Joining Trading Bloc - Assignment Example

1. Trading bloc 1A trading bloc refer to an economic alliance of many nations or businesses with the aim of establishing a single economic community and social and political cooperation an mutual understanding among the member nations or firms. Membership to a trading bloc usually has advantages to members as well as disadvantages. a) The following are the advantages of a nation joining a bloc; i) The market size increases as the many members of the bloc all culminate into a single economic region with favorable trading policies ii) The firm is able to gather vital information about other firms in the same bloc. iii) There is creation of free trade, common policies, and elimination of trade barrier and enhancement of mutual cooperation. The following are some of the disadvantages of joining trading bloc; i) Members are barred from acting independently. ii) The business secrets of the firm may be made known to rivals and competitors. Ways in which these advantages and disadvantages may influence the way businesses may market their organizations and services to other businesses within the trading bloc. Increase in the market size will be advantageous since a business/member in the trading bloc will end up having many customers (who are in this respect other businesses) to deal with. Membership enhances business to business marketing as the firm in question is able to reach out other members easily, there is low cost of advertisement needed and the firm can utilize the bloc’s meetings to market itself. For instance Tesco and Waitrose are large supermarkets trading in mostly retail goods such as food (minced meat) operating in both Europe and USA. Moreover as the saying goes, there is power in information and this is a powerful tool that the firm in a trading bloc will use in decision making concerning its dealings with other members. It will help the business to adjust its operations to improve its public relations. Also, information enables the firm to learn the needs of different firms, their competitive advantage edges and niches thus our firm can improvise methods to deal with all these issues in the most profitable way. For example member of the European Union know each other better and each one knows the weaknesses and strengths of the other. This is very vital because it gives an insight of what competitors are doing and what potential customers need. With the creation of free trade and common policies firms are able to market their services and their organizations to others without restriction or hindrance, Bomberg, Elizabeth and Alexander. The European Union: How does it Work? (2003: page 15-20). Besides benefiting from trading blocs, member country or firm are restricted from acting independently and must adhere to the strict laws laid down for example pricing when dealing with members, quality and quantity et cetera. For instance the case of European Union, where some member countries especially developing countries find themselves in this quagmire. This affects the way a business markets itself to others in the sense that it has first to abide by the laid down rules in the bloc for example on the use or a certain language, media, promotion activities and other marketing activities area hampered in one way or the other. Exposure of competition strategies will put the firm in problem with its competitors since it will be at a losing end in terms of gaining competitive advantage. The business will have to approach the others from a more honest and persuasive away now that its secrets have been known. There may be restricts on the entry and exit from the bloc. This will in one way or the other affect even the way a member is going to market itself to the rest of the members. 2. Competitive advantage 2Competitive advantage refers to the ability of a nation of a firm to produce at low cost and sell at a fair price. It emanates from a low cost structure of the business. In other words, it is the low cost enjoyed by a firm than its rivals thus enabling it to sell les or make greater profits at the same price level as its rivals because of large sales. Competitive advantage can be gained through many ways but it is important to note that it is the business strategies laid down that gives a firm this advantage. Thomas Stewart once said, “Intellectual capital is the sum of everything everybody in a company knows gives competitive edge”. Thus intellectual power is one of the greatest sources of competitive advantage for any firm. 3A firm can also gain competitive advantage by way of having a large size as well as many outlets for delivering its services and products to the right people and at the right time. The large size in itself is a source of economies of scale which enables the firm to produce at a low cost as well as sell at a low price if it wishes to do so. A firm may also gain competitive advantage by raising itself high above others in the same industry in matters to do with environmental issues. The firm will portray itself as being more responsible than the rivals and by so doing it is able to win the hearts of many people who it deals with for example by designing products in such a way that they are user friendly and focused towards making the environment healthy for example using biodegradable wrappers. A firm that wants to gain competitive advantage can be impaired from doing so by several factors. First, attachment to a trading bloc is in itself an impairment on the freedom of the firm to do things that is going to put it above others I the business arena. For example, there are stringent rules and regulations that members of a trading bloc have to strictly adhere to. For example the bloc may generally agree to allow only certain firms to produce certain goods and services; other regulations may restrict a firm from having dealings with others in a particular way. Thus a firm can be affected if its basis of competitive advantage is regulated by the bloc negatively. 4Another factor that bars a firm in a trading bloc from gaining competitive advantage in its dealings with other members is lack finances to place it above the rest. Any firm that wants to gain competitive advantage must be strong both in terms of capital bases well as other factors that are crucial in the day to day business operations. Other vital resources that firms need most may not be readily available to give the firm a competitive edge, such resources are; a good information system, also a firm may be lacking modern technology in its production processes, such a deficiency will directly hamper a firm from gaining g competitive advantage in all respects. Intellectual capital is one of the most vital constituents that a firm needs in order to gain competitive advantage; lack of the same will seriously affect the ability of the firm to gain competitive advantage over the others. Lastly, tariffs and quotas set by different member countries will definitely affect the extent to which a firm will trade with the other. 