International trade has in very many decades existed with large corporations depending on it to grow their businesses. This has not only concentrated in a single area, but also has led to a globalised market based areas spurred by regional integration as an important segment in international trade, where specific countries come together to form a regional block with set trade policies with the aim of spurring trade with different countries all over the globe.
This has dominated the landscape in international trade, where in very rare instances, countries trade as they are, but rather in several trading blocs comprising of several countries with a common agenda of spurring trade. One of the most notable trading blocs recognized in the world such as the European Union, is one of the aspect in international trade that clearly spearheads the aspect of trade in most European countries, with the bloc consisting of nearly 28 countries which mainly are involved in international trade as a community or a trading bloc.
Apart from this, other regional blocs such as the East African Community (EAC), North America Free Trade Area (NAFTA) and South African Development Community (SADC) are such trading blocs that have come as a result of the need to spur international trade, initiate trade favorable policies and marketing initiatives geared towards international trade. Additionally, these trade blocs are also charged with creating favorable trade and tax policies that spur import and export business while at the same time encourage foreign direct investment, critical to a country or countries in given trade blocs. This also helps create a supply chain for products manufactured in certain regions such as the North America Free Trade Area (NAFTA), facilitating the free flow of goods in order to maintain demand and subsequently benefit the countries involved in trade.
Therefore, another critical element in international trade is the supply chain in place, or the logistics that enables manufactures to ship goods to end users. The supply chain factor enables manufactures to deliver their goods, either through ships, freight or rail as well as prepare for export documentation and clearance of goods through different customs authorities along the supply chain.
Item of exportation
This research elaborates the exportation process for Kimbro Oil Company’s land and offshore oil rigs. Kimbro is a company located in Memphis Tennessee, and manufactures various oil products and oil drilling equipment. The company is located in the North America Free Trade Area and intends to export offshore and land oil drilling rigs to oil multinationals involved in drilling gas and oil in East Africa, West and parts of Southern Africa.
The oil drilling equipment will be assembled at the company’s headquarters, with the major parts, the crown block, drillers shack and an engine generator being sourced from counties which have advanced in oil drilling technology, China, France and Germany. In light of the advancements, the company of exportation will be Uganda, located in East Africa. This is because of the recent discoveries of oil and gas deposits running into more than 5 billion barrels of recoverable oil deposits, and massive infrastructural capabilities which will enable the company to ship the equipment in the least possible time.
Apart from the recent discoveries, another key reason for choosing Uganda is to market the products to the nearby countries with vast oil deposits which will be a great stride in terms of marketing.
Apart from the infrastructural and market capabilities, Uganda is well connected with other oil rich countries in the region such as Kenya, Congo and Sudan which will turn to be potential clientele if the marketing and logistical strategies are well laid down by the country. However, the key aspect in international trade being logistics, will enable Kimbro Oil Company to ship its massive loads of equipment through its neighbor port, Mombasa port which is well connected with Uganda either through road and the standard gauge railway, hence effectively and efficiently delivering the equipment.
Therefore, in choosing Uganda, the key aspects of marketing and infrastructure play an important role, as international trade thrives where the supply chain or logistics is elaborate. In addition to these factors, there may be unseen risks which may be affected by the export business, one of them being political upheavals which may affect Uganda’s potential to drill its oil discoveries. This is because the country had been affected much as a result of its last disputed presidential election, a common element common with its neighbors, Kenya and South Sudan.
In market entry strategy, Kimbro Oil considers using a marketing subsidiary which will mainly market its products. The reason for choosing this entry strategy is because it is cheaper for countries which may suffer conflicts because of political differences. This will enable Kimbro Oil to use a marketing subsidiary to market its oil drilling equipment with less operational budgets and capital investments, as it analyses the business climate before venturing into a fully fledged company in Uganda, an entry strategy that will be suitable for the long-term entry strategy.
Marketing Subsidiary and marketing plan.
In marketing subsidiary entry strategy, Kimbro Oil Company will establish a lean organizational structure. The organizational structure will mainly be composed of a National sales manager in Uganda to establish the potential nature of the enterprise while maintaining low costs for the initial operations. Other than just being an entry strategy, the marketing subsidiary will also help the company to implement after sales services by employing a small number of petroleum engineers to render maintenance services in instances where the drilling rigs require maintenance, hence an appropriate strategy to implement a marketing approach of the products (Gillespie 281). Thus, the marketing subsidiary would have a lean organization structure for low operational costs. This would be composed of the following, director, Uganda operations, chief commercial officer, 3 financial accountants, drilling engineers and 2 liaison officers.
