The prime aim of this paper is to solicit the Board of Directors of Kingway Brewery Holdings Limited to adopt and implement the proposed export strategy.
The paper recommends that the company exports its Kingway beer to the United Kingdom market. Exporting the product to the UK market will, therefore, enable the company acquire a broader customer base which, in its turn, will enhance its production and sales capacities. This will also improve the company’s performance compared to the local companies. Moreover, this can also be an outstanding opportunity to access the modernized technologies within the United Kingdom market that will enable it to enhance both the production capacity and the overall quality of its products, hence increase company’s sales volume.
However, the disadvantage is that exporting products to foreign countries is an expensive undertaking for the company as the company will have to obtain an export license and develop new promotional strategies. The benefits of engaging in international trade outweigh the shortcomings, and thus the paper recommends that the company exports its product. Furthermore, the exports strategy is consistent with the company’s outlined objectives, as Kingway Brewery seeks to expand its production capacity and sales volume. It is worth that the firm conducts direct selling through distributors as this will offer the company a sound control over its marketing processes and the profits earned. Some of the costs that the company will have to incur include hiring new employees, acquiring more raw materials, attaining an export license, which will amount to about $ 20 million. The benefit of implementing this recommendation at present is that the company will be able to attain returns in the short run considering the UK is among the leading global markets. However, the risks are that the costs of transport and taxes are constantly increasing, and it might, therefore, be challenging to implement this strategy in the future.
Brief Synopsis of the Issue
The purpose of this paper is to solicit the Board of Directors of Kingway Brewery Holdings Limited to adopt and implement the proposed export strategy. The Board should take consideration of the analysis of the proposed strategy, along with the benefits, downsides, and potential barriers for the successful implementation of the strategy. This paper recommends that the company exports its Kingway beer to the United Kingdom market, as the advantages outweigh the disadvantages of the proposal, and the export strategy falls in line with the outlined company’s strategic objectives.
Engaging in export trade is a crucial undertaking for any company seeking to target more customers and thus increase its net earnings (Daniels et al. 2007). Moreover, companies practicing international trade often outperform the locally oriented companies on numerous dimensions. An export is the product transportation from one nation to the other for the purpose of trade. For the success of any export effort, however, it is necessary to establish an elaborate and well planned strategy. It is worthwhile mentioning that export strategy often interprets as the distribution and marketing of products or services to other countries, either for exchange or sale.
The international trade theory presents the explanations for the international trade pattern and the manner of gains from the trade distribution (Feenstra 2003). There are various reasons as to why firms engage in international trade, but the main goal is for expansion or growth (Darity and Davis 2005). Most companies export their products to other countries for growth as introducing a new product to the international market can help the company expand its sales, customer base, and revenues (Kemp and Henry 1986). International trade can also help the company acquire lower-cost manufacturing process, as well as some technological assistance that will help it attain a competitive advantage, both locally and internationally. International trade can also generate diversity since exporting products to other countries will help minimize the company’s exposure to likely political and economic instabilities (Kemp and Henry 1986). Furthermore, at the microeconomic level, market analysts highlight that companies participating in international trade do better than the locally oriented companies, in terms of productivity and survival rates (Kemp and Henry 1986).
However, the downside is that exporting products to foreign countries is an expensive undertaking for the firm bearing in mind that the firm will have to obtain an export license, and develop new promotional strategies (Krugman 1980). Nonetheless, a company can decide to export products to a foreign country through either direct or indirect selling. Direct selling entails the use of distributors, sales representatives or retailers who are mainly operating outside the exporter’s country. This is most popular approach adopted by companies as it offers the companies greater control of their marketing function, presenting with an opportunity to increase profits (Bhattacharjea 2004). The company can also sell directly to foreign retailers or the foreign consumers. This can be best done by attending trade shows or printing catalos. Direct selling can also be performed over the internet. On the other hand, indirect selling can be conducted through an independent local intermediary that is based at the exporter’s country. The intermediaries can then export the goods to the identified foreign market.
