Australian Exporters Sometimes Fall into Errors and Misconceptions - Case Study Example

1. Executive summary There are some barriers which have been cited to influence the success of an export company (Australian Government, 2011). These include language barriers, unpredictability of host markets and ethical issues. In this paper the impacts of these barriers have been discussed. The paper has also discussed commonwealth bank as an example of successful Australian export company. From the analysis the bank has encountered many such as global recession and competition from other firms. In spite this; the firm has recorded excellent performance in recent times (Holt and Perren, 2009). The firm could overcome its current threats and weaknesses by coming up with innovative ways of improving its earnings, capitalization and offshore expansion. 2. Introduction Language barriers, unpredictability of host markets and ethical issues are some of impediments which hinder the success of export companies (Holt and Perren, 2009). This paper discusses these factors and provides a comprehensive discussion of commonwealth bank as an example of successful export company. 3.5. Language In many instances managers allege that lack of in-house foreign language capability is an impediment to the firm’s entry into international trade (Holt and Perren, 2009). Even though, foreign language skills are helpful when marketing and negotiating export agreements they are not essential for the success of the business in the export market (Australian Government, 2011). This is because firms can outsource translations and interpretations when correspondence and documents in English do not suffice. Thus what matters in export market is the sound management of the business relationship rather than language abilities (Australian Government, 2011). The success of Reg Drayton Wines exporters has been based on their management rather than the understanding of languages of host countries to where they export their products. 3.6. Prediction It is critical that any exporter understands that every market has different demands and that this demand changes over time (Holt and Perren, 2009). Most exporters who disregard this factor often fail in international markets. Thus firms need to understand market trends and demands in addition to the uniqueness, people’s mentality and business traditions of the export market in order for it to successful develop the market. Many factors bring about changes in the export market and firms intending to enter an export market ought to consider them (Australian Government, 2011). Some of the factors include technological, globalization, abolishment of trade barriers and softening of import/export regulations. This calls for firms to consider these factors when developing export strategies and tailor them in accordance to the current situation. The risk of exchange rate is the most predominant risk in export business. Many studies have indicated that exchange rate performance of a country may impact on the export marketing performance (Holt and Perren, 2009). Thus, the attractiveness of an export market depends on its forex market. Risks of exchange rate may cause a firm to incur losses in an operation which is otherwise profitable because of currency devaluation. This implies that when a firm is intending to enter a new export market it ought to equip itself with current trends of the target country forex market. This will help it to predict future changes in the forex market that may impact on the performance of the company in the export market. According to macro-economic theory, the high value of foreign currency in export markets results in a rise in foreign prices which reduces imports (Australian Government, 2011). This is based on fact that a highly valued domestic currency in comparison to export market currency leads to a rise in prices of products in the target market which results in reduced demands for such products. Thus if the Australian currency has a higher value than the target market currency value, Australian firms may find it hard to sell their products in such markets due to reduced demand. For instance, Renewan Wines Company was affected in 2007 by higher exchange rates. Even though wine importers flourished during this period, Renewan Wines Company encountered losses due to these exchange rates. Research has also indicated that international business opportunities are more risky that domestic ones (International Monetary Fund, 2009). This is because firms encounter new types of risks as they try to globalize their ventures which make them to incur costs which could otherwise be avoided in domestic markets. Actions of the host country may also make such firms to incur losses. Such actions may include enactment of legislations which restricts the actions of the firm (International Monetary Fund, 2009). For example, legislations such as voluntary quotas or other import restrictions may make such firms to incur losses. For instance Organic Wines Australia has encountered many risks especially those related to legislation in host countries. The firm has especially found opposition to penetrate Islamic countries which do not consume alcoholic drinks. Thus some of the firm’s non-alcoholic drinks have not been able to penetrate such markets due to the fear that alcoholic drinks might find their way in such markets. 3.7. Ethical Issues Sometimes foreign practices may be incompatible with domestic business (International Monetary Fund, 2009). This may include foreign business practices being difficult to understand, confusing import procedures and regulations and risks involved in selling abroad. Studies have indicated that culture is a determinant of day to day business behaviour in addition for forming general patterns for motivation and attitude. Managers who are not sensitive to cultural practices of the export market may not be able to understand predominant business practices (International Monetary Fund, 2009). Thus, foreign business practices which are difficult to understand could act as a barrier to export. For instance, a cargo of Australian waste bound for china via Hong Kong was fined by Hong Kong courts for illegally exporting the waste to Hong Kong in 1998 (Australian Government, 2011). Reg Drayton Wines exporters have encountered many ethical issues in selling their products in many countries. Some unscrupulous retailers have been selling the products to underage individuals who violate the ethics guiding sale and consumption of alcoholic beverages. 4.2. Commonwealth Bank The Commonwealth Bank of Australia operates in several countries including Fiji, USA, New Zealand, Asia and the United Kingdom (Common Wealth Bank, 2011). The bank provides several financial services such as funds management, retail, business and institutional banking, superannuation, investment, insurance and broking services (Common Wealth Bank, 2011). The bank is the second largest listed company on the Australian Securities Exchange. Some of the bank’s brands include Colonial First State Investment limited, BankWest, ASB Bank, and Commonwealth insurance limited and commonwealth securities limited. 