Board Paper: Export Strategy for Spinzar Cotton Company to Germany

Desklib provides past papers and solved assignments for students. This report analyzes exporting Afghan cotton to Germany.

ASSESSMENT WEEK 1
BOARD PAPER

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TABLE OF CONTENTS
BRIEF SYNOPSIS OF THE ISSUE................................................................................................. 2
RECOMMENDATIONS...............................................................................................................2
BACKGROUND..........................................................................................................................3
INTERNATIONAL TRADE THEORIES...........................................................................................3
GOVERNMENT POLICIES FOR FREE TRADE...............................................................................4
TYPES OF EXPORT-RELATED STRATEGIES.................................................................................4
ACCESSING MARKET OPPORTUNITIES: ENTRY STRATEGY, CROSS-BORDER COLLABORATION
AND RISK ANALYSIS.................................................................................................................. 6
LOGISTICS................................................................................................................................. 7
TRANSPORTATION....................................................................................................................8
INFORMATION TECHNOLOGY.................................................................................................. 8
ETHICAL ISSUES........................................................................................................................ 9
ARGUMENTS AGAINST RECOMMENDATIONS..........................................................................9
ARGUMENTS IN FAVOR OF RECOMMENDATIONS.................................................................10
IMPLEMENTING RECOMMENDATIONS..................................................................................10
REFERENCES........................................................................................................................... 12

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MANAGING INTERNATIONAL TRADE: BOARD PAPER
Paper Reference: Student ID No.
Date of Paper: DD/MM/YYYY
Title of Paper: Give a suitable title for your board paper
For End of Module Assessment
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BRIEF SYNOPSIS OF THE ISSUE
In Afghanistan, the cotton industry is gaining high importance and therefore, the cotton is
being considered as one of the major export commodities by the nation. Cotton is being
extensively used in the textile industry as it is a raw fibre. Afghanistan is also making
concentrated efforts for increasing the overall production of cotton by developing and using
the new irrigation facilities.
Germany is considered one of the top importers of the Cotton. In the year 2017, Germany
had imported cotton amounting to USD 1 billion. This has made Germany one of the largest
importers of cotton. It is essential for Germany to import cotton as it holds one of the
biggest cotton-based textile industry all across the globe.
This paper is focused on the identification of the issues which are involved in international
trade. The report also focuses on arguing the reasons for the appropriateness of the
strategy of exporting cotton by Spinzar Cotton Company, Afghanistan to Germany. The
paper is also aimed at analyzing the international trade theories, logistics, export strategies
and ethics involved in providing recommendations for the issues analyzed.
RECOMMENDATIONS
 Spinzar Cotton Company must shift its focus of exporting cotton to a new location in
Germany due to increased demand from the developed textile industry of Germany.

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 Spinzar Cotton Company should adopt the indirect selling methods and appoint
distributors for ensuring that the cotton is reached to the German Market, especially
to the textile manufacturers who are dependent on cotton for their operations.
 The export approach which would be used by Spinzar Cotton Company and other
major manufacturers of the cotton industry in Afghanistan would be indirect selling
by appointing intermediaries.
BACKGROUND
International trade is referred to as the transfer of goods and services in economies all
across the globe. The adoption of international trade practices is of crucial importance for
ensuring that the economies achieve sustainable development in the long run. This could be
made possible by acquiring the scarce resources of the nation from other nations who have
abundant resources. In Afghanistan, an international trade centre has been established
which aims at establishing trade policies and strategies capable of contributing towards
increased exports and thus, revenue generation for the countries.
INTERNATIONAL TRADE THEORIES
RICARDO’S THEORY OF COMPARATIVE ADVANTAGES
The most widely adopted international trade theory is Ricardo's theory of comparative
advantages which states that the countries trade with each other, in situations when they
can have a competitive advantage by trading with each other (Watson, 2017). The
companies are specialized in a particular product which helps them in gaining advantages
for exports of their products.
MICHAEL PORTERS COMPETITIVE ADVANTAGE THEORY
The competitive advantage of nations was also focused by the theories of Michael Porters.
As per this theory, the nations are able to gain competitive advantages by the four different
aspects of factor conditions which include the supply of skilled labour, the demand of
products and services, support from infrastructure, the existence of supportive industries
existing in the international markets and the intensity of rivalry present within the nation.
All these factors are linked with each other (Huggins and Izushi, 2015). Therefore, these

