Supply Chain Assignment Question:
Write a Board Paper asking the board of directors of the chosen exporter to adopt and implement your proposed export strategy.
Supply Chain Assignment Reviews:
1. Brief Synopsis of the Issue
The paper identifies factors that are involved in international trade and argue why exporting the product, King’s Beer, from India to the UK would be a good strategy for the organization. The paper studies international trade theories, export strategies, logistics and ethics towards its recommendations.
2. Recommendation(s)
Export of branded goods after a thorough industry and environmental analysis would be the right strategy for business.
3. Research on the Assessment Topic
International Trade Theories:
Ricardo’s theory of comparative advantage (Library of Economics and Liberty) postulates that two countries that specialise in industries where they have comparative advantages in, would stand to gain by trading their respective goods with each other (Morrison, 2002, P. 247).
Michael Porter emphasised on Competitive Advantage of Nations, where a nation would be able to shape its comparative advantage through the four aspects of factor conditions such as supply of skilled labour or presence of favourable infrastructure, demand conditions that define the nature of products or services, the presence or related and supportive industries that have international or global competitiveness, and factors unique to the firm, its structure, strategy and level of rivalry present in the nation. These four inter-dependent factors, along with opportunities available and the role played by the Government towards promoting or discouraging free trade, predict the competitive advantage of organisations (Porter, 1998, p. 72).
Government Policies and instruments in free trade:
According to Morrison (2002, P. 254 – 256), governments of nations tend to deter free trade and restrict imports by promoting industrialisation and focusing on import substitution by producing goods for domestic consumption rather than importing them. The other rationale behind protective government policies include protection of local employment and promoting national interests in terms of sensitive industries such as defence as well as by linking trade policies with foreign policies and enforcing embargoes on trade with certain nations. The different tools used by the governments include tariffs, import quota, imposing voluntary export restraints on exporting nations, enforcing local content requirements as well as providing subsidies to local industries to make them more competitive in comparison with exporting nations.
Determinants of Bilateral Protection Levels:
According to Thede (2005, P. 316), bilateral trade protection levels between trading partners would depend on the level of import penetration of goods and domestic import protection levels of the trade partner, apart from the possibility of exerting downward pressure on import prices and the effect of political forces that act in retaliation.
Firm-level responses to protectionism:
Trade liberalisation in export markets encourages domestic firms to go after market share. According to Konings and Vandenbussche (2008, P. 372) firms with low initial productivity and scope for high productivity increases tend to invest in exports to maximise productivity gains. There are other benefits associated with increased market share through exports, as productivity gains are often associated with increasing wages to firms, which could either be reflection of firms sharing the benefits of exports with their employees, or could be in response to skills upgrade achieved in the ranks of employees on account of increased export opportunities, as explained by Konings and Vanderbussche (2008, P 381) and as they find links between exports and higher productivity (2008, P. 373). They state that firms tend to become more capital intensive, going up the value chain in terms of product quality (2008, P. 381)
Export Strategies:
The SCP (Structure-Conduct-Performance) Paradigm stresses on an outside-in approach to exporting strategy, with the primary focus on the marketing environment deciding firm-level strategy. On the other hand, the resource-based perspective emphasises on an inside-out perspective, with the firm working out its internal strengths, resources and competitive advantage before exploiting market-based opportunities (Knudsen and Madsen, 2002, P. 480). They point out that organisational learning and accumulation of knowledge, coupled with “connecting and disconnecting processes in domesticated markets (2002, P. 481), that forms the core of export strategy.
According to Arnold (2000, pp 131 – 137), firms could opt for local distributors in target markets and enjoy an increasing market presence, by focussing on the locations before choosing the distributors, going by the distributor’s market development capabilities, having a long term perspective in relationship management, supporting the distributor in their activities, not delegating strategic aspects to distributors, having access to distributor’s market and financial intelligence and linking national as well as regional distributors across nations. This would avoid complications in relationships and in export strategies where many firms opt out of distributor networks after an initial phase of collaboration.
Logistics, modes of transport and Information Technology:
Logistics is the discipline of business that optimises the flow of materials through the organisation and among the channels of distribution, aimed at maximising value to customers (Beesley, 2007).
Factors in Logistics:
The choice between being agile and going lean in logistics is dependent on the amount of certainty in the environment as well as on the level of complexity of the product (Beesley, 2007). Stable environments and products with low levels of complexity would warrant a lean, cost-based system of logistics to be competitive in the market. When demand conditions are predictable and when supply conditions feature short lead times, lean supply chain management could be opted for, in terms of techniques such as Just-in-time inventory, as suggested by Hoek (2007). And more importantly, Fabbes-Costes and Colin (2007, P. 41) suggest that supply chain strategies and logistic models have to fit in with the organisational strategy, based on whether the organisational strategy is that of differentiation, cost-leadership or focus (Porter, 1980, pp 40, 41).
Transportation:
Transportation plays a vital role in global logistics on account of the distance that products have to travel from the firm to teach its customers (Gourdin, P. 84). The chief modes of transportation available are by rail, road transport, air, water carriage and pipelines. Considering the relative advantages and disadvantages of the different modes of transportation and the product category, waterways seem to be in line with the lean approach to logistics and supply chain management.
Other factors in transportation:
Factors such as Government control and deregulation of the industry, the extent of transportation infrastructure available in source and destination countries and the role played by the legal system in enforcing environmental and safety considerations would all have to be considered in deciding on the best mode of global logistics.
Information technology in Logistics:
Electronic data Interchange (EDI), the electronic data exchange platform, helps in eliminating the need for documentation and paperwork, even as it aids in automation of the process of logistics, reducing the need for “additional human intervention” (Gourdin, P. 167). Other factors such as open-system computer networks, wireless communication, bar-codes and GPS technology have transformed logistics into an phenomenon that is easier to handle (Gourdin, pp 170 – 174).
Ethics:
It is important not to misrepresent facts for the purpose of government concessions or to indulge in activities that might invite the attention of anti-trust agencies or attract anti-dumping duties, while ensuring proper working standards for employees in the light of the export opportunity.
3. Arguments against the Recommendation(s)
With many established breweries in the UK, the local competition is likely to be tough
Government policy in the UK may be protectionist of domestic industries, considering the recessionary factors at play in the UK and in the Euro zone.
4. Arguments in support of the Recommendation(s)
The organisation needs to make use of government incentives and consider the local distribution networks in line with its strategies.
5. Implementation of Recommendations
After an industry analysis using Porter’s Five Forces Model (Porter, 1980) to analyse buyer power, supplier influence, threat of substitutes, threat of new entrants and existing rivalry in the market, government policies at the local and national level as well as those of the target market need to be studied to formulate strategies and exploit opportunities. Product positioning and branding have to go with company strategies of cost leadership, differentiation or focus. Productivity enhancements and upgrade of skill set of employee and its knowledge-base are done to gear up for the export opportunity. Striking a balance between the SCP paradigm and the resource-based approach to gain competitive advantage, the target market has to be identified in terms of population and location, zeroing-in on the distributor network, taking care of recommendations by David Arnold (2000). The logistics have to be worked out, preferably in a lean supply chain model and using waterways with the right information technology platforms.
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