Arguments against the Recommendation
The cost of exporting products to another country is often high considering the value of the transport expenses that the company will have to incur (Krugman 1980). Furthermore, it is worth to note that there are various government laws, policies, regulations or practices that are often aiming to protect trade, also known as trade barriers. These include tariffs or customs tax levied on all the goods imported or exported from the country. This can also be in the form of non-tariff barriers, such as subsidies, quantitative controls, embargoes and boycotts, exchange controls and others. (Corden 1957). Products imported to the United Kingdom from countries that are not members of the European Union are often subject to a common external tariff imposition referred to as the European Community Common Customs Tariff (CCT). Calculating of the CCT applies prescriptions from a combined Nomenclature that is the derivation from the Harmonized Commodity Description and Coding system (Helleiner 1992).
These documents provide general information regarding the tariffs, along with other measures concerning imports, exports and transit goods, the excise tax and duties, the VAT and goods valuation for import duty, as well as the conventional duties payable across the European Union (Corden 1957). The import duties are often calculated as the percentage value of the goods imported, though some imports are subject to exceptional rates calculation (Helleiner 1992). Moreover, full customs duty calculation bases on the rules of origin aiming to establish the origin of the imports (Corden 1957). Apart from the incurring costs the company, the process of exporting is often time consuming, moreover, the company will have to face delayed payments. The company will also have to identify appropriate distributors and promotional strategies, transport modes (sea, rail or truck), as well as acquire appropriate licenses.
Arguments In Support of the Recommendation
The United Kingdom has gained recognition as one of the best trading nations globally (United Nations 1995). It has the ranking as the third largest importer of commercial services, and forth largest merchandise importer (Daniels et al. 2007). Exporting the company’s product to this market will, therefore, enable the company acquire a broader customer base which, in its turn, will enhance its production capacity (Darity and Davis 2005). The company seeks to enhance its production capacity, and export is one of the main strategies the company can employ to attain this goal. Exporting Kingway beer to the United Kingdom market will also enable the company increase its sales, and in thus, generate more profits for the company. This strategy is also in line with the company’s long term objective of increasing its sales volume.
Besides, it is worth to note that engaging with an international trade enhances the company’s performance compared to the local companies, which will enable the company attain a competitive advantage (Kemp and Henry 1986). At the same time, this can also become an excellent opportunity for the company to access the modernized technologies within the United Kingdom market, thus enhancing production capacity and the quality of the products resulting in increased its sales volume. Furthermore, the company can obtain fresh ideas from the international market, which can be employed to enhance the production process of the company (Bhattacharjea 2004). These are some of the major advantages as to why the paper recommends that Kingway Brewery exports its product to United Kingdom market.
Implementation of Recommendations
It is essential to come up with an approach for the implementation of the recommendation. An initial step to consider is the market entry strategy. The company needs to identify new channels of distribution that will enable it to penetrate the new market. It will be better if the company conducts direct selling through distributors as this will offer the company a greater control over its marketing processes and the profits earned. It is also beneficial to conduct market visits in order to segment the target market and identify approaches to be used to promote the product. However, some of the promotional strategies, which the company should consider, include advertising through billboards, newspapers, as well as local televisions. The company can also consider conducting direct marketing of its product through sales representatives. However, it is crucial noting that the firm needs to establish the Kingway beer sales price.
As the company requires targeting a broader customer base, it is crucial to settle on a price that is relatively lower than the other beer products in the market. The company also needs to increase its production capacity, which means that the company will need more raw materials for production. Furthermore, the company will need to hire more personnel that will help in promoting the product in the new market. Overall, the company requires approximately $ 20 million to cater for the costs necessary for it to engage in international trade effectively.
Further to this, it can be noted that the business should consider some ethical issues such as the culture of the people, as well as the stipulated laws and policies that guide trade in this market. For instance, the law requires that beer should not be sold to children, a key policy that should not be contravened by the company. The benefit of implementation of this recommendation at present is that the company will be able to attain returns in the short run as this one of the leading global markets. However, considering the costs of transport and taxes are constantly increasing, it might be difficult to implement this strategy in the future.
Consistency with Company’s Strategic Objectives
Kingway Brewery Holdings Limited pursues an objective of developing into a brewery enterprise, through increasing its production capacity to over 2.5 million tons annually, and attaining a sales volume of more than 2 million tons of beer by the year 2014 (Kingway Brewery Holdings Limited 2007). Apparently, the recommendation to engage in international trade is consistent with the company’s strategic objective as the benefits that the company will attain from exporting the Kingway beer to the United Kingdom market will facilitate the achievement of the outlined strategic objectives. An outstanding opportunity exists for this company to engage with an international trade actively and effectively, and this would help the company in the attainment of its outlined objectives.