Highlight Pros and Cons of Exporting - Partnership With a Firm Overseas - Management Assessment Answer

Your company bases in NZ/Australia plans to export honey products to France. Given France is part of the EU and the Eurozone, would you recommend exporting to this regionally integrated market? Why/why not? Highlight pros and cons of exporting to the market in your answer.

I recommend that we initiate exporting honey products to France. Summarily, this recommendation follows an assessment of France’s honey sector, alongside trade barriers affecting GBE’s market entry within the EU. Through exploring our product’s competitiveness in price and other consumer preferences, GBE’s ability to overcome these barriers may be assessed. As the second-largest EU honey importer, there is an under-provision of honey produced domestically to serve France’s demand (CBI, 2016). China primarily serves this demand surplus with 59% of EU imports, as their low-cost and large-scale production compensates for quality concerns (CBI, 2016). France’s import demand is consistent as it is not solely dependent on domestic consumption but also upon re-exporting a large proportion to the EU. GBE limited GBE can implement a similar re-exportation scheme, utilising France as a trade hub to achieve economies of scale by distributing excess supplies to Germany, Italy and Spain, who are large honey importers bordering France (CBI, 2016). However, with the EU an imperfect economic union, the regulatory variance across members means this re-exportation is not without transaction costs. France’s under-provision of honey is not just from demand growth, but also declining domestic production. This is because of France’s contracting beekeeping sector from 1994 to 2014, caused by intensive pesticide use and bee-eating Asian hornets (The Connexion, 2015). Although promising for importers, this trend is limited by the French Government’s investment to decreasing bee deaths, which increased domestic honey produced by 50-70% in 2015 (The Connexion, 2015). GBE limited In relation to GBE’s ability to supply this demand against competitors, our production costs are systematically higher with Australia’s higher wages and the restriction on economies of scale because of Australia’s production consisting of numerous small beekeepers (PHA, 2014). Consequentially, GBE cannot compete price-efficiency wise with competitors from less regulated markets, like China. With Australian exports facing a 17.30% tariff, alongside further costs from following EU compliance requirements about certification, labelling and packaging, France’s EU membership additionally inflates export prices (Austrade, n.d.). The tariff’s selective application is most concerning, with it allowing EU exporters and those with trade agreements to predatory price non-favoured exporters out of the market. To overcome this price-efficiency barrier, it is recommended GBE specialises in exporting organic honey. The quality-based model’s suitability is founded upon French consumers’ characterisation as ‘highly receptive to high-quality honey imports’ (European Union, 2016). Favourably, this description is not just regarding food safety standards, but also the health, environmental and social impacts of consumption, which organic products foster. By appealing to qualitative consumer preferences, this pricing issue is partly overcome as product differentiation means smaller demand reductions from price increases. Comparatively, a cost-based model forces exporters to absorb these costs into their gross margins as homogenous ‘ordinary honey’ is readily substituted in the market. To conclude, although France’s honey market exhibits import demand, there is also a surplus of competitors exporting more cost-effectively because of trade agreements or less-regulated production. A quality-based model in exporting organic honey, matching French consumers’ refined preferences, is thus recommended to overcome this price-efficiency barrier