5There may be a limit set on the quantity of goods or services that a firm can freely export to other members and this will make a firm lose its competitive advantage if it had relied on quantity as strength in gaining competitive advantage. Some other firms may have based their competing advantage over the others in terms of the value of goods or services that they transacted with their customers, thus if tariffs are set by the trading bloc, then the firm will lose its competitive advantage. 3. Derived demand along the supply chain 6Derived demand refers to the demand for a good or service that arises out of the demand or supply of another good or service. It is demand that is pegged to the demand for another good or service. In a supply chain, derived demand is very vital as it expands the business empire of a firm that is able to profitably use this device. Here the supply of one service or good will always is followed by the demand for another that will either supplement or complement the former product. Businesses should therefore take advantage of derived demand to bring into the market commodities that can be used as complements or supplements of what has already been flagged into the market. This entails studying the market carefully in order to understand its needs, its deficiencies, its strengths and the services it needs in order to function properly and effectively and efficiently. 7There are many ways through which a firm can stimulate derived demand but many people view most of the methods as being unethical as they regard them as methods of unfavorably expanding business and exploiting those who buy and use certain commodities or services. In the supply chain, a firm can sell to another or to a customer a commodity or service that need specialized training on how to apply it. This kind of stimulation is usually used in electrical and electronics appliances, in machinery and even in specialized services like medical services. For example a firm will produce a machine, this machine cannot be used before it is installed, therefore the maker will be give the task of installing. This is one way or stimulating derived demand, then this machine will also need to be maintained or serviced from time to time, the same firm might have the opportunity of servicing the machine which it may wish to do using a different subsidiary or department. When it comes to services, a firm may be engaged in medical consultancy, but it can also own as a subsidiary a branch the supplies medical equipment and drugs and even offers medical services like surgery and prescription. Thus by having such many braches or department, a firm becomes sort of ‘self contained’ in the sense that it will consult a client in one of its department, then refer him/her for drugs or any other necessary medication in another which in one way or the other is very different from the former. Thus it shall have stimulated derived demand for either its branches or other firms in the related field. 8Derived demand in the supply chain can also be stimulated by the firm doing a careful market study and pinpointing the areas of weakness in the chain, and then a firm will use its creativity and innovation to make good the flaws in the chain. For example, as information technology moves very fast as time goes by, a firm can always come up with services that go hand in hand with the latest technology for example training people how to apply that technology. It can also lobby with other firms that are dealing in certain items so that it is given a part to play in the supply chain. Since many firms prefer specialization, they will only deal in what they can produce best. For example a car manufacturer cannot produce all the car body parts, is can stimulate derived demand by giving other firms the chance to produce what it cannot produce efficiently and effectively, it can also allow another to do the assembly. Derived demand can also be stimulated through advertisements, through promotional activities in which the users of certain commodities are made aware of the availability of a complement or a supplement to what they are currently familiar with or with a new combination of application that will give the customers more utility than before. Thus such a campaign is very necessary as it makes those w ho were not aware be aware and thus it creates demand of a certain good or service simply because another good or service has been supplied/demanded in the market.-Diebold, Francis and Glenn D.; Business Cycles: Duration, Dynamics, Demand and Planning. (1999: page 170-174). 4. The basis on which we might segment business to business markets. 9Business to business segmentation refers to the division of the market of a business into division that has related characteristics. It is also called market fragmentation and it entails dividing a market for a product or service into groups of customers with identifiable needs and characteristics.10 This process of segmentation will highly depend on various things, namely quality of information available in the company-that’s companies own abilities and technology and also the type of decision a company wishes to make. This is a clear show that company’s segmentation could vary with the way company view the market and whether this involves the present or future offer. Moreover it can be found out that competitors in the market could produce different market segmentations. Also segmentation in the market will try to show closely related groups of customers. 11Macro segmentation refers to the division of the market into very broad groups those have general characteristics that are related. Such grouping can be based on the region, country of the customer or any other general characteristic. Usually business to business segmentation does market division based on whether the business is a customer of a good or service. Therefore macro segmentation is based on the nature of the prime good dealt in. Micro segment on the other hand is whet the market is refined and the specific items deal in are looked at critically in detail. Businesses that consume a firm’s commodities are then put in groups depending on how the management of the firm has decided to classify its segments. The following illustration shows how macro and micro segmentation can be done: The firs level of service verses good shows the macro segment. The subsequent levels show the micro segments which can be subdivided further to specific services or machinery or commodities whichever the firm deals in.     5. Content of added value in business to business markets. a) The content of added value in business to business markets. Value added refers