International Trade

Brief Synopsis of the Issue

Silvera and Sons is a coffee production company based in Brazil which offers the best coffee in the world. The green coffee beans in the name of Arabica are the most preferred type of coffee in the entire world. S&S is among the top ten Arabica producing companies in the world with its mission focused on delivering the highest quality standards of coffee in the German market. Due to its reputation and very high potential for growth, S&S ought to expand its operations Germany regarding the readily available demand for Arabica coffee beans in the region.

S&S exports its products in major foreign markets such as in the United States of America but also supplies the green beans within the Brazilian market as a major wholesaler. There is a potential global market growth for SRC with its products being asked by various importers particularly in Europe and USA.

Table of Contents

Recommendations 4

Background 5

Research on the Assessment Topic 7

Arguments against the Recommendations 10

Arguments in Support of the Recommendations 11

Implementation of Recommendations 11

Step 1- Appoint distributers 11

Step 2- Create consumer awareness 12

Step 3- Establish Growth Objectives 12

Step 4- Develop Profit Targets 12

Step5- Penetrate the Market 12

LIST OF REFERENCES 13

Recommendations

Silvera and Sons (S&S) have operated for more than six years in the coffee production business. The feedback upon its products has been positive overtime and to elevate it to higher levels a marketing approach to the European markets ought to be adopted. The recommendations for its success include:

1. Establishing working relationships as well as maintaining contractual agreements between Brazilian and German coffee wholesalers and brokers. 
2. To bring the new business environment to the maximum production level within three years.
3. Increase the profit levels using an improved technology in the new production environment.
4. Communicate with potential and current customers effectively through planned efforts with the company’s position of providing quality Arabica coffee in the European market.
5. To maintain constant development of coffee prices in the German market until an equilibrium price is achieved which will cover the exporting risks as well as other additional costs.
6. Working with the trading companies to strengthen marketing channels and improve financial conditions.
7. For S&S to reduce the market complexity and its initial costs, it will have to work together with experienced intermediaries in the European market to penetrate the German market.
8. The ethical strategy will incorporate an intercultural and management expertise to establish positive relationships in the foreign market.

Silvera and Sons will maintain its relationships with the Brazilian coffee producers in order to maintain its high-quality Arabica beans production and upgrade its technology to drive down production costs while ensuring high quality. The international packaging standards in the European market involve listing ingredients and other additives, pre-packaged products net quantity, expiry dates, manufacturer’s address and the business name, established sellers and packers in the German market as well as origin and storage special conditions. To meet these conditions, S&S will contract a logistics service provider based in the European market.

Background

Brazil is the world’s largest producer of coffee over a period of two centuries. However, the largest commodity in the Brazilian economy is oil with coffee being the second largest export attracting a ninety-five percent Arabica coffee imports increase in the US for the past ten years. Barzelay, Okumoto, and Watanabe (2017: 152-155) argue that coffee consumption within the Brazilian boarders experienced similar increases in the same period. Also, the green coffee demand rose above the clearing level of the market making the crop yields and market prices higher than the exact expected prices. 

Foley and Manova (2015) states that there has been an increase of specialty roasters in Germany and in the European market as a whole which indicates an increase in the coffee demand in Brazil. The specialty roaster constitutes a broad target market of the large coffee producer base with the discerning consumers demanding high-quality Arabic coffee beans. Together with the European demand for the Brazilian coffee, many other large companies in the United States such as the Starbucks and many other small specialty roasters serve as the main coffee market targets.

 The Arabica coffee beans are termed as the best, and their demand in the world is very high from a conclusion based on the growing market of the specialty roaster companies. The companies pay higher amounts of cash for the Arabica beans than the amount they are willing to pay for other types of coffee. They also attempt to discriminate themselves through the characteristics of their products such as the beans size, farming method they use as well as the location where their type of coffee is grown. The final consumers are relatively insensitive to the coffee prices as long as its taste and type are impressing, popular in the trending market and most probably won major awards. Van de Berg and Lewer (2015) estimates that in the European market alone specialty roasting attracts a 1 billion Euro market. 

In the pursuit to cover a larger market portion in the European market, S&S has developed customer relationships which extend beyond the seller/buyer relationship. Its label assures consumers that the coffee has been prepared and chosen using the highest world’s quality standards. This special handling of the S&S coffee products attributes to a ten percent higher price level compared to other similar products. According to research by Rugman and Verbeke (2017), global customers prefer paying more amounts of cash for S&S products since they trust its quality and are familiar with their products.

