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The company of our choice is Sara Textile and Apparel Sourcing FCZ in the United Arabs Emirates. Basing on the company’s specialization in the exportation o men, women and kids attire, our group opts to plan clothes exportation to Africa. The product falls in the textile industry, which is very competitive in the UAE. Within the textile industry in the UAE, the apparel industry is very stiff in terms of competition. Sara Textile and Apparel Souring FCZ experience competition from companies like Deepika Trading Co, Fashion Folio, Real Leather Craft and Campus 4 Life. The firm is going to diversify categories of product to sustain the adverse effects from the competitive nature of the industry. The products will include first-hand men, women and children’s apparels. Under women clothes, the company plans to include jewelry and cosmetic as an additional products of the supply (Vaidya, 2006).
The plan is to export our products to the East African countries, that is, Kenya, Uganda and Tanzania. According to the market survey conducted, the three East African countries bear an enormous potential market for our products. For instance, the majority of Kenyan population nowadays prefers first-hand products, which suit the description of our primary products. Another factor that makes such countries become comfortable and vital target is the availability of Mombasa and Zanzibar ports in Kenya and Tanzania respectively. The ports will allow the firm to use shipping services through the seaport facilities like the Saudi Port located along the Red Sea, which connects with the Indian Ocean. The company prefers shipping transportation to air because it will permit delivery of great volumes of clothes. However, the proximity of the targeted countries to the UAE boosts the exportation process because shipping voyage will not require much time (Vaidya, 2006).
The implementation of plans will extend the geographical coverage of the firm, thereby making it use the advantages of globalization. Globalization appeared vital when the company decided to avail its products to other parts of the continent. Globalization has more advantages to the company than disadvantages. For instance, the firm’s market size can increase its production capacity to meet the large available market (Keillor, 2013). Additionally, the firm can receive an opportunity to establish foreign branches in the targeted countries due to the understanding and goodwill as a result of globalization. Another advantageous aspect of globalization is the opportunity that will be created for the firm, such as receiving raw materials, such as cotton in Zanzibar at a fair price. However, operating globally will give the business an opportunity to procure both the input and output at most competitive prices. Considering the customer satisfaction, it is the firm’s mission to serve many customers in the market by providing apparels at affordable prices.
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On the other hand, globalization has adverse elements too. For instance, the decision of the firm to operate globally will expose it to the highly competitive environment because the textile industry is developed globally with competitors from countries like Italy and Turkey. Another impending risk is the likelihood of market failure in the targeted countries. Globalization is attached to various economic problems, when a company chooses to operate globally. The firm has formulate crucial strategies and implement them correctly in order to sustain the global economic instability (Morrison, 2011).
Four primary factors have driven the business to embrace globalization. First, the technological advancement has boosted the digital global economy. Technology has improved in terms communication through Internet services, which has reduced the importance of the company in a global economy. Another driving aspect of technology is trade flows. East African countries has eliminated trade barriers by creating a free and subsidized ports, which has consequently reduced freight cost to the charges. Additionally, new IT technology has helped establish Internet-based distribution channels under e-commerce that can be hindered by protection policies (Morrison, 2011). For instance, payment can be made via digital wallets like PayPal and Skrill. Factor mobility has created a need for the firm to operate globally. In the contemporary economy, factors of production are mobile, and it has made it balance the equation by budgeting for inputs and outputs.
2. The Political Economy of International Trade
Operating globally means the firm is practicing in exportation, and it is under the government concern. Both the UAE government and the East African countries governments play a regulation role that affects the firm’s performance in the market. For instance, the Kenyan government has placed restriction measures aimed at protecting their local growing textile industry from being overwhelmed by large international firms like Sara Textile. On the other hand, the UAE government has implemented economic policies to boost its local firms to operate globally and export commodities in large capacity. The UAE government established an Export Processing Zone (EPZ). Under EPZ local firms willing to exports, products receive benefits, such as subsidized costs of raw materials and a zero rated tax system (Southwick, 2008).
