Thriving in a Competitive Global Market
Student’s name
Institution of learning
Thriving in a Competitive Global Market
Introduction
Despite the stiff competition in clothing industry, Moose & Walrus has emerged as one of the most popular and fashionable company in the industry. The company mainly focuses on clothes for young people. Although the company has endeavored to gain a huge market share in the domestic market, it is currently evaluating potential ways of enhancing future sales growth. It is possible due to the fact that the domestic market is currently saturated. The discussion essay provides comprehensive information on how Moose & Walrus clothing company should familiarize itself with international trade affairs before it fully commits in exporting its clothing products to foreign markets.
Definition of Exportation
Exportation is a subsection of international trade where produced products from one nation are shipped to another nation with the aim of making future sales or trade. The sale of such products in a foreign country adds up to the nations’ gross output. In case where trading transactions take place, exports are meant to be exchanged for other products. Most of the best performing companies in countries with advanced economies derive a substantial part of their annual revenues from exporting their products to other countries (Cavusgil, Knight & Riesenberger, 2014).
Moose & Walrus (M &W) is a manufacturer of a popular line of clothing for young people. It is firmly established in its home market, which is saturated and has little prospects for future sales growth. The top management of the manufacturing company has decided to export clothing line to foreign countries like Japan, Turkey and other European Countries. With the company adopting such strategy to promote its line of products, it will be able to accrue to a number of benefits, thus, extending its market.
Before any company committing its resources to venture in the products export, it must carefully assess the merits and demerits of exporting to a new market. A company has to make a deliberate move and first conduct a thorough market research.
Merits /Purpose for Exports
The sale of the clothing line to foreign markets where the manufacturing company had not ventured before will help boost sales and thus, increase the scale of revenues. In the long run, additional foreign sales, once the export development costs have been covered, will lead to increase of overall profitability for the company.
M &W manufacturing company will be able to gain a global access of market shares. By making its business to be an international company, it will be able to fully participate in the global market with other businesses, selling such lines of clothing products. It will enable the company to gain a piece of share from the huge international market place.
The manufacturing company will embrace diversification. With M&W doing international business wise, it will be able to sell its clothing products in multiple markets. It will allow the company to diversify its business and hence, spread the occurrence of risk. With the occurrence of changes in business cycles whether it is a boom or recession in one specific country, the company will be in a position to avoid such business changes (Rugman & Collinson, 2012).
M & W will be subjected to lower per unit costs. With the company running its business operation in different countries, it will be able to capture additional foreign markets. It will enable the company to expand its production scale so that to fully meet the foreign demand of its products. With increased production activities of the company, it will facilitate lower per unit production costs. It will contribute to a greater use of the existing capacities.
Exportation of the clothing line products will enable the manufacturing company to be in a position to compensate for seasonal demands. The company will be able to market its products in different markets, where demand seasons vary. Thus, if the demand for the clothing products is low in one country, the company will be able to compensate such low demand in another country, where the demand for the same product is higher. Such strategy clearly indicates that exportation of products helps facilitate the profits margins even in low seasons, since the company will be thriving well in other foreign markets.
Exportation of the clothing line products will also enable the manufacturing company to sell excess production capacity in a foreign market. It will help the company avert the losses and provide deep discounts. Also, it will help prevent the company from disposing its excess production.
The company will be in a better place to obtain new knowledge and experience in international business. With the company’s business operations going international wise, the company will gain valuable ideas and information about technologies, new marketing techniques and foreign competitors. With such valuable information about the foreign world markets, the company will be able to run business well both domestic and internationally.
Exportation of the clothing line products will enable to extend the life cycle of the company’s product. Many products go through various cycles, including introduction, growth, maturity and the declining stage. The declining stage is the end of the usefulness of the product in a specific market. Once the product in question reaches the final stage it can be introduced in different new markets, where the product has never been marketed before (Daniels, Radebaugh & Sillivan, 2009).
M & W will also be able to enhance its domestic competitiveness. Before any company ventures in the international foreign markets, it has first to become competitive in the domestic market (Porter, 1990). Being competitive in the domestic market will help the business to be in a good position to acquire some strategies that are of much use in the international arena.
With the company exporting its clothing line products, it will create potential for expansion of the company. With the company venturing in exporting business, it must have presence or representation in the foreign market. It ultimately demands additional staff and thus, leads to expansion.
