Export Potential Report

Export Potential Report

EXECUTIVE SUMMARY

The significance of coal export in Australia progressively increases with time as attributed by an over 50 % increase in export threshold. China takes up a substantial portion of the amount of coal that the country exports with an aggregate of over 42.4 million tons exported in the limited time of two years (Zhou & Quin, 2012). That is from 2009 to 2010. Australia expects to increase the amount of coal that it exports to china exponentially especially with the onset of development projects underway in the host country.

HOST COUNTRY IN BRIEF

China consumption of coal is the largest in quantity compared to other countries. Statistics indicate that the country is on its way to becoming the largest consumer of electricity derived from coal (Liu, 2012). The country expects to produce an aggregate of 1.95 trillion kilowatt hours per year after implementation of proposed projects meant to improve energy production.

1.0              INTRODUCTION

The trade project is a means to determine the potential and extent of trade that Australia will achieve in trading with china. This occurs by providing strategies on ways of compensating the host country need for coal through exports (Liu, 2012). A clear picture of the country coal consumption will come from the implementation of descriptive research methodology. The research methodology will rely on facts collected from research of certified documentation of the present date and those of a later date (Zhou & Quin, 2012). This will help create a background formidable to providing an extensive review of the potential market and the implications of business with the host country.

2.0              SOCIAL AND CULTURAL OVERVIEW OF HOST COUNTRY

China currently is the most populous country in the world but ironically continues to trend higher amongst other countries in global economics. The country has close attachment to their traditions and culture proving the country’s identity to dwell on numerous ceremonies and formalities (Belch 2009). To engage comprehensively with the countries people and engage in business, familiarizing with the country’s culture and business ethics contributes mightily to the success of any endeavor in the country. Chinese culture comprises of a diverse and dynamic character contributed by the difference in occupants’ experiences and individualism. The country’s religion comprises of the philosophic system of Taoism and beliefs derived from the Buddhism and Islamic backgrounds all of which play significant roles to the lives of the Chinese people (Belch 2009).

ECONOMIC ANALYSIS

Present and future economic forecast

The exponential growth of china economy continues to make headlines in the global economy to the extent that speculations maintain that if the country continues to demonstrate the same growth rate, there is a high possibility that the country might supersede that of the U.S that is the largest economy at present. According to the analytical evidence, the country will topple the United States by the year 2035 (Belch 2009). The country has had to suffer a substantial meltdown that occurred in the year 2008 reducing the country’s GDP by 9% from the previous 9.9 % growth rate at the first quarter of 2008.

industry analysis

Review and structure of the industry

China alone contributed to an aggregate 48.14% of coal consumption from a global perspective. This percentage amounts to over 3 billion tons of coal. The greatest percentage of the coal consumed in the country goes to the heavy industries namely power generation, chemical and construction. Of the sectors that demand consumption of coal, 52% of the total consumption goes to power generation (U.S. Energy Information Administration, 2011). The rest goes to steel and construction each consuming 18% and 14% respectively. The large industries in the country contribute to the high demand of coal for energy production. Over 60% of power consumed by heavy industries comes from energy provided by the coal. This in essence results, in the high demand for coal in the country to suffice the demand of the heavily industrialised country. The China’s government determination to improve the efficiency of the energy industry to match government policies of improved environmental factors legitimises consumption of coal by eliminating hazardous factions attached to coal consumption (Zhou & Quin, 2012).

5.0       MARKET ANALYSIS

The Market in Brief

China, as a country, has the largest market for coal all over the world. This implies that company, an exporter of coal, will view the market as the most appropriate for the products. Statistics show that 68.7% of electricity used in the country originates from coal (U.S. Energy Information Administration, 2011). Most people in the country, representing the consumers, rely on coal especially as a fuel source. The high rate of industrial growth witnessed in China also makes it as a proper market for coal.

Population and Income Density

The population and income density also serve in describing the market in China. Besides India, China serves as a highly populated country with a population density of 143.43 per square kilometers, according to the 2010 results. This shows that the country harbor a large market for coal materials considering that most people rely on coal. Further, the income density of China is between US $1 per day and US $ 2 per day implying that most of the citizens are within the capability of buying the product (Zhou & Quin, 2012).

Regional market potential

The population and the income density of China attract many foreign businesses because of the perceived wider market. This implies that trading in China will mean trading with the old world. Most of the biggest exporting countries are turning to China because of the highest consumption rate.