In spite of governmental supports received by both the importing and exporting countries, there are still elements of political and economic argument underlying such policies. For Instance, The UAE government faces political arguments concerning the adopted policies in relation to exportation. The government sees the exportation process as a tool, which deprives the UAE citizens the opportunity to purchase high-quality clothes because the best clothes are meant for export (Southwick, 2008). Importing countries also experiences both political and economic arguments as a result of international trade policies. The Ugandan and Kenyan governments have recently experienced political discussions with leaders opposing each other on the agenda of encouraging imports. The majority of the leaders vote against importation of clothes because they believe it will negatively influence the local industry, since consumers will prefer imported materials to the local produced. From the economic point of view, the government supports globalization through exportation because it tends to create job opportunities to local traders who purchase the imported clothes and resale them.
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The political and economical factors in the East African countries create a challenge for our firms, but the market is lucrative, which is worth risking. As much as the Ugandan, Kenyan and Tanzanian governments have placed some restrictions to limit clothes importation, the chance for trading is available. It is caused by the fact that the targeted population has demonstrated a positive test and preferences towards our products due to an already established relationship with the Dubai Exporters. With respect to political turmoil arising in three given East African countries on the agenda of exportaion and importation, some leaders like the Kenyan President has a displayed support towards the importation of products from the UAE. The UAE government has also given countries like Uganda and Kenya an opportunity to export tea and coffee to the UAE as a way of encouraging mutual benefits in the international trade (Southwick, 2008).
The UAE and the three African countries’ governments tend to differ in terms of their policies. For instance, the UAE policies are formulated mainly to encourage its local firms to export more, while relying on their comparative advantage. However, in a country like Kenya, the government has tried to restrict the importation and encourage importation due to lack of necessary resources. The market gap existing between countries prompted our group to target the three East African countries. The decision to choose them as our target priority was made due to the friendly political and economic system exhibited by the nations towards exportation and importation policies (Southwick, 2008).
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3. Strategy of International Business
The firm is aware of the impending stiff competition within the textile industry regarding the East African Value. The company plans to insist on quality and product differentiation in the market, in order to stay secure and protect the range of our products against the market obsolesce. Product differentiation is a tactic aimed at creating the value in our range of products. In our targeted market, the youths and kids are our primary target. The firm is aware of the nature of fashion dynamics in the textile industry. In cases of youths clothes, the companies plan to produce trendy designs for both women and men. Teenagers are known to be fashion-oriented and remaining relevant and dynamic will be crucial in order to match the over-changing tastes and preferences of our customer. Another important aspect the company plans to focus on is the products quality. Quality will give the products a commanding value in terms of prices in the market. Maintaining quality is strategized beginning from the production level towards the procure level (Luis Rivera-Batiz, 2010).
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The firm has stipulated two important tools that will form the core of ensuring its competency, namely, the innovation and quality. Innovative companies tend to have a competitive advantage in the market. Innovativeness will be constant in order to be in line with trending fashions of clothes in the market. Staying creative makes the customers wait for the next collections. By being innovative, our firm plans to produce stylish clothes to target celebrities like actors, musician,as well as casual buyers. In the kid’s category, the company also plans to produce appealing and fashionable clothes for kids. Second, quality is another essential aspect of competency. The Japanese manufacturers have dominated the market by prioritizing quality as their primary core competency. Our firm plans to incorporate quality production at all the stages from designing to manufacturing. Focusing on quality will create a renowned brand, which will become preferable making the consumers waiting for the latest version of the product (Kotabe, 2012).
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Economies of scale refer to the benefits which a firm will experience due to operating on large scale, which is the case for our company. When a firm operates in large economies of scale, the cost of production is reduced because it produces more with limited factors of production. However, economies of scale will help the firm cover a wider market due to a massive production that can meet the demand of a larger market. The firm can achieve competitiveness due to massive market command by operating with large capacities.
Experience curve refers to the benefits a firm accrues by gaining learning experience in the production curve. For instance, an old company in the production of a particular commodity is likely to produce large volumes and of better quality than a new firm producing a similar product. A firm, which has been existing in the industry, has an efficiency and experience in production, making it easier for the company to produce quality products in large volumes. Our company may not benefit from it because it is new in the industry, and it will take some time before the company can reach a higher level on the learning curve.
