Export Strategy for Oserian Flower Farm to Austria - Report Example

MANAGING INTERNATIONAL TRADE: Export Strategy for Oserian Flower Farm to Austria By Unit ’s Name Department Name Export Strategy for Oserian Flower Farm to Austria 1. Brief Synopsis of the Issue Oserian Flower Farm is one of the leading flower producers in Kenya, and exports its flowers mainly to the Netherlands. Generally, flower production is one of the greatest foreign income earners in Kenya. Kenya, together with Netherlands, Colombia, Ecuador and Israel, is one of the largest flowers exporting country in the world (Rikken, 2011). This report summarises how Oserian flower farm intends to export its flowers to a new market in Europe, with Austria being the preferred destination. 2. Recommendations Since the company has not been exporting flowers to Austria, it is recommended that it establish export business there due to its proximity to other markets. The flower industry, which is part of the larger horticulture industry, is one of the fastest growing economical sectors in Kenya. The demand in the local market is not sufficient for this product, thus necessitating the importance of establishing a marketing strategy for the export of this product to overseas markets, specifically Austria. In formulating the export strategy, the firm would need to assess its internal capability including resource endowment and management ability to successfully implement the export strategy (Zou and Kim, 2009). European countries have been the main importing countries of flowers in the world, with Netherlands dominating the importation at 60% among other countries. However, while carrying out a cross-examination of the European flower market, Austria stood out as the best emerging flower market in Europe. It was established that the flower demand in Austria is a bit higher than its supply. This prompted the writing of this report to show how Oserian Flower Farm can greatly benefit by exporting its rose flowers to Austria. There are four strategies of export that Oserian Flower Farm can utilize to export flowers to Austria, either one of the strategies or a combination (Bennett & Blythe, 2002). These include use of local intermediaries, use of foreign intermediaries, direct export through intermediaries and direct export through direct contact with target market (Alkhafaji, 1994). Here, the firm would be handling every aspect of the exporting process from market research and planning to foreign distribution and collections (Brady, 2010). The report recommends the firm to use intermediaries from Austria because they understand their country better and may have well-established niche markets. However, the firm should retain considerable control over the process and in the meanwhile, try to learn more about foreign competitors, new technologies, and other market opportunities in order to avoid exploitation by the foreign intermediaries (Reuvid & Sherlock, 2011). 3. Background Oserian flower farm is one of the rose flower producers in Kenya. Importantly, flowers are traded in the international markets more than local markets, with European and American countries dominating the flower trade (Rikken, 2011). In order to diversify sales by Oserian flower farm and reduce post-harvest losses, a recommendation is resolved to enter other international markets that the firm has not ventured into like Austria. Generally, there are several reasons why organizations enter international market. First, when a firm has outgrown the domestic market such that its capacity surpasses demand, purchasing power of domestic customers is low, and no incentives to expand domestically, the firm may decide to venture into international market. Secondly, when the company or country enjoys comparative advantage, it may decide to take advantage of the potential international market. When local competition becomes stiffer, the firm may decide to diversify its operations and sales in order to remain competitive and compensate for losses incurred in the home market using profits gained in international market (Nabi and Luthria, 2002). In the case of Oserian flower farm, competition in flower industry in Kenya is very stiff, with major competitors being Homegrown, Finlays, AAA Growers, and Sher Agencies. These competitors are international companies that have well established marketing deals in global markets. 4. Research on the Assessment Topic WTO Regulations According to the findings on Exploring Global Business, the WTO regulations were established by GATT to resolve any trade disputes among the member nations and to regulkate the international market as a way of enhancing a fair competition and level playing field. All members are obligated to observe GATT rules, with the primary objective of the WTO being to remove barriers to trade on a worldwide basis. It fosters formation of economic communities; an international economic community is an organization of nations to promote free movement of resources and products among its members and to create common economic policies (Terpstra, Foley, & Sarathy, 2012). Standards in flower industry are set both by producer groups and buyers, and they are normally business to business standards (B2B), which are not communicated to consumers. There are a number of consumer labels such as Max Havelaar/Fairtrade, fair flowers fair plants and flower label programme used in flower trade. Obtaining these labels indicates the level of compliance and shapes marketability of a firm’s products (Rikken, 2010). Free trade Free trade refers to unrestricted purchase and sale of goods and services between countries without the imposition of constrains such as tarrifs, duties, and quotas. The flower industry is a great example of how expanded trade has brought ernoumous ecomical benefits to various trading nations such as United States and Colombia. Tarrifs have effect on exports such that, when they are high the exporting country would have to seek an alternative market that offers lower tarrifs, but when they are low, the exporting nation will tend to increase exports in order to maxiize on the potential profits and gains. In a free trade economy, the exporting country would as well have to remove or adjust tarrifs accordingly in order to allow the trading partner export some of its products without restrictions. 