East Africa Fruit and Veg Ltd Export Strategy - Case Study Example

MANAGING INTERNATIONAL TRADE: BOARD PAPER Paper Reference: ID No. Paper: 22/09 East Africa Fruit and Veg Ltd Export Strategy ForEnd of Module Assessment Synopsis The choice of a company to enter into international market is imperative and key decisions regarding the entrance must be made. Trade for products such as vegetables and fruits have risen because of high demand brought by increasing population and income. However, for any firm to meet the standards of international markets, it has to make wise decisions regarding the productions, logistics, benefits and risk involved. Recommendations I recommend to the board of directors of East Africa Fruit and Veg Ltd to adopt and implement my export strategy proposal. The parameters of this project seek to expand the firm’s market share to international market. To achieve this, East Africa Fruit and Veg Ltd should increase its production capacity to match the required number of commodities in both domestic and international market. Health standards of fruits and vegetables must be considered by the firm. Logistics of the company should also be improved to match the international standards. Additionally, the firm should first establish a rapport with importers from international market to ease the sale of their products. Background International trade is important to every country in the world; through trade negotiation between different countries, international trade has been made possible. Mukherjee (2002) explains that the international trade is characterized by trade between different countries in different parts of the world. However, questions have been asked, why do countries engage in international trade? Ricardian theory of international trade explains the reasons behind involvement of international trade by countries. According to the theory, international trade is significant to countries because they specialize in the production of goods and services at low cost utilizing the available materials. The theory by Ricardo states that countries value the opportunity cost of the product or services they need to avail in the market. The higher the opportunity cost, the more the country considers it as the best commodity to produce. On the other hand, the products with less opportunity cost are not considered. However, due to different opportunity cost of production in different countries, international trade arises. Different countries will have to trade in goods they cannot produce because of low opportunity cost of such commodities. However, firms engage in international trade so as to make more profits. This is because domestic trade has some limits such as small number of customers within the country and high competition; there could be other firms producing similar commodities. Additionally, the current economy is defined by growth of international trade and increasing corporation of firms. Firms enter international markets to gain advantage of new markets, to lower the costs of business through international businesses and have access to the raw materials available in international countries. According to Madura (2014), firms apply various methods in international trade. The common and most applicable methods are; international trade, joint ventures, franchising, licensing, mergers and acquisition. For example, international trade has given opportunity to firms to export their products to markets outside the country. Conversely, firms can get commodities at cheap prices from international firms. Availability of information technology such as the Internet has made it easy in achieving growth in international trade. Companies can post their products online where importers can view and request the products from exporting company. Additionally, consumable products can be availed to customers by shipping to them after they have confirmed their requirements on websites. Furthermore, the Internet can allow both the exporting firm and customer to monitor the products. The exporting firm and the importer can communicate through email. With the recent increase of international trade, this paper is proposing to the board of directors of the East Africa Fruit and Veg Ltd to consider export of their products to European Market, specifically to Germany. The East Africa Fruit and Veg Ltd is a Kenyan firm that farms a variety of fresh fruits and vegetables. The products are sold locally and to neighbouring countries, Tanzania and Uganda. The company started with a variety of vegetables such as tomatoes, peas, beans sweet peppers and onions. Quite a number of fruits are also farmed and sold by the company; they include bananas, citrus fruits and grapes. However, owing to the large competition in the international market, the firm should specialise on three varieties of vegetables (tomatoes, peas and onions) and only one type of fruit, bananas for export. According to Saunders and Hayes (2007), trade of vegetables and fruits have risen for the last decade with estimation increase of the fruit trade by 43% and vegetables by 37%. However, most exporting countries have advanced economies like the United States, France, Netherlands, Italy and Belgium. On the other hand, importers are Germany, the UK, and the United States. It is clear that African countries face high competition from advanced economies. Specialisation on a small variety of export products is important for firms such as The East Africa Fruit and Veg Ltd. Approaches Used to Adhere to Instruments of Trade Protection A study by Minot and Ngigi (2004) reveals that the export by Kenyan firms has increased successfully by 6% for the past three decades. The increase is attributed to high returns to the farmers as compared to other crops. Additionally, the ever growing number of tourists in Kenya provides access of horticulture products to European markets. Frequent air transport system for tourist to Kenya from Europe gives exporters an opportunity to access European markets at lower cost. Exporters take opportunity of cheap airfreight, and these include cargo jets and passenger jets. In addition, a high number of tourists boost the demand of fruits and vegetables in local hotels and restaurants. This is an opportunity for firms such as The East Africa Fruit and Veg Ltd that sells its products locally to gain more ground on fruit and vegetable requirements for export. On the other hand, Kenyan government is supportive, its policies favour international trade and foreign investments. With this view, East African Fruit and Veg Ltd have more benefits to exports its products to Europe. Since the inception of the firm, most of its products are largely farmed with less application of pesticides and chemicals. The firm uses green manures and animal manures. Animal manures are obtained from the local farmers at a reasonable fee. Tomatoes and peas are farmed on greenhouses. Management of greenhouse is easy as compared to open fields. Environmental conditions such as humidity, temperature, rainfall and solar radiation are easy to manage. Additionally, greenhouse is beneficial to farmers because they can easily manage pest and diseases (Trivedi 2006). This explains the less application of pesticides by the East African Fruit and Veg Ltd firm. Among Non-tariffs regulations required by European markets, exporters are required to supply organic foods to European markets. Germany is governed by the European Union agricultural policies among them the requirements of