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Given study elaborate the international trade theories, the two types of export strategies & one that be adopted by firm

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Brief Synopsis of the Issue

In this era of high competitiveness, organizations are trying to find out ways for ensuring better profit margin or just sustaining its position in the industry. Market expansion is considered as one of the key ways for achieving success, retaining growth and gaining competitive advantage.  Several market entry strategies are there, however the export strategy is one of the most used of them. The growing significance of the export strategies has made it essential to have a proper understanding of the strategies associated with it. The following section would throw light on the export strategies and several aspects associated with them. It would elaborate the international trade theories, the two types of export strategies and the one that should be adopted by the firm, the limitations and advantages of the strategy and so on. It would also shed light on the logistic, international cross border relation related issues and so on. In order to have a better understanding of the scenario,  the discussion is focused on one Malaysian firm. The following study is based on The TomazShoes. 

With the fast expansion of globalization, organizations are feeling the urgency to step up out of the domestic market and entre to the big arena of international market. The core reasons behind international trade are ensuring better profit, sustaining position in the marketing, coping up with the growing competition and ensure better market share and grasp over the industry. International trade is also seen as the consequence of many other reasons. Several international trade theories and models helps in understanding why organizations of modern era and thriving for international trade. The Adam Smith’s Model states that firms consider international expansion due to the absolute advantage that different countries can give in terms of productions of particular goods (Muthu, 2008). The Ricardian Model on the other hand, emphasis that the reason behind expansion is to gain competitive advantage by utilizing the natural or technological as well as human resources of other nations.  The Stolper-Samuelson theorem states that exporting goods to other market, increases demand in the domestic market and thus the price of the products increase in the domestic market which consequently enhances income of the firm.  The Heckscher- Ohlin model states that the reason of expansion are, the difference of labour and capital between the domestic and foreign market,  different off the technological resources and the benefit of labour and capital flow between the domestic and the foreign markets (2012books.lardbucket.org, 2018).

 Thus, several theories are formed to understand the significance of international trade and the reason behind opting for it. The TomazShoes, which is one of the most popular shoe ware in India, should expand market in UK due to the technological expertise and huge Malaysian population of the country.  This would also help the firm enhance its value in local market, as is indicatedbytheStolper-Samuelson theorem.  Several ways are adopted for market expansion. Such ways are, merger and acquisition, partnership, export, joint venture, licensing, franchising and so on. The company, Khadims, should opt for exporting due to the cost effectiveness and low chances of risk of this mode of expansion.   

Recommendations

• The direct export strategy is initiated when the firm wants to sale the product directly to the customers, without the interference of any intermediary.

• Indirect export strategy

Mainly two types of strategies are there, that is direct export and the other one is the indirect export strategy (Canada Business Network, 2018). Direct export strategy is considered as the better way to reduce cost as the firm does not have to pay for the additional charges to the intermediary. Along with that, it also provides a better monopoly of the firm over its export decisions and foreign expansion. It can do business on its own term. However, forTomaz, indirect export strategy is the most suitable one. By using this firm would get several benefits.

Background 

The market of UK lays several opportunities to the organization. Tomazshould cease the opportunities of that market. The UK market opportunities of Tomaz shoe ware are as follows.   

Increase in population is one of the key aspects in determining the success of Tomaz shoes in UK. The increase in population can help in introducing initial hype regarding the shoe ware and also creates a trust factor between the company and probable customer. It is being confirmed by Olsonetal.(2018) that introducing company product among known citizen helps in promoting and also marketing of the product. Since Tomaz has never been inducted into European market, Malaysian customers could come in handy to turn non-potential buyers into potential customers. It can also be said that Tomaz shoes can also engage with franchiseoption for Malaysian nationals residing in local regions of UK. This approach is considered to be a major advantage for company seeking export opportunity as it helps in boosting the business operation among known customers. It can also be said that such business opportunities can allow Tomaz to not only pacify the demands of British customers but also makes them approachable by Malaysian counterparts for creating a valuable supply chain for the shoe ware. However,Leonidouet al.(2015) stated that organization seeking export opportunities should have clear understanding of business opportunities that can be incorporated via foreign nationals. Cross border collaboration technique can also be implied by Tomaz shoe ware to not only agreed business terms but also result in better business opportunity than Malaysian business partners. This approach can be termed useful in terms of eliminating rival threats from local companies. It is also considered to be a better opportunity to earn maximum potential customers that do not only have necessary means to supplement the product sale but also increase the business operation of Tomaz shoes.

The technological approach of Tomaz should incorporate necessary feature that can help customer to make purchase in a simplified manner. In order to make sure potential customer base is found among UK companies is to induct technological advancement that could not only identify the issues of customer but also enhance their experience of buying. Martinez-Simarroet al. (2015) suggested that online business opportunities provide basic integration technique to increase curiosity among customers. The induction of ICT and online presence in Tomaz shoes can help new customers to select needed products at the comfort of their homes and also share it with social media sites. The fact that Tomaz could introduce ICT technology into their business the information of probable customers can be stored and kept safe from third party sources. This approach does not only allow them to retain maximum amount of information about their customers but also makes them an active unit in terms of online technology and data mining technology. 