5. Arguments against the Recommendation(s) Flower standards affect competion in the flower market by altering the terms of participation, which firms must comply with in order to remain competitive (Rikken, 2010). Failure by Oserian Flower Farm to comply with these standards means that it will not acces the identified market. Growers are required to participate in one or more certificate scheme so as to comply with buyers requirements (Terpstra, Foley, & Sarathy, 2012 ). Generally, certificates open up market segments to which they would otherwise not be able to supply (Faye, Mcarthur, Sachs & Snow, 2004). Although this strategy reduces sales, it is meant to reduce the overall cost of trade thus increasing efficiency of trading firms. Some of the standards aimed at the European markets that every firm willing to export to Europe must comply with include environmental MPS-ABC schems, FFB, Ethical Trade Initiative(ETI), FLP and the standarsds for Fairtrade Labelling Organization (FLO). Kenya Flower Council (KFC) , an Association of Kenyan flower growers, details the standards to be met in environmental, social, health and safety and good agricultural practices by all KFC members. These standards are aimed at protecting the proders, consumers as well as any other third party who may be affected by the practice of flower growers and traders. Neverthjeless, there are several risk factors in the flower industry including chemical exposure like pesticides and injuries from use of machines. 6. Arguments in support of the Recommendations By venturing into European countries as seen above, it will give the firm added advantages like expanded market and sales incentives. International trade can be expanded through the introduction of more progressive technologies, liberalization of government policies related to movement of trade and resources over national boundaries, and formation and development of institutions supporting international business (Nabi and Luthria, 2002). For many years, the relationship between Kenya and Austria in relation to trade has been cordial, with the former exporting tea, coffee, and fish to the latter and the European market in general. Given that flowers are perishable goods that need to be dispensed with within a short time, air transport would be the most idea in order to make sure the product reaches the market in good time. Indeed, there are many flights from Kenya to Europe, so transport would not be an issue. There is also a ready market for rose flowers in European countries. In most European countries, local production of flowers and plants is not sufficient to meet domestic demand, thus the need to import flowers from other flower producing countries. Imported products therefore play an important role in most markets, especially in those countries without comparative advantage in those products (Rikken, 2010). 7. Implementation of Recommendations The following strategies can be employed to overcome the challenges: First, Kenya could adopt a similar strategy to that adopted in Netherlands by establishing and implementing an Austria’s auctions strategy. Although there is no direct flight from Kenya to Austria, the company can use various airlines that fly to nearby European airports such as Heathrow, Brussels, Paris, and Frankfurt among others, and then connecting to Vienna either by cargo plane or by train depending on location. The advancement of information technology will also contribute significantly to export of flowers from Kenya to Austria, as the firm would be able to communicate with its agents in Austria with ease. In addition, the firm may adopt online transactions where marketing is done through online channels, orders are made online, payments are made online and business is closed online, thus saving time and cost that could have been incurred if one was to travel abroad to negotiate business. The Kenya Flower Council plays a big role in enhancing logistics and regulating the export business of flowers. Through enhanced logistical support, many flower exporters are now exporting flowers directly to destination markets rather than using the Netherlands auction, which has been the export channel for a long time. In order to boost sales, farms are now branding and packaging as a means of value-addition and then exporting through air to destination markets. However, there are barriers to export trade that the firm may encounter among them being competition from other firms exporting the same product either from Kenya or from another country. In addition, the fact that there is no direct cargo flight to Austria may work against the company due to potential delays in connecting airports. List of References Alkhafaji, A 1994, Competitive Global Management - Principles and Strategies, CRC Press, London. Bennett, R & Blythe, J 2002, International Marketing: Strategy Planning, Market Entry & Implementation, Kogan Page, London. Brady, D 2010, Essentials of International Marketing, M.E. Sharpe, WA. Nabi, I and Luthria, M 2002, Building Competitive Firms: Incentives and Capabilities, World Bank Publications, Washington. Faye, ML, Mcarthur, JW, Sachs, JD & Snow, T 2004, ‘The Challenges Facing Landlocked Developing Countries’, Journal of Human Development, vol. 5, no. 1 Reuvid, J & Sherlock, J 2011, International Trade: An Essential Guide to the Principles and Practice of Export, Kogan Page Publishers, London. Rikken, M 2011, Global Competitiveness of the Kenyan Flower Industry, viewed 1 April 2014 . Rikken, M, (2010). The European Market for a Fair and Sustainable Flowers and Plants, viewed 1 April 2014 . Terpstra, V, Foley, J & Sarathy R 2012, International Marketing, Naper Press, Naperville, IL. Zou, S & Kim, D 2009, Export Marketing Strategy: Tactics and Skills That Work, Business Expert Press, Read More