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factors are being used along with the government policies for free trade, for predicting
competitive advantage which could be gained by the competitors.
ABSOLUTE ADVANTAGE THEORY FOR INTERNATIONAL TRADE
The theory of absolute advantage has been derived and analyzed by Adam Smith. He has
stated in his theory that free trade across nations could be enhanced by enhancing the
efficiency in production for the readily available resources. The free flow of international
trade would also be beneficial in improving the standard of living of the exporting and the
importing nations. The absolute advantage could be defined as the ability of the
organization for undertaking the production activities in larger amounts and thereby
ensuring cost efficiency (Afghanistan Exports of Cotton, 2018). In the present studies, it can
be stated that Afghanistan can take absolute advantage by manufacturing increased
quantities of cotton and achieving cost efficiency from its operations.
GOVERNMENT POLICIES FOR FREE TRADE
The government of Germany tends to restrict the import of goods and services within the
economy by promoting industrialization. The government is also taking initiatives for
substituting the imports and for the same reason, promoting the manufacturing of goods for
the purpose of consumption of the same. The government also introduces protective
policies for ensuring that the employability within the economy is maintained and also
ensuring that the trade policies are being linked with foreign policies (Afghanistan Exports of
Cotton, 2018). The government can use different tools such as quota, tariffs and imposing of
various export and import restraints. The government also takes initiatives for providing
subsidiaries to the local authorities with the objective of promoting healthy competition
within the industry and also among different nations.
TYPES OF EXPORT-RELATED STRATEGIES
The outside-in approach of exporting strategy could be understood by applying the
structure conduct performance (SCP) paradigm. This approach focuses primarily on the
marketing environment which helps in deciding the firm level strategy. In contrast to this,
the inside out perspective emphasizes the use of resources. This theory states that the firms

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focus on utilizing its internal strength and resources for gaining competitive advantage
before exploiting the opportunities based in the market (Advancing Afghan Trade, 2019).
Thus, it can be said that the core of the export strategy is based on the combination of
organizational strategies along with the process of connection and disconnection from the
domestic markets.
Figure 1 Afghanistan export of Cotton
(Afghanistan Exports of Cotton, 2018).
As seen in the above image, as per the data presented by the Comtrade database on
international trade, the export of cotton from Afghanistan amounted to a value of USD 5.1
million.
In addition to this, it can also be said that Germany is being considered as an expert
destination by Spinzar Cotton Company as the studies have revealed that Germany accounts
to import approximately 25% cotton in the European Union. However, no imports have
been made from Afghanistan (Advancing Afghan Trade, 2019). Therefore, Afghanistan must
focus on exporting its cotton to Germany and must establish its strategies accordingly.

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Figure 2 Cotton Imports
(Cotton Market Situation, 2012).
ACCESSING MARKET OPPORTUNITIES: ENTRY STRATEGY, CROSS-
BORDER COLLABORATION AND RISK ANALYSIS
It is evident from the studies that from many decades the European socialist countries were
the biggest importers of afghan cotton.
(Safi et al., 2016)
Now, Afghanistan must also focus on expanding the exports of cotton to other countries
such as Germany. This would be helpful for Afghanistan in ensuring that it has a much wider
export market (Safi et al., 2016). However, Afghanistan can also focus on entering into
cross- border collaborations for the same reason.

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The firms can also ensure a wide market in the foreign nations by adopting local distributors
in the target market and adopting the capabilities of the distributors for gaining a larger
market share. The organizations must also provide full support to the distributors in their
services and ensure that it has full access towards the financial intelligence and markets of
the distributors. This would be helpful in establishing a link between the local and the
national distributors. This also helps the firm in avoiding complications in a relationship with
foreign distributors and in establishing strategies where the organizations opt out for the
distributor networks after initial collaborations.
LOGISTICS
Logistics helps in maximizing customer value by optimizing the flow of materials at all levels
of distribution. As Afghanistan is focusing on the export of cotton, which is a less complex
product, it should implement the cost-based system of logistics for remaining competitive
within the market. In situations when the Spinzar Cotton Company is able to predict the
market demand and the supply of products require short term leads, the organization must
focus on adopting the techniques of lean supply chain management (Arvis et al., 2018). The
logistics strategies should also be aligned with the organizational objectives of cost
leadership, differentiation or focus.
The logistics for the Germany region could be analyzed by using the Logistics Performance
Index. This method is used for determining the scope of a particular country on the basis of
efficiency of clearance procedures, transport infrastructure quality, the competence of
existing logistic services, timeliness and ability to track the consignments received and sent (
Arvis et al., 2016). The logistics performance index for Germany, based on which Spinzar
Cotton Company can form its logistics decisions is as under:

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Figure 3 Logistics Performance Index
(International Scorecard, 2018)
TRANSPORTATION
Transportation is useful in ensuring that the products offered by Spinzar Cotton Company
reach the intended audience. The major modes of transportation which could be adopted
by the organization are air, road and rail transport, water carriage and others. As cotton is to
be transported in huge volumes owing to its lightweight, the waterways seem to be the
most appropriate mode of transportation for the company (Ruzhanskaya et al., 2018).
However, Spinzar Cotton Company must also take into consideration the legal system and
the policies of the destination country, that is, Germany before considering the most
appropriate method of transportation.
INFORMATION TECHNOLOGY
The Spinzar Cotton Company must make use of the electronic data interchange program for
eliminating the involvement of the workforce in the paperwork and the documentation. The
information technology must also be used in the logistics for reducing the involvement of
human beings and making the processes automatic to a larger extent. Other techniques can
also be deployed by Spinzar Cotton Company such as barcodes, open system networks and
wireless communications among others.