Research on the assessment topic 

The key instruments of trade protection, that the Tomazwould have to deal with, are tariff, quotas, subsidies, nontariff barriers and so on.  The company should use proper approaches to deal with these barriers.  When Tomazwould entre to the UK market it would have to deal with the import tariffs, that include Cost Insurance, Freight, Durtyalong with that an additional 20 % VAT is levied on the gross value (Export.gov, 2018). Along with that the firm would also have to pay charges for other instruments of trade pretention. However, several approaches are there that used by firms to mitigate the cost. Tomazshould have a proper understanding of the approaches in order to reduce cost and hassle associated with exporting to UK.  For example, firms can apply for “trade preference”. It has several rules and criteria. If the firm falls under the criteria then it would be able to use this approach.  Some other duty relief schemes are there that can be utilized for this purpose. 

It can be observed that UK import has gone up with heavy margin from the year of 2005. This could be utilized by Tomaz to create business unit within the specified region of UK due to increase in trade relation. that The key approaches that are used by firms, considering the relief provided by UK government, are temporary admission, inward processing, outward processing, customs warehousing, tariff quotas and duty suspension for raw materials, end use relief that is limited to certain goods, and some others (GOV.UK, 2018).   The import value is charged on the gross value of the goods including the shipping costs as well. It has been noticed that import in UK has increased by more than 2.8% (tradingeconomics.com, 2018). This suggest that there have been minor changes in VAT structure which could be expensive for Tomaz shoes.The reduction in shipping cost eventually beings down the VAT charges. Thus, several strategies help organizations to deal with this issue. Knbadims can adopt them to reduce the entry cost and find the most effective way of shipment.      

It has been noticed that UK-Malaysian trade relation has increased consecutively in the year of 2018. In order to maintain the balance Tomaz might require trusted logistics to support the expansion of business.The primary logistic support can be extracted from Malaysian counterparts that are internal and external vendors and suppliers for the business. It can also be said that logistics of Tomaz needs to consider the involvement of third-party suppliers in UK. This approach can allow them to receive necessary supplies as well as logistic support for the business. Tomaz can also make influential approach toward franchise partners to consider logistics as an extended opportunity of business so that necessary changes in he business can be subjected to increase in business revenue and expansion of business. It can be suggested that business solution with logistics can be introduced through sea and air route. The business counterparts in UK and Malaysia can also induct faster mode of transport through but have to incorporate higher expense to make it functionary. The infusion of business partners as responsible trade partners can increase the trust and bonding which result in cheaper business rout for the company.

The retail industry of UK has been noticed to be a victim of ethical issues with more than 62% as suggested in the above figure. This proposes that Tomaz should consider legal regulation to safeguard their business practices as they belong to retail sector.The ethical issues are considered to be the primary problem in disabling the structure of export opportunities for an organization. In order to make sure that necessary ethical issue does not restrict Tomaz to make probable entry into European, it is evident that trade rules are followed. Tomaz have to secure their trading activities by considering Taxation cross border Act, 2018. This legislation in trade policy every organization that is seeking to introduce business into UK has to come under legal framework (GOV.UK, 2018). It can help Tomaz to not only receive necessary tax benefits but also make long term investment in other regions of UK. This act also signifies that businesses falling under the limits of framework can make autonomous decision about their businesses. This could be considered as primary element in taking a favorable decision that does not only highlight their issue but also signifies the issues of their counter parts. 

Arguments supporting the strategy:

For example, the company does not have any idea of the UK market as it does not have any position in it. Therefore, it has to have a proper idea of the potential risks in this market, the consumer demands and expectations. The indirect export would give the firm the time to understand the market, without directly taking huge risks.  The legal complications associated with the entry mode, would also be lower in this case as the intermediary would be a UK company only. Tomazwould also get the benefit of not investing in human resources and material resources, required to sell in the UK market. The intermediary would work as a bridge between the company and the UK market. Thus the indirect export would help Tomazfor a step by step entry to the UK market and an understanding of it.          

Argument against the strategy:   

However, the firm may also witness several barriers and limitations while using the indirect export strategy. It would reduce profitability rate due to the profit going to the middle man. It may not let the company have a good idea of the market as well and pose as a wall between the UK market and the company, rather than working as a bridge. The overdependence can reduce further chances of expanding to the market independently. It would also face the barrier of limited scope of product development (Florian Johannsen and Inmaculada Martínez-Zarzoso, 2018).  the products are not directly identified with manufacturer which can definitely hard the company’s initiative of enhancing global reputation and so on.    

Conclusion

The above section provides a better understanding regarding the export strategy. The main two types of strategies are the direct export strategy and the other one is the indirect export strategy. However, the entries discussion is not limited to elaborating the two types of strategies only. It first provides a beneficial understanding regarding the international trade theories such as, The Adam Smith’s Model, The Ricardian Model, The Stolper-Samuelson theorem, Heckscher- Ohlin model and so on. The theories states that organizations go for market expansion due to some reasons such as competitive benefits, resource exchange and utilization and so on.  Among the two strategies indirect strategy is suggested for the company. This would provide the firm several benefits. The company would not have to take major  risks and they would get sufficient help from the intermediaries. Some of the trade barriers are there such as VAT, tax and tariffs for which the company can incur huge export cost. Several strategies are mentioned that could be adopted in order to deal with the challenges. The study also provides several steps as part of the imp,emgtataion strategy. They are Communicating with the mediator, Logistic support, Communicating with  suppliers, Marketing, ICT and online technology of Tomaz shoes, Trade legislation of Taxation Cross-border Act, 2018.             

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