to the value that is added to a business process for example when a sale is made to a customer. It is the increase in value of a service or god as it passes through the manufacturing process or distribution channel. It’s also referred to as the added value on a product brought about in a stage of production comes about in marketing process. For instance in buying of raw materials such as wheat to make bread Sweet Bakers incur some unit cost to buy raw materials which is acted upon by factors of production in trying to make bread which is a refined product. Hence extra cost is added on the cost of the product to provide the final cost price of the refined product. This added value is then shared among the factors of production, that is on labor and capital. b) Concept of added value between business to business and business to consumer markets In business to business dealing the firm is dealing with a large customer who usually needs specialized services, the value added is usually greater than in a business to consumer dealings. However if the final consumers are very powerful and a single one, the value added will be equivalent to that offered to another business. Value added can be in terms of special packaging and blending, quality, size, delivery, etc. In consumer market a product value is quality expectation of consumer product which can be equated to the real amount paid by him/her. For the firm to deliver efficient product to its clientele it has to consider the present offer in the market. It has to consider its reputation, staff, present technology and the competency in its staff in relation to its competitors. c) Marketing of products and services between business to business and business to consumer market. 12Marketing of services; the service is an activity or activities which are more or less immaterial, and are created through interaction between a customer and a service provider. From this definition, we clearly distinguish the field of business to business marketing from that of services to the companies. 13For instances the physical or material form is the object of the exchange, which is materialized through ownership. In second instance it is just a support of exchange, the object of which is the realization of the service. Hence the combination of definition proposed by most scholars that a service is an act that distinguishes it from a product. In service activities, the cooperation between the consumer and service provider is very crucial. The marketing of service activities rarely occupy a key position in peoples’ minds in the continuum of marketing approaches despite the fact that it promotes interaction more naturally than the marketing of industrial products. 14In services, it is possible sometimes to seek a market position through the standardization of the services. This is done basically by reducing the level of increasing interaction with consumers during the service delivery. The result of this choice is greater or lesser customer participation in realization of the service. 6. Contribution would a marketing campaign. 15Tendering method of doing business refer to the an undertaking where a firm accepts to enter into a contract through bidding and undertakes to do the work either to be paid at a later date lump sum or bit by bit as the two principles may agree. For instance Construction Company may enter into a contract with the government to construct roads in various parts of the country. When parties have entered into a contract terms and conditions of that particular contract has to be observed failure it renders the contract null and void. 16Promotional campaigns are very important in tendering as it makes other firms which our firm may wish to deal with understand the firm better, know its contract policies and also in publicity which is very fundamental in any business as it brings in more customers. It also gives confidence to the tendering firm to believe in the work that is being bidder. Moreover the firm builds its public image. The campaigns are also very helpful as they form a basis of the firm interacting with its customers to know their wants and needs and to learn the latest way of doing things. It also portrays the company, if framed well that is responsible for its actions. Hence it will be in position to compete favorably with others. 7. Pricing factors that need to be considered in business to business markets. 17Pricing factors for firms refer to the variables that are used by any firm as a basis of setting their prices for goods and services. 18These factors among others are; the demand level of the good or service, usually, when the demand is high the firm will tend to set high prices. Competitors’ prices are also another factor that cannot be dispensed with in setting prices, the activities of the competitors is therefore very important. The firm usually tries to set prices a little lower than that of competitors if it is operating in a competitive market, otherwise the market forces will set the prices in a perfect competitive market. The other factor is the regulation by the government on the prices that a firm can set on a particular commodity or service especially farm produce and other services like basic medical services. Cost of production, profit target/sales forecast and trade agreements on pricing also play a major role in the pricing process by any firm. For example Kenya Airways will consider so many factors when fixing its air ticket to various destinations. Some of these factors will include distance cover-how far the place is hence the further the place the higher the air ticket. Size of the luggage on board, security of the destination country-the more the risk the higher the charge. Urgency involved will also be a factor, for the case of urgent fight the charge may be high. References: 1. Daniel, M and Peter, N.1996, Business-to-Business Marketing, Palgrave Macmillan: New York. 2. Henry Stewart; Journal of Database Marketing: The Magic of Business-to-Business Segmentation (2003) vol. 10.3: Henry Stewart Publications. 3. Hakansson, H. and Osterberg, C. 1975, Developing relationship in business networks, Rout ledge& Kegan Paul: London. 4. Williamson, O.E. 1985, Markets and Hierarchies, Free Press: New York. 5. Diebold, Francis and Glenn D.1999 Business Cycles: Duration, Dynamics, Demand and Planning. Oxford University Press: London. 6. Abell, D.F. 1980, Defining the Business: The Starting Point of Strategic Planning, Prentice-Hall: Englewood Cliffs. 7. Elizabeth, G. and Alexander, D.2003, The European Union: How does it Work? Second Edition. Prentice Hall. London. 8. Ford, D. and Brown, P. 2002, Business Marketing: Managing in Complex Networks, John Wiley: Chichester. 9. http://www.rfp.templates.com/procuremnt_tendering/ 10. http://www.marketingstrategies.blackflag.com/b2b_ marketing/ Read More