The lean organizational structure will implement a marketing plan based on target market and distribution of goods method. In target marketing strategy, Kimbro Oil Company will target mainly multinationals with vast contracts that have established private public partnerships in the oil sector, with the majority being upstream oil companies. In this, the company will interact mainly with oil drilling companies with vast mining contracts in Uganda. Apart from this, the distribution of goods method will be implemented in a way that commercial operations for the Uganda marketing subsidiary will be handled solely by Kimbro, apart from logistics and customs brokerage, which will be handled by Mearsk Oil, a subsidiary of Mearsk shipping company. This will reduce costs, as well as take advantage of trade discounts to minimize operational costs.
Given the low number of target customers, the company shall not implement promotional activities apart from social responsibility to boost its image.
In order to maintain its operations, the commercial officer and the liaison officers will implement the sales goals for one year. This may consist of both land and offshore drilling equipment or either, based on value so as to maintain profitability. The sales goals shall consist of the following goals.
Segment Year Category Cost
Upstream drillers 1 Large scale $1 billion
The sales goals will primarily be from well established companies such as Shell and Total, Uganda, which are the main upstream companies in oil drilling.
Kimbro Oil intends to import certain drilling machinery that will be assembled at the company’s headquarters, and then shipped as one load to Uganda. The crown block, a steel mast that acts as a raised pulley will be imported from Baoji Oilfield machinery, a Chinese multinational in oil drilling machinery. They will be imported from China due to the relationship and technical expertise they offer in oil drilling, and will be shipped in containers through China shipping company due to the bulky nature of steel.
The drillers shack will be imported from France, due to their association with Total Uganda. This is due to the good relationship with Total France, a marketing strategy that Kimbro in Uganda intends to implement. The equipment part will be imported from Bouygues offshore oil Machinery Company based in France and will be shipped by China shipping company.
Other than the two, the engine generators will be supplied by Deutsche Erdoel AG from Germany. This is because of the favorable trade terms and trade discounts including after sales service. The machine equipment part will be shipped through China shipping company.
Shipping the product
Logistics form the crucial segment of international trade. This is where a manufacture moves a finished product from the manufacturing enterprise to the market. In most cases involving international trade, and the movement of bulk goods, the goods normally referred to as consignment may be moved either by air or sea usually for bulky goods involving transfer over a long distance.
Considering the logistical aspect to be involved in moving kimbro’s finished goods to the East African Country, the company entails to ship the product from its warehouse, after the assembly process through trucks and ship. These will be the modes of transport where trucks used in ferrying exceptional loads will be used to ferry the goods from the warehouse to the port of dispatch. In this case, the goods will be carried as exceptional load and transported via road from the enterprise to the port where it will be unpacked and loaded again as for export.
At the port of dispatch, the goods will be unpacked and loaded into containers meant international markets, through a process commonly known as containerization. This forms the largest form of intermodal transport where manufactures supplying goods to far destinations use shipping containers made of steel to pack cargo for delivery to their destination. In this system, such containers are numbered and tracked through systems, which on the other hand also allow customs and port authorities to clear such cargo on arrival. In this respect, Kimbro intends to contract Mearsk shipping company, a subsidiary of Mearsk oil, a company with vast interest
in offshore drilling, to ship the goods to the East African country through the sea.
At the port of entry, the company will contract a local clearing and forwarding firm, Panalpina that will undertake the customs clearance process and then involve DHL to ship the goods from the port of entry to Kampala for goods acceptance.
Port of Shipping
Logistics rely on ports of dispatch to be able to ship goods through the sea. This is mostly used in bulky goods that cannot be delivered through air. In such cases, special ports with anchorage facilities and other port equipment play a bigger role of ensuring cargo is loaded into containers and shipped to their destination. In this case, Kimbro intends to use the Port of Panama City, as the port of departure, where the cargo will be moved through to international waters to the port of Destination.
In addition to the use of the port of Panama City, Kimbro intends to use the Port of Mombasa, the only port connecting international seas with the landlocked country of East Africa. This is because the Port of Panama City is strategically located and serves better the Caribbean routes, South American routes with Far East and Africa included making it a formidable port of dispatch, with the best facilities near Tennessee equipped to dispatch and handle containerized imports and exports. Additionally, the enlarging of the Panama Canal makes it strategic due to its wider berths which give it an advantage in terms of handling bulky containers and bigger ships plying international routes.