 Silvera and Sons operate exclusively with green coffee which is one hundred percent Arabica and is produced in the southern Brazilian states. S&S directly purchases green coffee beans from the farmers and then de-husked in the main S&S plant within the country where they are also packaged in 60kg bags. The final coffee product is then made available for exportation and sale into the already high demanding market. 

Coffee Robusta which is the alternative to Arabica coffee has some similarities however it is nothing like it concerning quality and in demand preferences. It is grown in the lower regions with a very high quantity per one plant and also has higher disease resistant compared to the Arabica beans with its caffeine level being as twice higher. The Robusta coffee is cheaper and available in large amounts and also highly obtainable on the supermarket shelves. On the other hand the Arabica coffee grows at higher elevations in areas with rich soils which is the apparent reason why it is the finest coffee in the world.

The first step Silvera and Sons took to differentiate its products from other coffee producers was to provide the finest coffee in the world. Moreover, with the aim of further distinguishing its coffee, S&S ensures it adheres to high-quality standards more than almost 95% of other companies exporting coffee in Brazil. The Arabica coffee belongs to a variety of the Bourbon Santos which is among the best varieties in Brazil. Therefore, customers across the globe and particularly in Europe have recognized the ability of S&S to deliver this type of award-winning coffee beans. 

Research on the Assessment Topic

The Brazilian coffee industry has notably grown overtime for more than ten years with the most constant growth being in the European and in the United States markets. The number of imports has significantly risen with an estimated one hundred percent increase in the European market together with relative double figures regarding prices. Also, coffee specialty roasters have increased from the few recognized companies to hundreds of thousands of entities in the global market. The efforts to produce the finest coffee within the German and Brazilian markets have helped maintain high-quality standards of products among the coffee producers.

 Brazilian coffee exporters and producers have struggled to improve processing methods, distribution and agricultural techniques to serve the constantly growing market in a better manner. The Brazilian coffee demand has surpassed its supply with approximately 200 suppliers of the green Arabica coffee beans to the entire global market. According to Vance and Paik (2014), 50% of Arabica coffee exports are from the 45 Brazilian Coffee Association members. The individual exporters’ market contributions are held into confidential accounts and are unavailable for examination by the public. However, by use of the information available together with the knowledge of a 60% remaining part of coffee exporters who are not members of the Brazilian Coffee Associations, S&S takes into account that many biggest competitors are members of the Association.

 Despite S&S being a major exporter of the green coffee beans, it also faces competitive threats from other big companies in the market who export a similar product to the European market. Some of the primary exporters include the Nicchio Café, Golden Brazil, Bramazonia, and Comexim. However, according to Vahlne and Johanson (2017), the consumer’s decision to purchase a specialty coffee type depends on his/her trust on the bean and process selection.

The position of S&S in the Arabica coffee distribution in the European and American market constitutes providing highest quality bean with an aim to leverage its competitive edges in order to achieve its desired positioning. S&S competitive edge is derived from its established bonds with European importers and the Brazilian coffee producers. Many importers from these European markets reassure S&S of their constant coffee demand in the form of large coffee products shipments. The S&S Company has a large size of bean supply which they buy from farmers who use less than 2% pesticides and chemicals to grow the Arabic coffee.

Moon (2018) stipulates that coffee consumers in Germany check for strict requirements just like the other European consumers. Therefore, S&S has to focus on the European legal requirements of coffee exportation to the German market. The most areas which require keen examination include the hygiene and traceability of the coffee beans as per the food safety regulations. Some particular contamination sources have to be given special attention such as mycotoxins, pesticides, and Salmonella although it is low risk in coffee beans. Despite Germany following similar legal requirements like other European countries, industry requirements indicate that product control factors for example moulds and pesticides are strictly enforced within the country (Forsgren and Johanson 2014).

 Germany consumes the largest amounts of green coffee in the European market following research by Viner (2016) which posits that Germany alone represented 25% of the aggregate European coffee importation in 2016. Viner further states that around 535 thousand tones that is, approximately 9 million 60 kilogram bags were internally consumed in the same year. Germany’s coffee consumption per capita in 2016 rose beyond the average European consumption of 5.4 kg annually to a higher level of 6.5 kilograms. 

A great number of German citizens mostly consume their coffee in their homes. This is empirically supported by a research done by Brack (2017) which finds that one in five Germans try to replicate the experience they encountered in the coffee specialty shops when they drink it at home. Additionally, the coffee specialty shops have increased in numbers in the German market with also the rate of visiting coffee shops expected to rise significantly. This development is an indication of the desires of the consumers to integrate variety and quality in their drinking experiences.

