is protected by purchasing an insurance policy. In this technique the firm can exercise its option of insurance policy in case of unfavorable exchange rate and cover the loss and if exchange rate becomes favorable then the firm benefits and the need does not arise for exercising its options only the cost of the option has to be incurred. (David and Stewart, 184). The only downside of this technique is options are very expensive and only few currencies are traded in options market hedges. However banks custom made the options according to our needs and this strategy has great potential for our international trade (David and Stewart, 182-187). 7. Other risks and measures taken to minimize them. The other risks the company will be facing are infrastructural implications, as Kuwait is facing serious traffic problems due to large number of cars on its roads, the Government is mulling to reduce the number of cars or increase alternative means of transportation or build more roads. In such scenario might affect the demand for the cars in Kuwait (Rekuwait, 1). Therefore we have planned to help the government in improving its infrastructure rather than reducing cars or increasing other modes of transportation and supplying more fuel efficient cars that consume less fuel and emit less Carbon Dioxide. Kuwait government is also moving into backward integration where it is investing in production facilities and thus trying to reduce reliance on imports of vehicle this might not have impact in the short term but affect in the long term (Kuwaitstay, 1). If it is advantageous for our firm we might also look forward to Kuwait investment in our manufacturing plants and change this threat into an opportunity. Apart from that the growing tensions between US and Iran might disrupt the gulf shipping route and might cause logistical problems (Reuters, 1). We have put in place a contingency plan of using other modes of transportation or other safe sea routes. 8. Our packaging strategy. The standardized product strategy is being adopted for exporting luxury vehicles to Kuwait because customer is looking for a branded reputed vehicle with legendary features however certain technological and tire modifications are done to suit the hot and humid Kuwait climate and to run on desert areas. The Adaptive packaging strategy is used to suit the needs of the customer, all the manuals, instructions are given in Arabic, as it is the main language spoken in the country apart from other major international languages. During shipping utmost care is taken to ship the product undamaged. Big containers are used to ship the vehicles and are secured by cables and holding them in place by using straps so that denting and scratching can be avoided and can be transferred to the warehouses easily (David and Stewart, 358-364). From the above export strategy that covers various aspects of export we plan to enter the Kuwait market and capture a large share of luxury segment and developing our business for a long term success. Works Cited CIA. The World Factbook – Middle East – Kuwait. Central Intelligence Agency – USA. 2013. Web. 11 Mar, 2013. David, P.A and Stewart, R.A. International Logistics – The management of International Trade Operations. Cengage Learning. 2010. Embassy of Kuwait. Importing to Kuwait. Embassy of Kuwait Canada. 2013. Web. 9 Mar, 2013. Kuwaitstay. Kuwait car imports set to rise 23%. Kuwait Stay.com. 2013. Web. 8 Mar, 2013. Market Research. Kuwait Autos Report Q1 2013. Market Research. 2013. Web. 10 Mar, 2013. Re:Kuwait. Traffic. Urban Analysis and Solutions. Re:Kuwait. 2012. Web. 7 Mar, 2013. Reuters. U.S. Allies ready more anti-mine drills as Iran tensions simmer. Reuters. 2013. Web. 8 Mar, 2013. Read More