However, Uganda being a landlocked country on the other side rely on the port of Mombasa, located on the Coastal part of Kenya. The company will use the port of Mombasa
as an import point where cargo will be unloaded and any customs clearance process undertaken.
Inco term and form of payment
International trade involves commercial transactions and terms that stipulates how trade transactions are undertaken between different parties. These terms are developed by international trade agencies that oversee trade policies, interactions and exchange of goods in the international trade arena. They are meant to set the rules for engagement between trade partners as well as facilitate the international procurement processes surrounding trade.
The Inco term, mainly consisting of three letters elaborates the contractual aspects regarding the delivery of goods, where it outlines the aspects of risks, price and the shipment aspect. In this shipment involving the transportation of cargo through containerization, a process of shipping cargo protected in box like metal containers (Hinkelman and Shippey 45), Kimbro will use the Delivered Ex Quay (DEQ) inco term, which establishes the rules of transportation between the supplier and the customer, where the customer assumes the greater responsibility in the transportation process.
In this arrangement, Kimbro will assume the responsibilities, risks and costs attached to the goods while being delivered from port of Panama City to the destination in Uganda. However, in as much as costs will be catered for by Kimbro oil company, the importing entity in Uganda will undertake its legal mandate of paying duties and taxes as well as facilitating the customs clearance procedures both at the port of Mombasa and Busia border post.
The Delivered Ex Quay incoterm highlights the obligations of both the supplier and customer, regarding the commercial transaction.
The supplier must provide the invoices and other shipping documents such as the export license, while the buyer is obliged to take the delivery of such goods and to respond to the supplier as a form of acceptance. This incoterm is best suited in this
scenario, involving containerized cargo being shipped through sea, as it sets the contractual terms as used in international trade processes.
International trade processes also involve the transfer of payment from the buyer to the supplier. This however depends on the contract, terms of payment and forms of payment acceptable between the parties. In this agreement, Kimbro Oil Company will accept electronic funds transfer (EFT), a form of payment where funds will be directly credited into the account, 30 days upon delivery of the goods as a confirmation regarding the delivery of the goods. The choice of the form of payment is best for the transaction as it is safe, more convenient and fast, in that money can be credit within hours.
Logistics in its own, is faced with numerous challenges which tend to interfere with shipment of goods. This is because of unseen calamities and risks which may befall cargo during carriage. However, as a measure in shipping, most manufacturers insure their goods aboard ships which may in turn be an advantage to manufacturers in the event of a calamity. This calls for marine insurance as a countermeasure to reduce the loss factor which may occur.
In this scenario, Kimbro will use the All Risk insurance coverage, a type of insurance policy which covers all risks and damage that may affect the goods being transported. This is due
to the benefits of the policy, in that it covers all risks hence an advantage to the exporter.
Protective packaging and customs broker
Protective packaging is an essential aspect in shipping. This is because of the protection it offers to a consignment. However, protective packaging also depends on the type and nature of goods being shipped. In this case where the goods being shipped are mainly steel based equipment, protective packaging will not play a greater role due to the bulky nature of steel. However, hard boxes will be used to pack certain components of the machinery. In this case, the boxes will be arranged in rows, inside the containers during shipment.
At the port of destination, customs clearance will be undertaken by Panalpina, a Swiss company that will oversee the customs clearance process, import documentation and any other related duties such as payment of customs duties to the authorities. This will ensure that shipments do not incur any warehouse costs which may way on the profitability of the company in the first years of the operations.
Logistics play a critical role in international trade. This is because it involves the physical shipment of goods from suppliers to end users. In modern trade, various shipments occur through air or sea, with both being used to deliver goods based on weight, nature or any other factor considered to be advantageous within the supply chain. This however also depends on the ability of a company to market itself, in order to sell its products, sustain itself which in turn is beneficial to all parties in international trade thereby maintaining the cycle.
Gillespie, Kate, and Hubert D. Hennessey. Global Marketing. , 2015. Web.
Hinkelman, Edward G, and Karla C. Shippey. Dictionary of International Trade: Handbook of the Global Trade Community, Includes 21 Key Appendices. Novato, Calif: World Trade Press, 2005. Print.