Most consumers in the German market prefer lightly roasted, high-quality Arabica coffee which goes well along with the Silvera & Sons coffee products. The S&S being a big producer of Arabica coffee also offers ground pods and specialty coffee through its partners in the European market. The readily available supply of the coffee products has attracted the German consumers prompting the S&S Company to spot potential avenues of international growth. A major expansion of the Arabica specialty market among the German consumers has been facilitated by small-scale roasters, for example, Hamburg Coffee Roasters and Berlin Flying Roasters. S&S intends to work with these roasters to cater for the gap in the market and also introduce direct trade.

According to Cavusgil et al. (2014), approximately a partial amount of roasted coffee consumed in Germany consists of the filter coffee. Cavusgil et al. state that in 2015, a sum of 270, 428 tones of coffee regarding filter was consumed which represented a 70% market share. The entire beans represented a 17% market share while capsules and pads represented 8% and 5% respectively. The market shares of the filter coffee decreased by 5% in 2015 while individual portions of pads and capsules rose by 8% and 2% respectively.

Arguments against the Recommendations

According to the risks which may be associated with exporting in the German market concerning the findings of this paper, major challenges have been identified which could affect the smooth running of the exportation business. First is the cost involved in dealing with German firms while Silveria & Sons is situated in Brazil and second is the high dependence on few Brazil-based suppliers who are capable of producing high-quality green coffee beans.

 Also thirdly is the limited promotion budget which is meant to develop brand awareness in Germany and also in the European Union market and finally the risk of failure of the business to adequately support itself regarding the ongoing operations. The failure poses a risk of liquidating intellectual property or equipment to meet other liabilities. 

Arguments in Support of the Recommendations

 The aspects of forming partnerships in the European market create long-lasting relationships with other companies which enhances the free flow of information about the market conditions as well as promoting a successful export strategy. Also, a bigger market base is created with room for growth of the company in the global market which in the long run caters for the initial costs incurred during the export implementation process. The S&S participation in the coffee industry also is likely to be enhanced and therefore economies of scale. Through technology leveraging S&S will increase its profit margins in the long run.

Implementation of Recommendations

Step 1- Appoint distributors

 In order to set up well-functioning distribution channels, the first strategy will involve identifying prospective distributors and possible partners in the German market also to enable a working communication connection. All the distributors will be assigned specific roles, and a network will need to be created for all the parties to communicate necessary information before penetrating into the market. 

Step 2- Create consumer awareness

Customer awareness will be created with regards to the type of products to be supplied and the company will focus on establishing customer loyalty with an aim of creating a reliable customer base which will recognize the company’s quality products. The awareness strategy will be implemented through printed materials detailing the products to be provided by S&S, industry journals as well as creation of a website which will offer a large variety of information to not only the customers in Germany but also worldwide. 

Step 3- Establish Growth Objectives

Develop objectives to maintain steady, positive growth quarterly with a target of increasing customers as well as reducing the costs of acquiring them by 6% annually.

Step 4- Develop Profit Targets

The profit margin will increase by 2% every three quarters maintaining the spending costs as a sales percentage and also target on decreasing overhead costs.

Step5- Penetrate the Market

S&S will need to seek assistance from the intermediaries it has partnered with in the European market according to the agreement terms each signed with the company. The distributors will also serve the biggest roles to determine when there is a deficit of the coffee products in the German market and communicate in time to ensure a steady flow of products. 

LIST OF REFERENCES

Barzelay, M., Okumoto, M., and Watanabe, H., 2017. Managing International Cooperation for Organizational Capacity Development: Setting a Conceptual Foundation for Case Study Research and its Utilization (No. 152).

Brack, D., 2017. International trade and the Montreal Protocol. Routledge.

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.

Cohn, T.H., 2017. Governing global trade: International institutions in conflict and convergence. Routledge.

Foley, C.F. and Manova, K., 2015. International trade, multinational activity, and corporate finance. economics, 7(1), pp.119-146.

Forsgren, M. and Johanson, J., 2014. Managing networks in international business. Routledge.

Moon, B.E., 2018. Dilemmas of international trade. Routledge.

Rugman, A. and Verbeke, A., 2017. Global corporate strategy and trade policy. Routledge.

Vahlne, J.E. and Johanson, J., 2017. The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. In International Business (pp. 145-154). Routledge.

Van den Berg, H., and Lewer, J.J., 2015. International trade and economic growth. Routledge.

Vance, C.M., and Paik, Y., 2014. Managing a global workforce: Challenges and opportunities in international human resource management. Routledge.

Viner, J., 2016. Studies in the theory of international trade. Routledge.

Wild, J.J., Wild, K.L. and Han, J.C., 2014. International business. Pearson Education Limited.