4.2.1. Company background The commonwealth bank was founded in 1911 by the Australian government under the commonwealth Bank Act of 19911. The Act favoured nationalization of the bank. The first branch of the bank was opened in Melbourne in 1912. The bank also has an agreement, which dates back to 1912, with Australia Post to trade through post office agencies (Common Wealth Bank, 2011). The bank merged with the state savings bank in Tasmania in 1912 and it had branches in all Australian states by 1913. The head office of commonwealth bank was moved to Sydney in 1916. The bank took over the mandate of issuing Australian bank notes from department of the treasury in 1920 (Common Wealth Bank, 2011). This marked the beginning of the bank’s acquisition of central bank powers (Anderson and University of Adelaide, 2009). It is the same year that the bank merged with the Queensland state savings bank (Australian Government, 2011). The savings bank business was transferred from the Government Savings Bank of New South Wales to the commonwealth bank by the government in 1931 (International Monetary Fund, 2009). The same year also saw the government transfer the current account and fixed deposit business from the Rural Bank department to the commonwealth bank. The state savings bank of Western Australia was also acquired in the same year. The bank also opened a branch in Rabaul, New Guinea in 1916 which were later suspended in 1942 when Japanese army captured many towns in New Guinea. The bank resumed its operations around 1944 where it established many branches in the country. During World War II, commonwealth bank received most of central bank powers following emergency legislations. The firm employed these legislations to dramatically expand Australian economy. Attempts by the government to compel Australian states to bank with commonwealth were thwarted by a court ruling in 1947 (International Monetary Fund, 2009). Following the colossal expansion of immigration programs by the Australian government, the bank established a migrant information service and opened many branches all over Australia. The firm opened a new branch in Solomon Islands in 1951. The dual function of the bank as a central bank and at the same time as a commercial bank raised controversy between 1958 and 1959 (International Monetary Fund, 2009). The bank was consequently split and the central bank mandate was given to the Reserve bank of Australia while the commonwealth banking corporation retained its commercial banking functions (Australian Government, 2011). Commercial functions were executed by commonwealth savings bank of Australia, the commonwealth trading bank of Australia and the commonwealth development bank which were constituents of the commonwealth banking corporation (Common Wealth Bank, 2011). After the establishment of a new commonwealth development bank in 1960, the commonwealth banking corporation diversified its operations. This included businesses such as insurance, travel, foreign currency trading and international banking (International Monetary Fund, 2009). The bank established Bankcard in 1974 which marked the beginning of credit card in Australia. MasterCard and visa were introduced by the bank in 1984 and 1993 respectively. The bank relinquished its operations in New Guinea by 1974 after handing over its operations newly created government as the country approached its independence. The firm also handed over its operations in Solomon Island to the National Bank of Solomon Islands in 1981. The bank acquired three quarters of the ASB bank in New Zealand and the state bank of Victoria in 1989 and 1991 respectively (Common Wealth Bank, 2011). The bank was fully privatized by 1996. The bank also acquired 50% share in PT bank international Indonesia in 1994. The bank merged with colonial limited in 2000 which saw it acquire the national bank of Fiji (Common Wealth Bank, 2011). The bank also acquired a full ownership of ASB during the merging of the two firms (International Monetary Fund, 2009). By 2000, the bank obtained full acquisition of PT bank international Indonesia. From 2001 up to date the firm has entered into partnership with Chinese banks in order to penetrate Chinese market. The firm also has branches in India. Performance (both in Home and Host country) The firm has excellent performance in both domestic and international markets (Australian Government, 2011). The continued expansion of the bank activities in its host countries is an indication of its positive performance in these markets. The bank announced 22% rise in its full year 2010/2011 profit to $6.6 Billion (Common Wealth Bank, 2011). 4.2.2. Company Strategy (SWOT) Strengths It has widespread distribution networks with a solid brand and diversification strategy Has quality assets which is compounded with strong earnings Has diversified form of funding Has adequate capital for managing its risks Has domestic franchise in banking sector of Australian financial services Has substantial funding ability Has a huge access to both international and domestic wholesale markets Has a highly developed and fully utilized ability of securitization Has good liquidity and is therefore able to mitigate short-term financial stress Weaknesses The bank has a weakness in its capitalization due to stiff competition in domestic market It has limited geographical diversity and relies largely on the wholesale funding Opportunities Product expansion and innovation Improvement in productivity and distribution capacity Improvement in capital efficiency Efficiency gain Threats Competition from other financial institutions both in domestic and international markets Economic turmoil overseas Ongoing offshore instability 4.2.3. How they can overcome these issues The bank can enlarge its business position through long lasting improvements in earning, capitalization and offshore expansion. 4.2.4. Short conclusion The commonwealth bank of Australia is a leading Australian bank which deals with wholesale financial services both in Australia and international markets (Common Wealth Bank, 2011). The bank first opened its doors in Australia in 1911 (International Monetary Fund, 2009). The bank was privatized in 1996 (Common Wealth Bank, 2011). In spite the threats the bank has encountered from global recession and competition from other firms, the firm has recorded excellent performance in recent times (Faeth, 2010). The firm could overcome its current threats and weaknesses by coming up with innovative ways of improving its earnings, capitalization and offshore expansion. References Anderson, K., and University of Adelaide. 2009. Australia's Economy in Its International Context: The Joseph Fisher Lectures I. Adelaide: The University of Adelaide Australian Government. 2011. Trade, Import and Export. Available at http://australia.gov.au/topics/business-and-industry/trade-import-and-export Common Wealth Bank. 2011. Home. Available at: http://www.commbank.com.au/ Faeth, I. 2010. Foreign Direct Investment in Australia: Determinants and Consequences. Sydney: UoM Custom Book Centre Holt, J., and Perren, A. 2009. Media Industries: History, Theory, and Method. Sydney: Wiley-Blackwell Publishers. International Monetary Fund. 2009. Export and Import Price Index Manual: Theory and Practice. New York: International Monetary Fund Read More