Challenges Associated with Exporting
Although exporting products to foreign markets has advantages, on the other hand it has some challenges. A company must also conduct a market research so that to be aware of the potential challenges it may experience before venturing into international business operations. Following are the possible challenges that M & W manufacturing company may face.
The company will incur extra costs. The company will take more time before it develops extra markets in the foreign countries. The pay back periods are also longer. It also puts into consideration the up-front costs for development of new promotional materials, allocation expenses for staffl to travel to those foreign markets and other administrative costs associated with the setting up of new market places in foreign countries. All these costs summed up will strain the financial resources of the company.
The manufacturing company will also incur a lot in product modification. With the company diverging in the exportation of its products, it will be required to facilitate diversification of the products so that to fully meet foreign country safety and security codes. Such diversification comes with ensuring import and export restrictions. The modification process is also necessary for the products to satisfy the importing countries or packaging requirements.
M & W manufacturing company will be subjected to financial risk. Exportation of the clothing products will require some process of payments. The collection of payments using the methods that are necessary are time consuming. The payments processes for foreign sales are also very complicated. Such payment methods include open-account payments, use of consignment, documentary collection and also by use of letter of credit. The company will have to first weigh the financial risks it will be subjected to, if it has to participate in international transactions.
Exportation of products requires acquisition of proper export licenses and documentation. The documentation requirements for foreign transactions are more involving and complicated as compared to domestic sales. The export licensing requirements may also be quite demanding, hence making the company less competitive in the foreign business transactions.
The company has to incur costs in market research to have viable market information. Acquisition of information about the foreign world and the performance of its markets have proved to be unquestionably more complicated and time consuming in comparison with finding information and analyzing the performance of domestic markets. The situation becomes worse or more complicated for country that is less developed. It occurs due to the fact that reliable information on business practices, the market traits and the possible cultural threats to the success of business transactions may not be readily available.
With the company diverting to international business operations, it will have sacrifice a lot in terms of careful planning, capital expenditure, market knowledge, access to quality products, coming up with competitive pricing strategies and management costs. The company’s management must also realize that all the possible challenges and opportunities are the basis for succeeding in international business. The company’s management must clearly understand the merits and demerits associated with the exportation process. It is the main avenue of ensuring smooth entry into new foreign markets, maintaining the competitiveness in the foreign markets and eventually realizing profits. It will ensure that the company fully succeeds in international business.
A Systematic Approach to Exporting
Success in any international business undertaking requires acquisition of a clear, efficient and effective approach to facilitate the exporting of the products. M & W will have to come up with clear guidelines on the possible exportation approach so that to ensure the company succeeds in the foreign business. It has to come up with expert basics, which include:
Expert basic home – the expert basics will help the company assess its readiness to export, understand fully what it needs to know and make considerations before pursuing any international sales strategy. When the company is ready to undertake the whole process, it should develop and fully implement the export strategy.
Development of the export plan – creation of an international plan is very important. It will help define the present status, the current internal goals and commitment of the company. The plan also serves a basic purpose if the company is planning to seek out export financing assistance (Salvatore, 2005). Preparation of the plan before making export loan request saves a lot of time and money. Completion and analysis of the international business plan will help the company make viable future anticipation goals, assemble facts in the right way, make identification of the possible constraints and create a possible action policy. The plan should also cater for the specific objectives of the company, provide an implementation time frame and milestones to gauge the success of the whole process.
Identification of the market – the success of any exportation plan is pegged on identification of the most profitable international markets for the products or services in place. The process of identifying the market requires proper guidance and assistance in order to minimize time consumption and costs. The analysis of thorough market research is the key to succeeding in international business. A clear understanding of the export markets will grant essential information on how to deal with the efforts of the company. The company should not choose too many markets and focus keenly on regional, geographic clusters of countries. It renders the whole process quite simple and more cost effective as opposed to choosing foreign markets that are largely scattered around the globe.
Preparation for the market – after the choosing the target market, the company should plan on the needs to address fully the specific considerations for the specified market. The company will have to consider whether it will have to tailor its clothing products to specific consumer preferences, industry standards or regulatory environment of the market in question. The company should focus on certain risks or challenges associated with doing business in the specified target market (Seyoum, 2008). It should also fully understand the regulations and licenses that apply to the products.
