Transitional Exporting: A Case of Two Emerging Markets Essay
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Operating a business and not fully utilizing all of the opportunities proved to expand and secure the future of that business, will in time threaten the survival of that business. We are taken into the nation of Georgia which used to be a part of the former Soviet Union. Georgia lays at the crossroad of Western Asia and Eastern Europe and many important political and geographical decisions. Beqa, a Georgian man who resides in the capital of Tibilisi, has a vision to exploit the geographical location of Georgia and export commodities to its neighboring country Russia.
Mineral water, apples, tangerines, and wine are all highly sought after in Russia but with insufficiently enough capital to invest, Beqa is forced to start with only one product, mineral water. Exporting the mineral water was running smoothly and the business was growing, within two years, Beqa was exporting mineral water, apples, tangerines, and wine on a regular basis to a variety of Russian customers.
As time comes so does change and unfortunately political relations between Russia and Georgia escalated to the point of an embargo being imposed. Having only explored and tapped into the Russian market, Beqa had nothing to fall back on which almost crippled his own export business. The main problem facing Beqa and his export business to Russia is that the Russian Government imposed an embargo on all postal and transportation links with Georgia. The aim of the embargo was for Georgia to change its Western Foreign Policy Orientation and until then the embargo would stand. All of Beqa’s business is through the Russian market and with the embargo standing; Beqa’s export business took a critical hit that almost devastated its whole operation. All International businesses face political risk from either side of national markets they are catering too. Beqa was not thinking long term or about any other forces that might have an effect on his business.
He had some familiarity with the Russian market due to having friend and contact over there but the majority of his business understanding was with his domestic market. Overlooking the possibility of outside forces interfering with his operations and thinking short term and not long term hurt his export business. If there was another exporting link between other national markets that Beqa exported too he would have been able to recuperate his business with ease and focus on his secondary markets, rather than almost facing bankruptcy by having all of his eggs in one basket. The biggest players in this case are the governments of Russia and Georgia, and if it weren’t for their outlook on gaining political or some other advantage there wouldn’t have been an embargo between the two nations.
At first, the embargo looked at a disadvantage to Georgia since majority of its exports were going into the Russian market especially the wine export which accumulated about ninety percent of its production, headed to Russia. Now with such a negative effect to the Georgian economy and the businesses within it, the embargo turned in Georgia’s favor in a sense. Having such a massive dependence on Russia was never a good thing for Georgia. Any sole dependence on one thing is never smart, due to the risk of that link being cut. With the embargo in place Georgia was able to explore other markets and stabilize it economy. The wine industry was a big beneficiary due to the embargo, since a substantial of its wine export was cut off; the wine industry was able to refocus on the quality and excellence of its wine production. Since the embargo was initiated, six years have past and different political situation have risen in that time span, which might see the embargo between the two nations lifted.
Russia is a member of the OSCE and being a member they need to set a positive example so lifting the embargo would put them in a positive view of other nations. Georgia branching off on its own and developing relationships with other nations could have a negative effect on Russia with those other nations. For example if Turkey favors Georgia in a political or economic way, then Turkeys future decisions might have a negative effect on the Russian market. It’s better to resolve a little issue ahead of time then let it cause you much turmoil later on. Having the vision and seeing the potential in exporting goods to other national market was a great starting point for Beqa. Facing the embargo and having to rethink your entire operation was not an easy task but it was necessary to salvage the business.
First, downsizing the work force and cutting employee hourly hours was a great idea in reducing costs. Second, having gained knowledge and experience, Beqa was able to explore other potential market with more confidence. Third, showing his previous success in exporting he was able to entice friends to invest and with economic conditions changing in Georgia he was also able to secure a bank loan to help build his business. Having his Business up and running once again, Beqa started exporting wine to Riga, Latvia, Lithuania, and Estonia. All these markets had a connection to Russia so they were familiar with Georgian winery. Exportation of wine grew slowly in to Sweden, Finland and the initial export of mineral water went to Uzbekistan and Kazakhstan. With all these new markets of doing business with, it helped stabilize the company.
Beqa turned around his business by looking at all of his option at his disposal, now his business might not be exporting at the rate it was with the Russian market involved but the business is still operating with the potential to grow. He realized that the whole success of his operation in Russia was due to the price of the exported products and having that in the back of his mind it helps him dictate which markets to potentially explore into. The Russian market wanted decent quality wine at an affordable price. Other markets will differ with what the cultural environment desires and is accustomed to.
Beqa’s two main products are wine and mineral water that he exports and with those too products his profit margin is not that high so if he is to increase his potential growth he needs to add desirable products that sell at a higher profit margin for him. Increasing his capital and owing his transportation will reduce operating cost as well as open more doors to expand by providing a variety of products. The embargo in place will not stand forever and with that, Beqa will be able to go back to exporting to Russia with ease just because he already has a well establish relationship. Overall the handling of the embargo situation was conducted fairly well by Beqa, he was able to shift his whole operation without knowing if it would succeed and it did. The embargo helped take him out of his comfort zone and open his eyes to other markets then he can provide a great variety of products.