The Company’s Market in Host Country

The product has the potential of enjoying a wider market because of the high population who rely on coal use. Most of people having low and medium income per capita always rely on coal as a source of fuel contributing to the 85% for the coal fuel used in the whole country. Besides exporting to China, the company also enjoys a withstanding market in the host country. The host country also has a high population density of 6.4 people per square kilometre implying that it harbours wide market for coal production (Zhou & Quin, 2012).

Potential of the Market

The market potential in China has acted as the major luring factor for most of the exporters. The favouring market potential arises from over 1.3 billion people in the country, who act as consumers in the market. Further, the consumer spending in the country has also made the country be strong in terms of purchasing power making it one of the most preferred markets in the world.

Potential Target Markets

Over 68%, who represent the medium and the low income earners rely on coal making the company to consider them as the potential target market (Zhou & Quin, 2012).

Selective Target Markets

The company targets the medium and the low-income earners who cannot afford the cost of the other alternative fuels like natural gas and oil. As illustrated by the income density of between $ 1 and $2 per day, it is true that many of people will rely on coal fuel because of its cheapness compared to the natural gas and oil.

General Target Market

The company considers every town in the country as their target market because of the distribution of the potential consumers. Coal is used in every part of the country especially in the bigger towns where there are bigger industries relying on coal use.

6.0 COMPETITIVE ANALYSIS 1

The company faces a stiff competition in the country because of the larger internal production of energy within the country (Zhou & Quin, 2012). This includes the production from coal and hydroelectricity as a source. The companies include China Power Investment Corporation, Dongfang Electric Corporation, Guizhou Guochuang Energy Holding Group (Gordon, 2010). The major competitors mainly deal in production and supply of natural gas and oil. Most of the competitors make use of the media releases in their promotion since many of the potential consumers have access to them (media releases). The competitors mainly rely use the cost based pricing whereby price determination depends on the cost of materials used in production, with the need to realize profit.

7.0       PRODUCT ANALYSIS

The product enjoys a competitive advantage over the fossil fuels because of the pricing. Most of the low and medium income earners, constituting large part of the population, rely on coal because of the low pricing as compared to natural gas. The product represents one of the most plentiful energy sources besides being versatile in its use. Further, the coal based energy is always independent of weather hence its reliability. The modifications include gasification and liquefaction, which leads to the production of gasoline; deriving coke coal leading to metallurgical coke.

Strategic Audit (SWOT Analysis)

Strengths

• The product serves as one of the abundant energy source
• The product is versatile in its use

Weakness

• The coal products are non renewable
• Use of coal associates with high emission of the greenhouse gases like sulphur iv oxide which accelerates global warming.

Opportunities

• Most of the consumers prefer the low prices attached to the coal products
• The market for coal continues being wider in the world considering the increasing consumption of coal

Threats

• More companies dealing in production of energy are now entering the market.

8.0       DISTRIBUTION ALTERNATIVES

The firm relies on selective distribution for the product because of its speciality. The company identify specialist dealers who can reach the consumers in different parts of the country. The company selects a distributor by considering the product type and service portfolio that it (distributor) has specialization (Liu, 2012). The company considers the distributors who can reach a wider market besides their reliability. The company makes use of airfreights in the situation pressing for faster delivery of the product to the consumers, and sea freight in logistics involving large amount of the product transported to the consumers. The requirements include checking the quantity and quality of the product on freight, checking the documentation and confirming the standards in the country of destination (Liu, 2012).

9.0 PROMOTION

Advertisement is a good way for countries to market their export products in potential importers. Advertisement enables potential buyers to know that a product exists and the prices of the said products. In this case, Australia has a number of advertisement options to choose from in order to market its coal mineral in outside countries (Belch 2009). The mass media presents a way for Australia to market its coal products to industries in china. The media mix provides Australia with an effective way to choose its advertising agent and the media that it will use in advertisement of its coal minerals. The Advertising Standard Bureau in Australia is responsible for this. According to Belch (2009), these organisations require that coal exporters do not post advertisement that will seem offensive to people. The board also requires that advertisements should not mislead potential buyers. There should be no false or misleading representation.

10. PRICING STRATEGY

There exists a pricing strategy for coal in Australia. This strategy enables coal mining industries to set a price for its coal exports. Coal accounts for 18 percent of the overall exports in Australia. The year 2008 represents the year that Australia had the highest amount for each metric ton of coal. In this year, one metric ton of coal cost 92.86 dollars (Pearse 2009). The following year had a significant drop in the value of coal. The year 2011 saw a significant rise in the value of coal. The prices again dropped in 2012. As December 2012, the price of each metric ton of coal is 99.51 dollars (Pearse 2009). More than 8000 coal miners have lost of their jobs due to this. In Queensland, Australia, the cost of production of coal has made more than 5500 workers retrenched from their jobs.

