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International business has become the most essential element of business all over the world. It is also referred as Global Business, which means it involves transfer of goods and services, technology from one county to other country. It majorly involves exports and imports. International business has become a major source to earn foreign exchange by the countries (Paul, 2008). Exports help a country to increase its foreign exchange and to increase its profitability. The company indulged in exports normally earns huge profits and can reduce various kinds of risks. Although there are various kinds of risks involved in international business like credit risk, currency risk, political risk, etc. but a company or country by managing such risk can increase its efficiency (Cherunilam, 2010). This report analyzes and identifies the international business strategies and risk that Kiwi cheese, a cheese manufacturing company of New Zealand faces and various other issues involved in exporting have been discussed.
Kiwi Cheese Limited is a cheese manufacturing company and is based in New Zealand. It manufactures cheese, which is quality wise very superior. The company is also into export business as it is planning to export the cheese to India as an import enquiry from a prospective importer in India has been received via net. The company in India from Mumbai named as Asma wants to be in a trade relationship with Kiwi cheese and wants to import cheese from the company.
There are various benefits to Kiwi Cheese Limited to export cheese to India, which are as follows:
There are many kinds of risks associated with export and a company faces a number of risks when it exports the products. Various risks, which Kiwi cheese can face, are:
Political risks - The major risk, which is being faced by the exporters, is Political risk. The changes in government policies regarding export and import or instability in government will have an effect on the export and import business. It can create disruption in the export business or can prevent completion of the export contracts. Thus, an exporter should have proper understanding of the government policies regarding import and export of the importer’s country. As far as Kiwi cheese is concerned, it should understand the government policies of India to save itself from political risk (Nestmann, Moser and Wedow, 2008).
Credit risk - Exporters normally faces credit risk and it is considered as the one of the major risks in export and import. Credit risk refers to the risk for non-payment or fraud by the foreign importers. Due to the long distance, it usually becomes difficult for the exporter to verify the creditworthiness and reputation of the importer. If an exporter is unknown of the importer’s creditworthiness then there is a large risk being associated with the non-payment of money (Unterman, 2008).
Exchange rate risk - Another risk, which exporters face, is Exchange rate risk. it arises due to the fluctuations in the value of the currency. As there is uncertainty associated with the future value of a currency, the export value or amount to be received by the exporter will be affected by the exchange rates or by fluctuations in the value of a currency (Abor, 2005). If the exchange rate depreciates then it will be a loss to the exporter. Kiwi cheese can face this risk while exporting cheese as in a case when exchange rate between NZD and Rupees depreciates then Kiwi cheese can have loss and thus is a major risk for it (Du and Zhu, 2001).
Legal risk - As different countries are governed by different rules and regulations, it can have an impact on export and import. As international laws and regulations changes frequently, it is a risk to exporters and importers. The legal aspects of trade should be properly assessed while exporting or importing. The difference in laws of export and import country can have an impact on various aspects of export agreement like taxation, currency dealings, etc.
Transportation and Logistics risk - During transportation there are variety of risks due to which the goods or product may damage. All kinds of risks, which are associated with the transportation of products while exporting, are known as Transportation risks. The risk of theft, damage or the risk of goods not even arriving, etc. are covered under such type of risk. Logistics risk on the other hand relates to international logistics, in particular to the contract of carriage. Both the exporters and importers must understand their legal rights so that they can claim against carriers. The contract of carriage is between the shipper and a carrier.
The following diagram shows the five-step risk management procedure to minimize and eliminate the risks associated with the Exports.
International business provides various kinds of opportunities and benefits to a company. By exporting a company can increase its sales, profits, can earn foreign exchange, can innovate its production facilities and technology, reach economies of scale, focus on product quality and efficiency, can reach untapped markets and can also reduce risks related to the seasonal fluctuations. Export provides a company with various advantages but also possess various risk which a company should mitigate like credit risk, political risk, transportation risk, legal risk and most importantly currency or exchange rate risk. A company by properly preparing risk management strategy can combat such risks (Coade, 1997).
In this report, Kiwi Cheese has used Free on Board method of quoting as it is less expensive for the company and also it is more beneficial for it. For a safer and secure payment and to reduce the risk related to credit the company has used Letter of Credit payment system, which will ensure that the company receives timely payment.
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