Location economies refer to the benefit a firm is likely to accrue by obtaining a strategic location. A strategic location can be defined as a region that is characterized by a dense population, proper transport facilities and proximity to numerous urban areas. The aspect of the site will not profoundly hinder our firm because we can reach the consumers through exportation (Kotabe, 2012).
The most common types of competitive pressure in the international market are pressure for cost reduction and pressure for local responsiveness. Major competitors can be located in a low-cost locations and take the advantage in prices. The different nation has different tastes and preferences, and only the price appears to the primary factor of success among competitors. Our firm will experience difficulty trying to reduce the cost of production in order to lower the clothes prices in comparison to competitor’s prices. The pressure of local responsive emanates from the difference in the customers tastes and preferences. For instance, tastes and preferences of the targeted consumers in the three East African countries may differ from their traditions. Sometimes the government can affect the consumer’s response towards the products (Luis Rivera-Batiz, 2010).
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The two competitive challenges can be reduced by ensuring that the firm is operating in substantial economies of scale. Large economies of scale will enable the business to reduce the cost of production and, consequently, set the price expected from other competitors. Regarding the adverse response from the East African countries, our firm will perform a proper market research to determine the local’s tastes and preferences.
4. Organization of International Business and Differences in Culture
A centralized business structure refers to a system of organization, where all the daily activities and decision-making activities are conducted by the top management only. On the hand, decentralized organization structure refers to a system in which all the daily operations and decision-making responsibilities relatively delegated among the top managers, downwards to other middle and bottom departmental heads.
Both types of structures have merits and demerits. First, the organization carrying centralized structure benefits from first decision-making process and focused vision. The process of decision-making is swift because consultation with departments’ heads is missing before arriving at a decision. Achieving a focused vision is possible because the company president can communicate a single vision and strategy to its followers, and the whole process ends by focusing the same direction. A focused vision is vital in the prevention of inconsistency and helps the company produce a standard message to the targeted customers. However, a centralized system has some disadvantages, as well. For instance, it makes a single person responsible for decision-making and other operations. Overburden can lead to poor decision-making, inability to react or an inadequate response to emergency cases.
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A decentralized organization structure is sometimes preferred because it makes the employees feel a part of the organization. Employees perceive the duty of making a particular decision as an empowerment of their position. Additionally, such structure allows the formation of a more efficient decision because before a decision is arrived at, several heads are consulted in advance. A decentralized structure is also suitable in case of an emergency, when the firm’s president is not available. It will be the duty of an assigned employee to come in and provided a solution (Hodgett, 2013). The main demerit of adopting a decentralized type of organization is the delay in the process of decision-making. People have to be consulted before arriving at the final decision, hence, consuming much time.
After evaluating the two types of organization structures, we prefer to pick a decentralized organizational structure because it allows expansion. The business has planned to operate internationally and it will prompt establishment of branches in the host countries. A decentralized structure will be suitable because the firm will produce in large economies of scale. Delegating decision-making responsibility is essential because the company’s CEO cannot provide a universal direction that will effectively control all the companies’ affiliates in the host countries. In addition, such structure of centralized system helps individuals in reducing the number of tasks performed (Kotabe, 2012).
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Our selected market is the three East African countries, that is, Kenya, Uganda and Tanzania. Historically, the countries’ population has several ethnic groups that share a similar origin. Having a similar background implies that the population of the given countries possesses almost the same culture. The culture of any country is dynamic and has evolved over the years and the current population has changed in relation to globalization and technological changes. A change in the community culture also signifies a change in the consumers tastes and preferences. Another crucial aspect of culture that the firm considered is religion beliefs in terms of fashion and clothing in general. Muslims females appeared to have specific tastes and preferences specified by their religion and our company plans to capture the market by availing them. ON the other hand, Christians have no problem with the conventional attire like suits for men and fancy dresses for women (Michael Hitt, 2014).
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