Sell of the market – this stage involves making viable evaluations of the best profitable ways to facilitate the distribution processes of the products, the pricing policy and how to promote the products to the target market customers. Thus, the company should come up with an optimal pricing for the product and create a sales and promotion plan. The company should leverage on the customized research on the market to establish the best optimization promotion efforts to fully satisfy the preferences of the consumers. Search for trade leads in the target market is also very important.
Conduct business online – here the company is required to come up with and determine an online strategy for the target market. It should determine the possible enhancements that might be needed to create a website, for example, for online payments. The company is also required to fully understand the web security requirement and the potentials threats that might affect its performance (Xu & Quaddus, 2009). It will help evaluate the readiness of business to function online, including managing operations online, inventory and payment issues.
Acquisition of logistical support – it requires the company to update the export plan with the required documentation of how to transport the products from one point or destination to another. The company should also embrace the need for labeling and identification of products shipment method.
Secure of export financing – the company should clearly outline its financing needs, determine where to get the financial resources and fully understand how to apply for financing tools.
Terms of trade – these are the basic terms used in trade to facilitate any international trade deal. They include ad valorem tariff, consumers, consumer goods, commodity, demand and dumping among others.
A Systematic Approach to Managing Export-Import Transactions
Conducting of business on a global scale requires systematic approaches and strategies to manage export-import transactions in an efficient manner, capable of managing possible risks associated with it. For a company to make sure that its goods go beyond the domestic market, it is necessary to major on the right sourcing decision that are proactive to changes in the global environment, ensure linkage of trade compliance with the business needs, leverage free trade agreements, endure minimum duty and delays and stay ahead of the competition. The company should also consider the added cost of sustaining in-house resources to have an edge in dynamic compliance environment so that to facilitate efficient operations. Sound implementation and execution of global trade strategies leads to significant operational and cash flow benefits.
A viable approach to ensure efficient export-import transactions can be facilitated by the following:
The company should assess the existing supply chain and compliance operations and measure them against the industry best practices.
It should also focus its approach to internalization trade majorly on improved performance, data management, risk mitigation and standardization of the whole process.
The company should ensure lowered inventory costs, shortened order fulfillment cycle, increased compliance and increased profitability. All these can be achieved through improvement of the overall cycle times and ensuring smoother flowing of the import and export transactions.
The company should also develop a model for governing the export-import trade. The model will stress the enforcement and strict use of documentation of the process, sound auditing plans and policies, performance metrics and detailed reporting. Such model policies will ensure and allow better business decision making.
Export Payment Methods
There are several basic means of payment that can be used in international trade to facilitate payments for products that have been sold into the export market. The method of payment that is used is majorly determined by the financial standing of the export company and the level of trust in its ability and willingness to pay. Thus, the right payment method or option is dependent on the above factor and several other factors. Success in any global market place followed by a win in sales against foreign competitors requires the exporters to offer their customers sales terms that are attractive and fully supported by appropriate payment methods. The expert goal for each export sale is to get fully paid and on time. It indicates that an appropriate payment method should be utilized to help minimize the risks associated with payments, while also taking into consideration the needs of the buyer.
The following are the possible export payment methods that M & W Company can use to ensure proper payment mechanisms. The primary methods of payments for international transactions are through open accounts, documentary collections, letters of credit and through cash in advance. All expert transactions have to put into consideration the risk factor. It is to ensure that risks are minimal in any business dealing.
Cash in advance – these are payments done in advance before shipment of the products. It is the best payment policy. In such scenario, the exporter or the producer is relieved of the collection problems and has an immediate use of the money if the money is wired directly. Such method is successful as it offers early positive cash flow for the exporting company.
Letter of credit and drafts – current method of payment is used when the company importer is concerned that its product order may not be sent if the payment is made on a cash in advance basis. In such payment mechanism, the interests of the exporter and the customer are protected. The payments are normally made on the basis of documents, hence the terms of sale should be clearly specified and agreed upon. It helps avoid confusion and delay in payment.
Drafts or Bill of exchange – such payment method is similar to receiving the export customer’s cheque that has been issued by a foreign bank. The draft may carry some risk as it may fail to be honored by the bank, for example, if the customer’s account lacks enough funds.
Sight drafts – current method of payment is applicable when the seller intends to retain the shipment title of the products, until it reaches the designated destination and the customer makes the due payments. A sight draft is usually used so that to maintain and control the transfer of title of a particular product shipment. Risk may occur in case where the customer’s ability or willingness to pay changes at time between the shipping of the goods and the time the drafts is presented for payment. The sight draft is also subjected to the risk of change of the country importing policies.
