MANAGING INTERNATIONAL TRADE - Coursework Example

?MANAGING INTERNATIONAL TRADE: BOARD PAPER Paper Reference: ID No. Paper: DD/MM/YYYY of Paper: Export Strategy of an Organization For End of Module Assessment Contents Contents 2 Brief Synopsis of the Issue 3 Research on the Assignment Topic 3 Background 4 Recommendations 5 Arguments against Recommendations 7 Arguments in Support of the Recommendations 7 Implementation of the Recommendations 8 Reference List 10 Brief Synopsis of the Issue The paper deals with a case where a company, operating in a developing nation, would develop an export strategy to trade its products or services in a European country. The state of trading affairs has become highly complex after the emergence of globalization. History has shown that developing nations have substantially progressed with the essence of open market operations in international trade. It is not possible for a firm to gain competitive advantage and lead the market competition without the help of internationalization of business. However, it should be analyzed that without the help of strategic planning in business, it is not possible for firms to expand in the competitive international markets. Effective strategies, framed through strategic management principles, help a firm to progress in the long run. This project would consider ways in which the Indian (developing country) consumer goods firm of Godrej Consumer Products Limited (GCPL) would export or initiate its trade in the competitive market of Paris in France (European country) (Godrej, 2013). Research on the Assignment Topic The economy of France, unlike India, is highly developed. Almost all the business segments of the country have progressed (David, 1986). The majority of the business segments of the country are privatized, which reasons out the strong competition in the market of France between the companies. The per capita income level of the country has increased from $35900 to $36100 from 2010 to 2012 (CIA, 2013). The high and increasing level of per person income is responsible for the high standard of living in the country. The aggregate demand created by the domestic individuals in the nation, regarding consumer goods services, is high in France. This is because consumer care products are sort of comfort or luxury goods that have a positive income effect. With the rising income of the consumers, the demand for such goods would also increase. High demand in the market has increased the degree of competition of FMCG companies in France. The consumer goods firms already exhibit monopolistic competition with each other in the country. Thus, when the Indian company would formulate its export strategies, it has to clearly understand the business market of France. The Indian company should realize that the population of France is 61 million as recorded in 2012 (CIA, 2013). Thus, if it becomes successful in exporting its products in the affluent market of France, then it would enjoy a wide base of customers. Rather, the trade barriers in France are also few as the company’s public authorities impose less restrictions on trade. The government of the country always encourages higher degree of privatization and international trade to augment its level of social welfare. Approximately $577.7 billion worth of goods and services are imported in France (CIA, 2013). This proves that the government of the country is very lenient towards foreign investments. The country has a high international reputation. However, Godrej must realize that the first language of the country is French, so it must have trading employees who are well-versed in French. The rate of taxation imposed by the French government is approximately close to 20% (CIA, 2013). Thus, on the whole, it can be concluded that the French market is a highly competitive, rich and liberal market. The strategic decision adopted by the company, for exports in France, must consider the market conditions of the same explained above. Background Among all the sectors in an economy, the FMCG (Fast Moving Consumer Goods) sector is one of the most popular segments, which accounts for the high competition in this industry. However, Indian companies are often found to have competitive advantages in this sector as they have access to cheap raw materials and labour resource. Even during the global recession in 2007-2008, the FMCG sector in the global market had experienced a growth rate of about 14.5 % (CIA, 2013). Godrej Consumer Products Company is one of the leading firms in Indian FMCG sector. The degree of competition among the firms in this sector is monopolistic in nature. The firms exhibit cut-throat competition with each other in this industry and incur large investments in intensive advertisement campaigns (Johnson and Scholes, 1993). Price wars are also common for the firms in this industry. The entry barrier in this industry is very low. Any new firm can enter and serve a strong competition to the other firms, provided they possess cost competences. Thus, it would be highly rational for Godrej to set a plan for exporting its products to the competitive FMCG market of France. The consumers demand in this industry is relatively elastic with a lot of scopes for new product development. The bargaining powers of the suppliers are low as the raw materials are mostly homogeneous in nature. However, the bargaining powers of the consumers are high as they get a lot