US Soybean Export Term Paper

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U.S. Soybean Export

The United States represents the largest economy of the globe in terms of measured gross domestic product and China is the second largest global economy, in terms of the same measurements. The two countries have been trading for decades now. China is U.S.' fourth export partner and the second import partner in terms of traded quantities. For China, the United States represents the first export partner and the fourth import partner (Central Intelligence Agency, 2008). A new trading operation materializes in exporting soy beans from the U.S. To China.

Description of product to be exported

The United States have long been exporting agricultural products and the top three products are soybeans, fruits and corn (Central Intelligence Agency, 2008). The soy is basically a plant producing a bean rich in protein, which is used for the making of both oil as well as foods. The soybean can be used by individual consumers to cook within the household, but it is often purchased by food processors, which integrate it in their aliments. The primary benefit of soy, aside its high protein composition, is the fact that, in the alimentary industry, it can successfully replace high cost commodities to make healthier and less costly products. "Processed soybeans are the largest source of protein feed and vegetable oil in the world. The United States is the world's leading soybean producer and exporter. Farm value of U.S. soybean production in 2003/04 was $18.0 billion, the second-highest value among U.S.-produced crops, trailing only corn. Soybean and soybean product exports accounted for 43% of U.S. soybean production in 2003. Soybeans equal about 90% of U.S. total oilseed production" (United States Department of Agriculture, 2007).

3. Characteristics of target market

GNP/capita

The gross national product represents the total quantity of realized goods and services by all individuals belonging to a certain nationality, regardless of their place of domicile. The current Chinese GNP per capita (approximately $750) is not as high as in most developed countries, but it has been met with significant growths in the past two decades and it is expected to further increase to a level that will reveal a highly developed, modernized and industrialized region. Comparing it to other regions of the globe, it can be observed how China's GNP is only one seventh of the gross national product of states such as Japan, Germany or other countries in the European Union. The statistics on the growth rate of the GNP per capita within China varied along the years, with estimations of 4.4% in the 1970s and 10.3% annually in the 1980s (Targowski and Korth, 2003). After 1990, the growth rate has been decreasing to 9.6% and later on to 8.2% (Island, 1998).

Size of market

China is one of the world's largest soybeans producers, but their internal capabilities fail to satisfy the entire demand. And this demand is generally fuelled by a need for high protein aliments, foremost since the fishing restrictions have prevented the country from getting their protein from fish. Therefore, the country has recently become a net importer of soybeans. And the primary source of soybeans is the United States - an extremely favourable situation for the American farmers, but which is now threaded by China's growing imports from the countries of South America. "In 2005, the U.S. exported U.S.$2.3 billion worth of soybeans to China, an increase of 80% from 2001. Soybean has become the U.S.' third-largest export to China (after airplanes and semiconductors). China is the soybean farmers' biggest overseas market" (Global Times, 2006).

4. Market screening

Basic need potential

The actual demand and need for soybeans in China is still high and despite the massive quantities produced internally, the country has to import large amounts of soybeans. Up until recently, the country has been trading with the United States, but today however, they seem to turn to the soy producing countries in South America.

Exchange rate trends

Before actually commencing to export soybeans to China, the American entrepreneur has to analyze the trends in exchange rates. On the fourth of June 2008, an American dollar was traded for 6.93606 Chinese Yuan Renminbi, as compared to 7.21397 in January 2008 (X-Rates, 2008). The tendency is that of an appreciation of the Chinese Yuan relative to the U.S. dollar. In order to protect themselves from risks associated with exchange rates, the partners should clearly establish the payment currency and the value of the currency at a given time in the future; in other words, they must hedge the risk by closing contracts such as forwards or swaps.

Import restrictions

The number of import restrictions was quite large five years ago; however, with China's accession to the World Trade Organizations, the restrictions have been ratified. Despite the slow efforts to eliminate or at least reduce the barriers, the Chinese officials will eventually have to comply with the WTO regulations.

Price controls

However the market became more open with the country's 2001 accession to the WTO, and the national currency followed a continuously ascendant trend materialized in an appreciation relative to the USD, the price of soybeans increased from $259 per tone in January 2002 to $290 per tone in December 2002. The price fluctuations are generated by mutations in the global market, but also by the regulations imposed by the Chinese government (Provance, 2003).

Government and public attitude toward buying American products

Both the Chinese government and the general population recognize the need to import soybeans from the United States as the internal supply is insufficient to satisfy the entire demand. However, they do not embrace the practice and the government is basically centred on stimulating internal production, in the meaning of increasing it and making the Chinese soybeans more competitive in the international market.

Size, number, and financial strength of competitors

Even if the United States is the primary producer and exporter of soybeans, its position is being constantly threatened by the countries in Latin America, which often produce and sell at lower prices. The major two competitors of the American soybeans exporters are Brazil and Argentina. "The U.S. soybean export share in the world market has been decreasing, especially in the last decade. In 1995, the U.S. soybean export share was 73%, but fell to 37% in 2005, a 36% market share drop in the world soybean market. In contrast, Brazilian market share in the world soybean market increased from 11% in 1995 to 39% in 2005, gaining 28% more within a decade. Argentina also competes with the U.S. In the world soybean market, and Argentinean market share increased from 6% in 1995 to 16% in 2005" (Song, Marchant, Reed and Xu, 2007).

Socio-cultural forces

The attitudes and beliefs within China's population vary based on the individuals' levels of education, personal experiences or other factors. The distinctive two ones however are opposite and the first refers to an embracement of the American culture, whereas the second one attempts to banish the western influences. The official language is Chinese, with a multitude of dialects. Parents however place an increased emphasis on having their children learn foreign languages as well. Foremost, most all Chinese parents place as increased emphasis on their children's education. Today, several Chinese students are encouraged to attend the courses of American universities.

5. Export marketing strategies

Managing to successfully export soybeans to China will be a quite difficult challenge mostly because China is itself one of the largest global producers of soybeans. However, when analyzing the land characteristics of Chinese soil, it can be observed that the soy crops mostly grow in the northern and north-eastern parts of the country. Therefore, a beneficial strategy would be to export to the southern parts of China. Then, the American company will have to prove the benefits of purchasing the U.S. soybeans over those grown in northern… [END OF PREVIEW]

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