Time and date drafts – such type of payment method is used if the exporter wishes to develop credit to their customers. The draft helps confirm that the payment is due within a certain time frame after the customer accepts the draft and receives the goods.
Open account – current method of payment is convenient in foreign transactions and is satisfactory for an export customer who is well-established and has overtime demonstrated a long and favorable payment record, thus earning creditworthiness. Under an open account payment system, the exporter of the products invoices his export customer, who is expected to make payments under the stipulated agreed terms and within a time frame in the future that is specified and agreed upon. Such payment mechanism may sometimes pose some levels of risks as the absence of documents and banking channels may cause legal requirements of claims difficult to pursue.
Other Payment Mechanism
Other payment methods are used by the exporter in certain specific circumstances. They are:
Consignment sales – it is whereby the product is shipped to an overseas distributor, who sells the company’s products on behalf of the exporting company. The exporter of the products retains ownership title to the products until the time they are sold by the distributor.
Foreign currency – it is whereby payments are done in terms of foreign currencies. The main risk in such payment is the uncertainty of the future rate of exchange between the currencies of the two countries.
Counter trade and barter – current method of payment occurs when the exporter of the products contractually commits to agreed and specified initiatives that compensate and benefit another party as a condition of sales.
Credit cards – it is when the payments to the exporter of the products are accepted through visa, MasterCard and other known credit cards in payment for credit sales. The exporter of the product has to determine the validity of transactions and obtains proper credit authorizations from the card issuing authority before shipping the relevant products.
What factors should M &W consider regarding the possible need to adapt its clothing styles for its target markets?
M & W Company must put into consideration some factors concerning its clothing style so that to fully adapt in the target market. Product adaptation can be described as the process through which a business makes adjustments and improvements upon a product. It is with the aim of making it more appealing to the target market. The company might adapt its own product or improve upon an existing product that is offered by another company. Such factors include:
The target market – the company should be keen in noticing the changes in the moods, opinions and needs of the target market. The company owners should use feedback from focus groups and online forums to be aware of the changing needs of the customers. The opinions of customers are affected by the climate of the ever-changing technology in the recent world. The company should be keen to incorporate any developing trend to the initial product. It will help adapt the product to consumers’ needs, thus increase the sales volume.
Packaging – decision regarding the packaging of the product should depend on the cost, the added value and its attractiveness to customers.
Actions of competitors – the company should keep a close eye on the competing products. The actions and product offerings of the major competing companies in the market are a key factor that leads to product adaptation.
Economic climate changes – such changes may be out of the company’s control, thus affecting adaptation of the product. If economic problems lead to overall reduction in volume of sales, the company should consider using less expensive materials or make modifications of the overall design of the product to ensure its affordability for the target customers (Peng, 2009).
Recommendations and Conclusion
To ensure that the company succeeds in international trade and captures a large share of customers in the foreign target market share, the business’s top management should focus on the market research analysis on the merits it will accrue from the business involvement. It should also focus on the possible threats to be able to undertake them when necessary. It should closely follow the provided approaches to the exporting process and managing the export-import transactions. It will enable the company reach success in international trade.
References
Cavusgil, S., Knight, G., & Riesenberger, J. (2014). International business: The new realities. (3rd ed.). Prentice Hall.
Department of Commerce (1990). A basic guide to exporting. Chicago: NTC.
Daniels, J., Radebaugh, L., & Sillivan, D. (2009). International business: Environments and operations. (3rd ed.). New Jersey: Pearson Education Inc.
Paliwoda, S. J., & Ryans, J. K. (2007). International marketing. Edward Edgar Publishing.
Peng, M. (2009).Global business. South-Western Cengage Learning.
Porter, M. E. (1990), The competitive advantage of nations. Free Press, New York.
Rugman, A., & Collinson, S. (2012). International business. 6th ed. Harlow: Prentice Hall.
Salvatore, D. (2005). Introduction to international economics. New York: Wiley.
Seyoum, B. (2008), Export-import theory, practice, and procedures. (2nd. ed.). Harlow: Routledge
Wood, D., Barone, A., Murphy, P., & Wardlow, D. (1995). International logistics.
New York: Chapman and Hall.
Xu, J., & Quaddus, . (2009), E-business in the 21st. century, Abingdon: World Scientific Publishing (UK) Ltd.
Zodl, J. (1995). Export-import. Cincinnati, OH: Betterway Books.