Free «Import and Export Theory Case Study» UK Essay Sample

Import and Export Theory Case Study

Enterprises around the world have used various business models to make money and satisfy their clients. The business model chosen depends on various factors such as nature of the business and capital availability (Jansen, Steenbakkers & Jägers 2012). The model that an entrepreneur or an organization decides to use must meet the set objectives in a cost-effective way. Each model presents both challenges and opportunities for traders. As such, businesspeople must weigh merits and demerits of each model and select the most appropriate one. In the selection process, it is imperative to identify success factors associated with each model and determine whether the prospective business can satisfy them. This essay will answer questions relating to the Kangaroo Island Pure Grain (KIPG) Company case study with a focus on its business with farmers in the Kangaroo Island.

The Japanese buyer of canola was attempting to establish an import/export business model, which prompted him to visit world markets. As an established business executive in Japan, he faced a challenging task of meeting his customers’ preferences and needs. Hooley et al. (2012) argue that changes in clients’ tastes dictate products that markets should offer. There was a growing trend in Japan where consumers disliked genetically modified (GM) food products. Such a change in taste was a threat to Shigemi Hirata who was the chief executive officer of Hirata Industries that sold food products to the Japanese market. Given that the world was full of genetically modified food, Hirata committed to ensuring the purity of his products from GM food contamination while limiting costs. As such, he wished to establish a business model that would connect him with farmers directly to eliminate brokers in the supply chain and create an agreement with producers about the quality of products he sought. The best place for such trade was a location not contaminated with GM food such as the Kangaroo Island.

Canola farmers of the Kangaroo Island faced numerous barriers that limited their potential to supply world markets with their products. Location of the farmers was the first challenge. The island was remote and had no direct flights or shipping routes required for the transportation of commodities to the market. One of the essential factors that determine success or failure of an export/import business is availability of affordable transportation systems that can deliver customer promises swiftly and promptly (Weiss 2011). Therefore, the canola farmers did not get the motivation to cultivate their crops because the available route that connected the island with mainland Australia was too costly for them. Another problem that hindered the prosperity of canola farming and sale was farmers’ limited marketing knowledge. Except for the Japanese trader who visited the island, the farmers had no idea how to seek prospective buyers in foreign markets nor did they understand how to initiate an export enterprise. Kotler et al. (2008) point out that marketing knowledge is so fundamental in business that its absence can limit success of an entrepreneur regardless of how novel products and services are. Marketing information is crucial because it enables businesspeople to identify the means of maximizing profits while minimizing costs, which are critical factors in any transaction. Therefore, the lack of both marketing expertise and experience rendered the canola farmers ineffective. Additionally, they had limited storage facilities on the island. Wisner et al. (2014) assert that in supply chain management having adequate storage facilities empowers traders because they can store products until such times when prices in the market are attractive. In farming, prices are relatively low during the harvest season due to the surplus supply of goods in the market. Farmers who can store their products for a longer time can reap huge benefits when the supply level is low. Lack of such storage facilities meant that the farmers could only produce goods to sell during a short period after harvesting. Such a challenge hindered them from mass production to match the demand in the world market. Consumption of their farm produce by customers in mainland Australia was irregular, which denied the shipping operators incentives to schedule additional cargo sailing. As a result, the farmers who had to move their cargo had to use the passenger ferry, which was charging exorbitant prices. Finally, the farmers were disorganized, which limited their collaboration. The bargaining power of sellers provides them with the clout to influence market factors such as prices (Brennan, Canning & McDowell 2010). Had the farmers collaborated, they would have gained the bargaining power to determine the cost of transportation. Consequently, they would have afforded to ship more products, including canola to consumers outside the island.

The success of KIPG resulted from numerous activities that took place after the company’s formation. The primary export success factor for the organization was the experienced chief executive officer (CEO) Duncan MacGillivray. McGillivray’s experience and charismatic leadership led to the establishment of many agreements between the company and stakeholders in the grain export industry. Such deals included shipping arrangements that were cost-effective. Additionally, the CEO invested funds into the company, which empowered it to pursue market opportunities. Under his leadership, the company constructed additional grain storage facilities, attained competitive prices for the farmers, and lobbied the state government to maintain the GMO-free status of the island. Another success factor was diversification of both markets and products. Since the farmers had gained control of production, freight, and marketing, they diversified their products to reduce their risks. The diversification strategy helps spread risks and ensure survival of corporations during turbulent times (Hiriyappa 2013). They also sought other markets that could cushion them against dramatic changes in the Japanese market. Additionally, the company formed a long-term arrangement with the buyers, which provided them with time to plan for a long-term production without the fear of incurring losses because of abrupt trade agreement terminations. Armstrong et al. (2009) posit that a strategic posture promises stability and helps in the formation of goals and objectives. Another reason that influenced success of KIPG was the opportunity Kanematsu provided. Kanematsu was a trader who owned a supply chain and a distribution firm, which increased KIPG’s market reach. Moreover, he invested money and improved the product portfolio. The combination of these elements propelled KIPG to its success.

Despite the initial success, KIPG faced numerous sustainability challenges that it had to overcome to survive. The first sustainability hurdle was attraction and retention of effective leaders to steer the company into the future. The death of its CEO in 2014 could spell doom for KIPG because he had extensive experience and connections that maintained the organization’s high performance. Leadership transitions often threaten stability of corporations and require meticulous planning (Washington, Hacker & Hacker 2011). The fact that the company had little time to plan for succession due to the sudden death of its CEO was a significant threat to its sustainability. Secondly, the wool production business that was gaining popularity due to its attractive prices was a factor that could lead to the downfall of the company. Changes in the international markets affecting products the company exported combined with the alternative option for the farmers would cause a dramatic shift towards sheep farming. High switching costs limit people from moving from one sector to another (Hooley, Piercy & Nicoulaud 2012). Without stiff switching costs, both producers and consumers would have the motivation to explore their options. In the case of the farmers, there are relatively low switching costs, which mean they can opt to produce wool without significant personal losses.

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As a result of threats and challenges facing KIPG, its board of directors needs to consider various options to ensure its future stability and growth. One of the options is to hire a CEO with transformational leadership qualities. Haider (2010) argues that transformational leaders influence their followers to share their vision and empower them to see exciting future possibilities. The exit of MacGillivray combined with other opportunities for the farmers may have reduced their commitment to the farming of grains. Since their confidence is crucial for the company’s future, a transformational leader with international trade experience can avert the possible fallout with the farmers. Another option that the board should consider is seeking supplies from other isolated communities. Since KIPG’s model has worked against the odds created by remoteness, the company should consider such communities in other places with the potential, but no access to global markets. The second option can nullify the effects of some of its farmers moving to sheep farming. The third option is to evaluate the potential of sheep rearing and its sustainability. Should the company decide to venture into sheep farming, it should have an arrangement with the farmers on how to balance their grain and sheep farming without affecting their existing agreements with international traders.

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In conclusion, the Japanese buyer was trying to establish an import/export business model. The barriers facing the canola farmers included remoteness, absence of shipping and flight routes, lack of storage facilities, limited marketing knowledge, fluctuating demand, lack of collaboration, and high transportation costs. KIPG’s critical export success factors included its CEO and his experience, government support, external investors, access to an elaborate supply chain, fair prices, and adequate storage. Factors that could adversely affect sustainability of KIPG include absence of effective leadership, emergence of wool production, and fluctuations of market conditions. Options available for the KIPG board’s consideration include employing a transformative CEO, entering the wool production business, and using its business model to exploit opportunities in other segregated communities.

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