exporters to supply organic foods. East African Fruit and Veg Ltd can meet the required standards to supply organic foods to Germany. The board of directors should consider this opportunity as a way of increasing its revenue and expansion of its market share. Export-Related Strategies The increase in demand for fruits and vegetables in developed countries is an opportunity for firms such as the East African Fruit and Veg Ltd to maximise its profits. However, access of such a vast market is not easy for a small firm among the big firms from advanced economies such as the U.S. firms. Research reveals that the U.S. is the highest exporter and importer of fruits and vegetables. China is a developing country that has recently emerged as the highest supplier of vegetables and fruits to the EU market. African countries must take the advantage of reduced tariffs and barriers to international markets. East African Fruit and Veg Ltd have identified a number of strategies that will assist in access of German market. The strategies include the implementation of indirect export to German market. Here, it is indirect export because the company is still new to the German market. The firm will have all the details required including contacts for importers overseas. The company will also avoid risks and difficulties of operating alone in new market. Firms that can team up with The East African Fruit and Veg Ltd are the export trading companies and export management companies. Export management company deals with one product and can give exporting firm a ready market to sell its products (Cullen & Parboteeah 2013). Inputs and production by the firm should be of high quality to meet the international standards. Most international firms especially from advanced economies gain more market shares because of high quality of their commodities. Accessing Market Opportunities Marketing strategy should be developed by the firm based on the information collected regarding the target customers or market segment. Larger markets require thorough segmentation strategies in order to ascertain the interest and taste of customers as well as their purchasing and consumption behaviour. The firm can do this by studying the behaviour of rural-urban context, domestic living standards, marketing, social behaviour and the media infrastructure. Clear analysis of consumer behaviour and other relevant activities will provide the firm information on how it will avail the products. Additionally, the company will be able to have fine strategies regarding positioning and promotion of the products (Douglas & Craig 2011). However, access of international markets is quite risky for new firms. First, there are tariffs and quotas which the exporting firm should consider. Tariffs are high on processed fruits and vegetables as compared to fresh fruits and vegetables. There are also non-tariff measures imposed on importers by the government. Some of the non-tariff measures include sanitary and phytosanitary measures. These measures are imposed by governments to minimise animal, human and plant health risks resulting from the spread of diseases, pests and toxic foodstuffs (Johnson 2014). However, The East African Fruit and Veg Ltd is aware of such regulations, most of its produce are farmed on greenhouses. Additionally, the firm uses organic fertilizers such as green manure and animal manures. Application of organic manure reduces the toxicity of products. This is one requirement of non-tariff measures. In addition, tomatoes and peas from the company are farmed in greenhouse that makes it easy to control diseases and pests. Logistics, Modes of Transport and Information Technology Some might argue that products from the farm might not reach the deemed consumers on time without getting spoiled. Organisms such as bacteria and viruses, insects and rodents might destroy the products after it has been harvested and packed into boxes or grades. Additionally, products might get contaminated with other products and get spoiled. However, a reputable company like East African Fruit and Veg Ltd will not allow its products to go to waste. The firm has experienced personnel that can ease packaging, packing and levelling of the products. Additionally, the firm uses air transport system to deliver vegetable and fruits to Germany in a short time. Workers handling the products during harvest should handle with care to avoid breakage, development of tissue wounds and squeezing of products (Ismail 2008). Products will be advertised to prospective buyers through the firm’s website. The firm will also be advising the buyers to check the availability of products on websites. Buyers can follow and confirm the inventories through email. Good communication with the buyers with help of the Internet will improve company’s reputation in international markets. Ethical Issues Cases of low-wage compensation are common in industries especially in developing countries. Additionally, some industries pollute rivers by discharging waste products directly to the river and dumping waste product in the wrong place. However, the East African Fruit and Veg Ltd is ethically responsible company and will give the right package to workers to match the work they are providing. Additionally, waste materials such as leaves will be used by the firm to make green manure (Prabakaran 2010). Benefits The company will benefit wholly if the board of directors consider this proposal. The benefits are as follows; access of international market will provide the firm with a large market share. It is common to find another firm similar to the East African Fruit and Veg Ltd fighting for a small number of customers. However, gaining access to international market will provide the firm with more customers. The firm can easily compensate the loss attained in either domestic or international market; this will provide the firm with morale to expand its business. Barriers Access to international market is not easy for a firm from a developing country. Quite a number of firms exporting vegetable and fruits to Germany have from advanced economies, for example, the U.S. and France. Such countries are technologically advanced and have all the resources. The East African Fruit and Veg Ltd should consider such barriers before investing on this strategy. Signature and Date: Your full name and date of board paper (DD/MM/YYYY) References Cullen, J & Parboteeah, K, P 2013, Multinational Management, Cengage Learning, California. Douglas, S, P & Craig, C, S (2011), ‘The role of context in assessing international marketing Opportunities,’ International Marketing Review, Vol. 28, no. 2 pp. 150 – 162. Ismail, R 2008, Logistics Management, Excel Books India, New Delhi. Johnson, R 2014, Sanitary and Phytosanitary (SPS) and Related Non-Tariff Barriers to Agricultural Trade, Congressional Research Service Madura, J 2014, International Financial Management, Cengage Learning, Connecticut. Minot, N & Ngigi, M 2004, Building On Successes in African Agriculture Are Kenya’s Horticultural Exports A Replicable Success Story? Focus 12, Brief 7 of 10. Mukherjee, S 2002, Modern Economic Theory, New Age International, New Delhi. Prabakaran, S 2010, Business Ethics and Corporate Governance, Excel Books India, New Delhi. Saunders, C & Hayes, P 2007, Airfreight Transport of Fresh Fruit and Vegetables: A Review of the Environmental, International Trade Centre, Geneva. Trivedi, P, C 2006, Advances in Plant Physiology, I. K. International Pvt Ltd, New Delhi. Read More