The Magic Fuel Company (MFC) is an Australian public company specializing in the production of fuel additives and other fuel products. Experimentation with fuel and the utilization of additives to make engines run more efficiently has resulted in the production of a super concentrated fuel gel which has the potential to reduce all fuel to approximately 20% of current volume and increase the efficient burning of the concentrate by up to 200% of current refined fuel products. This means that each litre of fuel is equivalent to approx 200 ml of gel and fuel usage is reduced to half current usage. Using the fuel gel a car with a 60 litre tank using 10 litres per hundred kilometers of conventional fuel could carry the equivalent of 300 (5*60) litres and travel approximately 3000 kilometers per tank. The gel is the same weight as current fuel, is less volatile and has a longer shelf life.
MFC is aware of the potential of the new technology the company has developed to refine crude petroleum and the value of the special additives for the gelling process and reactivation of the gel within the engines of vehicles. The dilemma is how to take their knowledge and the process to the world. Meanwhile Australia imports refined fuel from Asia. Therefore, an understanding of the advantages, disadvantages, hurdles and opportunities inherent in international trade and globalization phenomenon will help the company not only to strategically get into international trade but also avoid any potential difficulties.
The main objective of this report is to advice MFC how to internationalize this new and potentially huge business. Specific objectives of the report include:
To define international trade and globalization
To identify benefits of international trade
To identify barriers to international
To establish cross-cultural issues relating to international trade, and
To identify legal and political risks that affect international
The following part answers to the questions contained in the objectives listed above.
2.0: International trade
International trade is defined as the exchange of products (goods and services) between nations (Economy Watch, 2010). In other word, it consists of business transactions between parties from more than one country. International trade, therefore, has many potential benefits that MFC can enjoy.
2.1 Reasons Why MFC chooses to trade internationally
The benefits MFC is likely to enjoy by trading internationally include:
An opportunity to grow its business
Trading on an international platform will increase significantly the “universe” of potential suppliers and clients. MFC can highly achieve company growth by simply increasing its number of potential customers by 100 percent every time it begins selling in a new nation (Purdy, 2011). Doing this will possibly be much easier than attempting to expand its market place in its “home” country (Australia).
Diversification of risk
MFC will enjoy the benefits of business diversification by spreading business risk across the countries in which it has extended its investment or trade. The idea where a business relies only on one market as well as directs every part of its resources into one currency might become more risky than it might first seem. Looking at the number of unprecedented worldwide disasters (such as earthquakes, financial meltdown and unrest cornered the Middle East/ Arab world), over the last half decade and the related drastic impacts that have engulfed markets, an organization will have unprotected and unexpected high levels of risk in their operation. The home market of a company could contract or even vanish, but its business may be able to survive because of the revenue it generates from markets overseas.
Besides increasing the volume of sales, the company may also enjoy better margins. For instance, the Australian dollar is currently strong, which may give MFC a head start when importing. Pricing pressure will be reduced, which will decrease seasonal market fluctuations in the same way.
Possibility of earlier payments
Under trading arrangements with companies overseas, the two parties involved, in this case MFC and its customer, will want to complete the transaction within the safest as well as the most efficient way probable. Out of the many advantages that accrue when trading on an international platform include overseas payers always paying up front. By this, the company will reduce payment risk, which in turn may assist its working capital.
Experiencing less competition
In business, the ability to shine amongst competitors is an essential factor. The fewer the competitors, the better and the simpler is this task. MFC business compared with business in Australia, may, when extended to a bigger and more diverse environment, becomes a unique product (good or services) that cannot be missed. By making their product and related services accessible to global buyers, MFC will, right away, generate another lifeline for its business by operating in reduced competition as well as increasing the probability of outshining the others. The resultant effect of this will be boosting the potential of sales and permitting MFC’s business to flourish.
2.2. Major types of international business the MFC will set up in the short-term and long-term includes the following:
This is the selling of products made in one’s own country for purposes of use or resale in another country. Here, the company will manufacture the product in Australia and establish international distribution channels to get the product to customers overseas.
It involves the buying of products made in other countries for use or resale in one’s own country. For instance, Australia currently imports refined products from Asia. The company can decide to import products from Asia to Australia courtesy of a weak Australian dollar.
It is a contractual arrangement in which a firm in one country licenses the use of its intellectual property (patents, trademarks, brand names, copyright, or trade secrets) to a firm in a second country in return for royalty payment. This is one of the major business avenues that will help MFC utilize the potential of technology already available in other parts of the world such as Europe, America, and Asia.
This is a specialized form of licensing that occurs when a firm in one country (the franchisor) authorizes a firm in a second country (the franchisee) to use its operating systems as well as brand names, trademarks and logos in return for a royalty payment. This is also one of the avenues that the company will benefit from technology, labor and other professional advancement in other parts of the world. The cost of entry and some of the legal obstacles that are involved in entering a new market are also avoided since the franchisee is an established organization and will only be taking or venturing in a new line of business (Cohen, 1997).
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