Import Export Importing and Exporting: Financial Plan

Import Export

Importing and Exporting: Financial Plan and Risk Assessment

Promotion Mix

Advertising will consist of distributor-oriented materials and programs for the local market and the sale of the imported coffee, while in the foreign market for the exported cotton the focus will be on specific manufacturers. Quality and price will be important factors for both products and markets, with sales promotions achieved through ongoing competitive efforts and product samples rather than specific promotional periods or programs. This will help to establish long-term and trusted relationships without the potential pitfalls of more complex variations and changes in sales promotions strategies, which is ideal when the selling mode is wholesale rather than retail focused (Ireland et al., 2005).

Letter of Credit as Possible Payment Method

Using letters of credit as the method of payment for both import and export transactions is in keeping with standard practices in international trade, and will provide the greatest amount of security and assurance possible for all parties involved (Ireland et al., 2005). Given the amount of business conducted between the United States and Brazil and the solid relationships between large-scale financial institutions in both countries, obtaining trusted and valid letters of credit for the international trades should not be difficult. For transactions between local buyers/sellers and the local import/export companies in each country, other methods of payment that are more efficient and less complex might be ideal, and would be more in keeping with standard practice (Ireland et al., 2005).

Importer Checklist

The coffee that is being imported as a part of this proposed strategy has been selected as the import product largely for the convenience factor; it is easily available in varying quantities in Brazil, which has already been selected as the target for the exportation of the domestically purchased cotton, and is easily saleable in the United States due to high volumes of consumption (ICO, 2011). As the product is a consumable good, there will also be a constant demand for the imported coffee with minimal service expectations (basic quality and quantity levels must be maintained, as with raw materials in any distribution chain) and no ability to repair/reuse the product once it has been consumed. This means there will be no need to provide support services after wholesaling the coffee to distributors fur further sale before retail sales and eventual consumption by end users.

Competition certainly exists in the coffee market, presenting perhaps the single greatest substantial risk to the proposed importing activities (ICO, 2011). The degree of consumption and the availability of the product in Brazil makes coffee still an ideal product for import as long as effective strategies for reaching distributors can be achieved, possibly through price competition (Ireland et al., 2005). Many large retail coffee brewers and sellers engage in their own import activities, but there are a variety of other retailers that rely on distributors as sales organizations, and competition here is less fierce and less crowded (ICO, 2011). There are no property right issues that the importer will need to contend with.

Exporter Checklist

Soft infrastructure in Brazil is unevenly developed depending on region and socioeconomic status, but this is not expected to interrupt company operations at all (CIA, 2011). Given the relatively low level of agriculture as a percentage of Brazil's GDP, much of which is taken up by coffee itself, it does not appear that any commercial production of cotton occurs in Brazil, but rather it must all be imported; sales will be likely to increase if it is made more available (CIA, 2011). While there are many other textiles that can be used as substitutes to cotton, there are a variety of fashion shows and other trade events that can be used to highlight the use of cotton cloths in addition to the demand that already exists. However as this business is primarily focused on sales to manufacturers, it will primarily be through coordination with other industry operators that such shows can be taken advantage of.

For the manufacturing customers that will be sought for the exporters products, warehousing is kept at a minimum and demand is kept at a fairly consistent level with direct distribution form the exporter most desirable. There are also a wide variety of potential customers available to the exporter as the specific clothing and fashion needs or desires of the end users of cotton-made products are not the concern of the exporter. Price will be the essential competitive point, and competition is not especially fierce to begin with. As this exported cotton constitutes a raw product with no real refinement procedures having taken place, there are no physical or intellectual property right concerns involved in this strategy.

Financial Plan

Export:

It is assumed that shipping will cost $1,500 per container from end-to-end, with three containers shipped at a time. The cotton itself will be purchased at a cost of $10,000 per container, and will sell for $18,000, netting a total profit of $6,500 per container. According to this structure, all costs are essentially variable costs that wil change with the amount of cotton exported; all overhead costs will consists f managerial salaries and limited office space. Forecasts suggest minimal profitability in 2012 with startup costs, but significant growth in 2013 and 2014. Market size is quite high with a growing population that is slowly growing wealthier as the country continues to develop, and with decent wages, low unemployment, and other factors contributing to an increase in consumer spending and the ever-increasing production and sale of consumer goods such as textiles (CIA, 2011).

Import:

For the importing activity, the same basic cost of shipping at $1,500 per container is assumed, yet given purchase prices four containers of coffee can be bought for each container of coffee sold, while still leaving a profit even before the coffee is sold. This will increase the profit margin of the operation as a whole. Costs again are almost entirely variable, and again though profitability is expected to be minimal at first, it should grow significantly as business progresses. The coffee industry in the United States does appear to be shrinking slightly, but primarily in the specialty coffee retail stores; the product is still a staple in homes and restaurants and though there is significant saturation here price competition makes new entry easy (ICO, 2011).

Evaluation of Efficiency:

The pure export strategy is inefficient only because the money made through the sale of cotton in Brazil could be used to generate greater returns through purchases made in Brazil than it could as pure profit. The current strategy is slightly inefficient in that different numbers of containers are needed coming and going, yet with third party logistics firms this should not be a major problem. Risks are fairly minimal with both strategies, but the second is clearly the more preferable option with its greater efficiency and higher profit margins.