of variability in the market. The company can either adopt an indirect export strategy or can establish a direct one. The indirect exporting strategy is lesser costly than the direct exporting strategy. Since the value of French currency is higher than that of India, the cost of business operations for the company would be much higher in France. So at the first instance, it is recommended that the company should adopt the policy of indirect exporting strategies (Janczak, 2005). Recommendations The export strategies of the firm would concentrate on indirect methods of exports. These may be: Exporting with the assistance of an Export Management Company The Export Management companies are the independent firms who solicit the foreign buyers in a country on behalf of its clients. These companies also appoint special sales representatives to promote the sale of goods of its client in the foreign market. On behalf of the clients, the warranties and after sales strategies can also be carried out by these companies. The Method of Franchising The method of franchising involves two parties in business, where the franchisee (one party) is allowed to market the goods and services of the other party (franchisor), by using the trademark of the franchisor. This process of trading is highly popular in Europe (Hitt, Ireland and Hoskisson, 2009). Licensing The facility of licensing is related to the protection of property rights of a firm. This method is found to reduce the cost of internationalization and help the firms to maintain less capital requirements to create the overseas manufacturing facilities. The licensing contract should not violate the regulations in the foreign companies. Exporting through the Retail Merchants These are the wholesale companies that sell the unpacked products of the overseas manufacturers under their own brand name. Although the promotional activities for the products of the firm are effective through this system, yet it neglects the brand value of the original company. Arguments against Recommendations Indirect exporting strategies, on the whole, involve a greater degree of risk than the direct exporting process. The original company in this case would not have desired control on any sales or marketing activities (Davis, 2008). Indirect strategies would not help the firm to gain practical experience of trade in the overseas market. The exporting decision might prove to be futile, if the choice of distributer and market is wrong. Incorrect marketing strategies adopted by the overseas distributers might generate lower sales than that which could be achieved by direct exporting methods. Arguments in Support of the Recommendations The Indian company would get an opportunity to access the foreign market faster through the experienced activities of the foreign distributer. The indirect exporting methods would involve less cost and the saved resources can be invested by the company for production purposes. The cost associated with the sales and marketing in the foreign country would be mostly incurred by the foreign distributing partner. Thus, the company would have less financial commitment in this system. With the help of this mode of export, the company can lower its business risk as well as concentrate on upgrading its research and development and marketing strategies in business. The management team of the company would be less distracted with these strategies. The company can avoid any challenges that it could have faced by exporting directly (Alkhafaji, 2003). Implementation of the Recommendations Exporting with the assistance of an Export Management Company 1. Learning the dissimilar legal issues connected with the method. 2. Broadcasting the forthcoming export merchant companies. 3. Assisting the export merchants. The method of Franchising 1. Being aware of the business in detail. 2. Learning the different legal issues associated with the method. 3. Recognizing the growth methods. 4. Screening the most prospective franchisees. 5. Establishing the correct restrictions in the process. 6. Effectively supporting the franchisees. Licensing 1. Choosing the partner in the process. 2. Learning about the chosen partner. 3. Understanding the rules and regulations. Exporting through the Retail Merchants 1. Learning the different legal issues associated with the method. 2. Screening the most prospective export merchants. 3. Assisting the retail merchants. Reference List Alkhafaji, A. F., 2003. Strategic Management: Formulation, Implementation, and Control in a Dynamic Environment. 21st ed. London: Routledge. CIA, 2013. The World Fact Book. [online] Available at: < https://www.cia.gov/library/publications/the-world-factbook/> [Accessed 17 December 2013]. David, F. R., 1986. Fundamentals of Strategic Management. Columbus: Merrill Pub. Co. Davis, J. R., 2008. Does Environmental Scanning by Systems Integration Firms Improve Their Business Development Performance? Michigan: ProQuest. Godrej, 2013. Godrej. [online] Available at: [Accessed 17 December 2013]. Hitt, M. A., Ireland, R. D., and Hoskisson, R. E., 2009. Strategic Management: Competitiveness and Globalization: Cases. 8th ed. Connecticut: Cengage Learning, Janczak, S., 2005. The Strategic Decision-Making Process in Organizations. Problems and Perspectives in Management, 3 (2005), pp. 58-70. Johnson, G., and Scholes, K., 1993. Exploring Corporate Strategy. 3rd ed. New Jersey: Prentice-Hall. Read More