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ETHICAL ISSUES
It is very essential to ensure that the facts pertaining to government concessions are being
interpreted accurately. The organizations must also strive to ensure appropriate working
conditions for the employees involved in utilizing the export opportunities. It must also be
ensured by Spinzar Cotton Company that it does not attract the anti-dumping duties or the
attention of the anti-trust agencies due to its export activities.
ARGUMENTS AGAINST RECOMMENDATIONS
Germany has a huge requirement for cotton owing to the existing and well-established
textile industry. However, Afghanistan is expected to experience huge competition from the
other nations who are willing to export their cotton at cheap prices to Germany. Also, the
Spinzar Cotton Company might face several policies due to the government policies which
are aimed at protecting the growth and development of the domestic industries.
POLITICAL RISKS
The value system of Germany needs to follow the fundamental structure which has been
laid down by the Constitution of the federal republic of Germany. The decisions of the
export-import within Germany are affected to a great extent due to this stringent political
system which is being practised in Germany since years (McGillivray, 2018).
ECONOMIC RISKS
The organizations face increased risk due to the increased employability within the German
economy. The fluctuations in the value of the German euro would also have significant risks
on the export-import activities. This can be majorly due to changes in the exchange rate
between each Afghan Afghani and German euro over the period of transactions pertaining
to exports and imports (Gourevitch et al., 2016). This fluctuation in the exchange value of a
currency is expected to impact the export-import transactions and thus create economic
risks for Germany and Afghanistan.
SOCIAL RISKS
The people in Germany are highly inclined towards the use of textile products, which might
change due to the changing tastes and preferences of the consumer. This might lead to a

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decrease in the imports of cotton by Germany, thereby leading to increased social risks for
Spinzar Cotton Company.
LEGAL RISKS
The legal risks which could be faced by Spinzar Cotton Company could be the legal
regulations which are applicable for the exporters of Afghanistan and also the regulations
which are applicable for bringing in goods to Germany. The company also needs to consider
whether it needs to obtain the export-import certificates for the trading of cotton.
ARGUMENTS IN FAVOR OF RECOMMENDATIONS
Spinzar Cotton Company must efficiently deploy its strategies and involve itself in exporting
cotton to Afghanistan by making appropriate use of the available government incentives
and by taking into consideration the available local distribution network in Afghanistan.
Further, with the objective of avoiding the economic risks, including the risks of foreign
exchange, the importers or the players of the importing economy should focus on
transferring the overall risks towards the importing country. This can be done by Spinzar
Cotton Company by ensuring that the transactions are being undertaken in the Afghani
currency (Knight, 2015). The company can also effectively deal with the foreign exchange
risks by entering into the foreign exchange contracts and by using the available currency
options. The company must also indulge in extensive planning for the transport and logistics
issues while planning for international trade. It must be ensured that the legal obligations
involved in the transportation of Cotton cross border are being fulfilled. By doing this, the
Spinzar Cotton Company can ensure that its activities are being performed in a cost-efficient
manner.
IMPLEMENTING RECOMMENDATIONS
Spinzar Cotton Company must deploy all the aspects of the porters five forces model for
analyzing the influence of suppliers, the capabilities of buyers, the threat of new entrants,
the threat of substitutes and the existing market rivalry. The strategies must be formulated
by the company after analyzing the government policies of both Afghanistan and Germany
before exploiting the available opportunities. The organization must align the positioning

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and branding of products in line with the strategies of cost leadership, focus and
differentiation. The export opportunities can be efficiently used by the company by focusing
on enhancing the productivity and skill set of the employees. Spinzar Cotton Company needs
to ensure that a balance is being maintained between the resource-based approach and the
SCP paradigm for gaining competitive advantage. The deployment of logistics and available
information technology must also be made in line with the export strategies of the
organization.
Marketing functions
The company must enter into partnerships and agreements with various distributors who
are involved in trading of consumer goods, especially cotton. This would ensure that the
cotton is being delivered to Germany from Afghanistan in a very cost-effective manner and
also that the company is not required to enter into legal formalities for the direct export of
goods (Coughlan, 2016). This would also be beneficial in increasing the overall revenues for
the organization.
Export strategy
The major export strategies which are available with the organization are the global
strategy, multinational strategy and also the transnational strategy. However, it would be
recommended that the Spinzar Cotton Company must adopt the global strategy for the
export of cotton. This would be highly beneficial for the organization in achieving the
economies of scale by offering cotton and other similar products in the market of Germany
(Cocks, 2016). Thus, the organization can become a global brand and achieve economies in
operations by indulging in the export of cotton.
Information transfer
The company must ensure good communication between the exporter and the importer by
establishing information technology systems across the nations. This would also facilitate
the transfer of essential documents, which would further smoothen the process of export
and import.
Signature and Date: Your full name and date of board paper (DD/MM/YYYY)