The profit margins in Australia have dropped significantly over the years. This is due to drop in the value of coal in the world market. In June 2008, the value of coal was 192.86 dollars. The following month saw a drop in the value of coal to 169.71 dollars (Pearse 2009). This has been the trend of the value of coal, which keeps on reducing. This was a 12% change in the price of cola. From a drop of 192.86 dollars in June 2008 to 99.51 dollars, the profit margin has clearly dropped. This shows approximately 48.40% drop in profit margin.

11. FINANCIAL CONSIDERATION

The earnings from coal mining and exports have decreased over the years. This is because increased cost in coal mining. Coal mining companies have reported significant and increasing losses. Earning between the years 2008 and 2009 saw an increase in profits whereby the country reported a rise in earnings from 9.5 billion to 17.9 billion (Belch 2009). This has, however, is not the case as from the year 2009 where the earning dropped to 11.1 billion dollars. Earnings have gone down since then.

The government needs to provide subsidies to these companies. An example of a coal mining company receiving funding is Griffin Coal. In the post-shipment period, the companies may receive funding. Funding during this period depends on commercial banks’ opinions on the company and the creditworthiness of the company (Pearse 2009). The amount that the company is seeking as the loan is also a determinant factor.

12. TRADE REGULATIONS

Australia has reduced its trade tariffs to encourage both imports and exports. Customs valuation is a mandatory process whereby custom authorities value goods. There has to be clearance from customs of goods for imports and exports (Elkington 2000). Companies must pay taxes because the tax is the source of revenue for the country.

13. KEY SUCCESS FACTORS AND CONSIDERATIONS

Several factors will enable coal mining and exportation in Australia to be a success. These factors include funding from the government and establishment of other markets for the coal. Funding from the government will decrease the cost of production. This enables the coal mining companies to maximize their profits. Searching for other markets, to sell its coal minerals, will lead to an increase in sales and profits.

Reference

Gordon, R. L. (2010). World coal: Economics, policies and prospects. Cambridge: Cambridge         University Press.

Liu, B. (2012). Contemporary logistics in China: An introduction. Singapore: World Scientific.

U.S. Energy Information Administration. (2011). International energy outlook. Washington:    U.S. Energy Information Administration.

Zhou, Y., & Qin, Y. (2012). Empirical analysis on income inequality of Chinese residents. Heidelberg: Springer.

Belch, G. E. (2009). Advertising and promotion: An integrated marketing communications            perspective. Sydney: McGraw-Hill Australia.

Pearse, G. (2009). Quarry vision: Coal, climate change and the end of the resources boom. Melbourne., Victoria: Black Inc.

Elkington, B., Hall, M., & Kell, D. (2000). Trade mark law in Australia. Sydney: Butterworths.

Appendices

Figure showing the income and population density in China

 

 

Figure showing the value of coal per metric ton

Jul 2008	192.86	12.68 %
Aug 2008	169.71	-12.00 %
Sep 2008	160.71	-5.30 %
Jan 2009	85.71	1.71 %
Feb 2009	80.76	-5.78 %
Mar 2009	65.36	-19.07 %
Jan 2010	103.93	16.72 %
Feb 2010	100.92	-2.90 %
Mar 2010	101.12	0.20 %
Apr 2010	107.30	6.11 %
May 2010	107.28	-0.02 %
Jun 2010	105.20	-1.94 %
Jul 2010	102.84	-2.24 %
Aug 2010	96.19	-6.47 %
Sep 2010	101.66	5.69 %
Oct 2010	104.41	2.71 %
Nov 2010	114.81	9.96 %
Dec 2010	126.74	10.39 %
Jan 2011	141.94	11.99 %
Feb 2011	137.53	-3.11 %
Mar 2011	135.14	-1.74 %
Apr 2011	131.25	-2.88 %
May 2011	127.63	-2.76 %
Jan 2012	124.78	4.39 %
Feb 2012	125.38	0.48 %
Mar 2012	115.14	-8.17 %
Sep 2012	95.31	-2.25 %
Oct 2012	87.70	-7.98 %
Nov 2012	92.03	4.94 %
Dec 2012	99.51	8.13 %