Import/Export Trade: Case Study

Benefits of Exporting for small companies

Exporting is a highly precise profitable business that can keep small companies afloat for quite some time as compared to selling locally where the market might be highly competitive. As demonstrated by Morgan Motors, the cars are relatively expensive and are a preserve of a niche market that is quite limited in the UK. To expand the market, exporting becomes a viable option. Morgan Motors through exporting are able to find a niche market in Europe and the U.S. Just like Morgan Motors, Wadia relies on the export market to sell between 70 to 80% of its output. From this analysis, it can be seen that export markets are ready for premium goods and are more desirable due to expanded customer base.

Morgan Motors without imports or exports

If companies like Morgan Motors neither imported nor exported, their businesses would cease to be sustainable and eventually they could close down. This underlines the importance of international trade. Looking at both sides of the trade, failure to import would mean that Morgan Motors would find it impossible to acquire important materials for production of their high end products. They would be required to develop such products for themselves and this would mean more inconveniences since development of some parts like engines require highly specialized equipment and personnel. Importing such parts from partners like BMW and Bosch means that the expensive part of development is bypassed. On the other hand, exporting gives the business relevance since it is the only means of disposing its products and make a viable business case. Both importing and exporting are important aspects of international business. It is like looking at the same coin that has two sides. To make a sustainable business case, exports, when compared to imports should be greater to indicate that the business is generating positive revenues.

Impediments to exporting

Morgan Motors and Wadia are companies that face insurmountable impediments that have to be successfully navigated to sustain and improve the business. As summed up by Hill (2010), impediments to international business include “poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing” when it comes to financing, developing products for the export market and shipping such products besides maintaining operations in faraway countries is a challenge that require substantial finances. In the case provided by Hill (2010), there has been the mention of Malden Mills, a U.S. manufacturer of high-tech fabrics. The company had to secure a $20 million working capital from the U.S. Export-Import Bank. To get a financier for the high caliber activities can be a challenge especially for new market entrants as shown by Leonidou (2004). The other challenge is acquisition and utilization of market information is often not an easy thing to do and it leaves the company with the problem of understanding the export market. Major mistakes can be committed making companies lose precious time, clients, and money.

Determined companies should not despair since there are things that can be done to improve profitability. The problem of market information can be approached by engaging government agencies for support with international market analysis. If the government agency can help with proving that there exists a business case in a certain market, it will be further easy to get financing from institutions such as U.S. Export and Import Bank since they will trust the government agency that did the market analysis more than other independent bodies. Hill (2010) appreciates that an exporter on their own can spend moths to learn about a country’s (market’s) trade regulations and other business dynamics before sealing a single deal. What a waste of time! To avoid this, it is better to utilize existing infrastructure. When it comes to handling problems that emanate from marketing in foreign markets, it would be prudent to combine forces with local companies in a horizontal integration strategy. With this kind of a strategy, the company would be entering into strategic alliances that would allow it to come up with solutions in the exporting market by exploiting strengths that are already in the local environment.

Small Companies and Taxpayer’s Money

The question of whether to use taxpayers’ money to help small businesses gain a footing abroad is a valid concern. It is legitimate for governments, both local and national to engage taxpayers’ money to help small businesses find international footing. Looking at it broadly, exports of a country help in the improvement of balance of trade as well as stir up economic activity in the local scene. When businesses are able to generate business abroad, they are able to generate employment locally as well as stimulate innovation. In international economics, it is important for a country to have sufficient foreign reserves which are critical in maintaining a healthy economy that can import and engage other countries more productively. With sufficient foreign exchange reserves, a country’s economy is shielded from fluctuations and instabilities. Gaining foreign exchange reserves is a function of international trade, most specifically exports. It is therefore imperative that both governments should be concerned with the wellbeing of small businesses since they can be important tools for stabilizing and diversifying the economy.

In conclusion, it is important for local and the national governments to look into the plight of the small businesses and accord them the help needed. On this note, taxpayers’ money might be used but should the export business work, governments stand to earn important revenue from taxes. Foreign exchange reserves are further improved using exports from small businesses. Challenges emanating from international trade especially by small companies should be handled in the most efficient way. The government is a huge resource that can hold the hand of small companies that should be exploited for the good. Daft et al., (2014) has given significant strategies that can be used by such companies. They include the resource based view which is more internally looked at. The other approach is the dynamic capabilities approach which seeks to maximize the external environment, which include the government.

Reference

Daft, R,L., Murphy, J. & Willmott, H. 2014. Organizational theory and design: An international perspective, 2^nd ed. Cengage Learning.

Hill, Charles (2010). International Business, 8th Edition. McGraw-Hill Create. VitalBook file.

Leonidou, L. C. (2004). An analysis of the barriers hindering small business export development. Journal of small business management, 42(3), 279-302.