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Philip Austin’s team does not have the expertise to deal with the international complexities such as shipping, receiving payments from export customers and documentation. Hence, Barrett has to hire and train freight operations employees. Consequently, Barrett has to solve several trading problems. His senior management team is not confident about the approach, and Barrett lacks essential resources to succeed in the plan. Barrett is however at an advantage due to its sale on nut and honey cereal bars. Interested partners point that European market has an explosion for exotic foods and vegetable, which Barrett can offer.
I do not support this approach of exporting. The research conducted by Philip lacks the comprehensive nature that will lure an entrepreneur to risk the business. The profit gained after exportation is not worth compared to local distribution. The cost of implementing the export approach is too high considering that Barrett has the unconversant personnel to carry out the task. More experienced EU competitors will affect Barrett’s pricing strategy, which will further affect the profit margin. Entering the export business with this avenue will not give Barrett maximum control on flexibility. Furthermore, processed food may go bad before they reach their destination.
A more systematic approach to exporting would include the following features:
• Foreign market entry strategy; choice of an international market entry strategy is influenced by some factors such as the degree of adaptation of the product required, tariff rates, transportation, and transfer rate. The following are the main entry strategy options.
i. Direct Exporting; this is direct selling of chosen market the first instance you own resources.
ii. Licensing; it includes the transfer of rights to the used product to another firm.
iii. Franchising; works with companies with a repeatable business model for example food outlets, which are easier to transfer to other markets.
iv. Partnering; this takes many forms from co-marketing alliance to a sophisticated one.
• Internalization of a firm; this involves conducting transactions within the confines of a corporation instead of in an open market.
• Managing export and import operations; the major parties include the exporter, importer and the carrier and requires much documentation. It also involves customs administration in both the home and foreign country.
• Payment methods in importing and exporting; highly determined by the amount of certitude in the buyer’s ability and readiness to settle debts. These methods involve a letter of credit, cash in advance, open account and documentary collection or draft.
• Export-import financing; a credit process where the bank advances an amount to an exporter so that it can collect the amount of deferred payment sales made to a foreign importer. It involves the financial institution, exporter, and foreign importer.
• Identifying and working with foreign intermediaries. Brokers contribute to making the product available to consumers (Finch 2013)
Why Barrett choose Exporting
The availability of numerous Australian brands already operating in the EU market was a factor that made Barrett want exportation as a market strategy. Europeans also perceive Australia as an exotic and pollution free and high-quality production of goods. Exporting will create a kind of label for Barrett, which can improve its sales.
Export transactions take time; hence, Barrett has to put aside funds for export sales. Additionally, Australia does not focus on exporting processed foods. As a result, the senior managers do not share Philips’ optimism in this plan. Another problem is the perishability nature of food that needs specialised equipment for distribution and the many differences in public tastes, market structure, and regulations. Having no name recognition in Europe, Barrett has to put faith on store branding which will lead to lower profit. In addition to the challenges, relying on intermediaries will cost Barrett firm some commissions, which will directly affect the profit.
Challenges on the Export Drive
Challenges that Barrett may face include, export transactions take a long time to complete, food requires specialised equipment for distribution, intermediaries will need a commission, and experienced competitors in the EU market will force Barrett to keep its pricing competitive. The firm will need to acquire skilled and qualified labor force, specialised equipment for storage and distribution; direct link to widespread supermarket chain to get rid of intermediaries and finally Barrett will have to meet the buyer demand while still maintaining its pricing.
When choosing between direct and indirect exportation, Barrett should consider the following factors: The size of the firm, access to information technology, the perception of challenges to current operation in the types of inadequate access to finance and corruption, product characteristics, and the export program satisfaction. To finance its export sales, Barrett can turn to one or more of the following fund sources; extending credit to foreign buyers, work with commercial banks which finance export sales till payment is received. Besides, Barrett can use government assistance programs which may offer loans or grants to the exporter or obtain funding from multilateral development banks which are international financial institutions owned by the representative government.
How Barrett can compete internationally
Barrett can form strategic alliances with foreign partners in the EU to gain appeal from many angles and wider access to attractive EU markets. It can also choose an ideal distribution center and customer service in order to have the greatest location advantages (Abor 2007). Moreover, Barrett can come up with a structure to transfer the company’s resource capabilities and strengths efficiently from Australia to Europe to acquire the competitive edge. By exporting, Barrett firm will increase its economic scale and at the same time reduce the unit per cost. Furthermore, the company will also increase its flexibility and avoid over-reliance on the home market.
Why Austrade wants Australian firms to focus on exporting processed foods
Austrade believes that processed foodstuffs will be the future trend. Moreover, Austrade further believes that if they do a ten percent of food value adding, then the country’s trade balance would improve. Processing food would also increase job opportunities in the country as well as stabilising fluctuation of company sales associated with the seasonality of demand in Australia. By value adding, Austria firms will export products, which are utterly different from competitors, therefore, offering potential customers with an add-on that gives it a great sense of value. Value adding will in the same way; provide more employment vacancies in Australia. Inconclusively, exporting will also improve the overall sale volume thus providing more profit and boosting the market share of Barrett firm.
Edward Finch, Peter Barrett (2013) Facilities Management. John Wiley & Sons
J. Abor (2007) Internationalisation and Economic Growth strategies in Ghana: A Business Perspective. Adonis & Abbey Publishers Ltd. UK pp. 93-106
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