W 3: Round The World Balloons - Exporting
For more information about how hot-air balloons are marketed and the way the market is split, you may want to look at the explanation of marketing. This worksheet looks at some of the problems associated with exporting to other countries.
A printable version of this worksheet is available for filling in answers.
Step 1 - Why sell overseas?
Cameron Balloons is the biggest worldwide manufacturer of hot-air ballons, and they are now approximately twice the size of their nearest competitor. For some more detail on their market and their competitors, it may help to have a look at the marketing explanation section. Nearly 75% of their output is for export.
What advantages are there to Cameron Balloons in trading overseas?
What disadvantages might there be?
Step 2 - Competing with all the other hot-air (balloons)!
A fundamental requirement for trading overseas is to be competitive. A firm will never be able to sell against other firms unless it is competitive. There are two key types of competitiveness. One is to be competitive on price and the other is to be competitive on non-price factors (quality, reputation etc.). Try listing all the factors that you think will affect the price and non-price competitiveness of a hot-air balloon.
Now check your list with someone else or with your teacher, and think about how important each of these factors are. Starting with the most important, rank the five most important price and non-price factors affecting competitiveness.
Step 3 - From balloon to bank balance!
Having become competitive and sold the balloon to an overseas customer through a dealer or agent, you now, quite understandably, want your money. The trouble is you had to set your price in the currency of the country you were dealing with and now it has to be translated back into sterling.
Say that you have just sold a balloon to a customer in Australia. The price was set at A$ 50,000 (Australian dollars). Try filling in the table below to see how much money you will get at each different exchange rate.
| Price | Exchange rate | £ received |
|---|
| A$ 50,000 | A$2 equals £1 | ?? |
| A$ 50,000 | A$3 equals £1 | ?? |
| A$ 50,000 | A$1.50 equals £1 | ?? |
So as the exchange rate falls the amount of money received goes UP / DOWN (delete as appropriate) and as the exchange rate rises the amount of money received goes UP / DOWN.
The changes in this table may be exaggerated ones, and certainly shouldn't happen from year-to-year, let alone from day-to-day, but they do illustrate the important principle that exchange rate fluctuations can make a big difference to companies exporting. They can gain or lose large sums of money purely due to the whims and vagaries of the foreign exchange market.
What actions could Cameron Balloons take to try to minimise the impact of these exchange rate fluctuations?
Step 4 - Let's all join together
Though these exchange rate risks may be unavoidable in most parts of the world, they may soon be avoidable in Europe, thanks to the Single European Currency. This is a final stage in a process of European integration that has been taking place over a number of years. In 1992, Europe became a single market with no internal barriers to trade.
What advantages will Cameron Balloons gain from closer European integration (not including the single currency)?
What advantages will Cameron Balloons gain from Britain joining the Single European Currency?
