Electronic Cigarettes International Group (ECIG) is an international producer, distributer and retailer of e-cigarettes, e-liquids, and vaporizers with outlets and kiosks in several countries around the world as well as online stores. The company has steadily been growing over the past two years with sales approaching $20 million per quarter in 2016 (SA Transcripts, 2015). Dan O'Neill replaced Brent Willis as CEO and President of ECIG on January 9, 2015. Dan O'Neill's record of experience as CEO of Molson's and top leadership positions at Heinz and Star-Kist suggests that ECIG is positioned under uniquely qualified leadership for the first time since its creation (it was under Willis that company's share price plummeted to its current record lows). With the reduction of debt and the one-time write-off of losses taken by O'Neill in his first year as President, the company has pivoted for better years (Hoogervorst, 2012).

The electronic cigarette and vaping market is primed for expansion. Wells Fargo analyst Bernie Herzog has suggested that it could reach in the tens of billions of dollars in revenue by 2017. Between 2012 and 2013, e-cig sales reached more than $600 million (Giovenco, Hammond, Corey, Ambrose, Delnevo, 2014, p. 14). Bloomberg predicts that ecig sales will match or "exceed those of traditional cigarettes by 2047" (Goodman, 2013).

ECIG is a non-traditional electronic cigarette and vaporizing company with retail shops and kiosks in the UK and USA as well as an online store for each of its various brands, ranging from the popular VIP brand to the FIN and Vapestick brands. VIP is a major seller in UK, with more than 100 kiosks established in high traffic locations, including in and around major metropolitan areas like London. FIN has recently been launched in America and has quickly expanded to more than 5000 locations nationwide. The products do not come with warranties or have significant life cycles. New product development consists of identifying the latest advancements in vaporizing technology and utilizing this to appeal to individuals looking to quit smoking (SA Transcripts, 2015).

Pricing is competitive and ranges in products from a few dollars/pounds for disposables and e-liquids to higher ranges of twenty or more dollars. Kits can range from $50 to $200 depending on their level of qulaity. This pricing is competitive with other brands in the market. Because ECIG is already well-established in the UK it looks for more penetrative pricing in the U.S.A. and establishing value-based pricing guidelines.

ECIG looks to compete with other brands through non-traditional channels as well as by supplying the best vaping experience to become the number one brand in the world.

ECIG currently faces competition from Blu Cigs as well as UK brands like V2 and Apollo. But ECIG's Vapestick consistently ranks in the UK as a top ten starter kit and recently was voted best starter kit by an independent reviewer.

Restructuring its debt and distribution channels has been the main focus of ECIG over 2015. With profits increasing quarter-over-quarter throughout this year and SKUs being reduced to a more tolerable level, the company has essentially turned itself around under O'Neill's leadership, emphasizing target markets, better accounting and distribution, lowering costs, and raising visibility.

Issues ECIG Should Consider When Trading Across Borders

The company needs to consider social, economic and political issues when trading across borders. The most relevant social issues would be related to laws, rules and regulations regarding e-cigarettes and vaporizers, as in some countries these devices are illegal to sell (in India, for example, and in Egypt). Thus, expanding into former British colonies would be an ideal situation for brands like VIP, which is very successful in UK and would be likely to have a similar impact in India -- but because of the social condition and orientation of the government towards vaporizers (they are viewed as a conduit to drug use in India) these regions are not viewed as target regions at the time but rather as "trouble" places to be avoided (Kotler et al., 2003).

Political issues are also a going concern, as politics and economics are so interwoven, especially as the former is responsible for legislation that regulates the latter. Politically, there is concern in regions like the U.S. where FDA regulation is still expected. Any announcement that could cause stress or volatility to the sector would be seen as a negative, especially to the stock price of ECIG. As the company has issued more than 300 million warrants to lenders in exchange for capital, driving

Thus, ECIG's current commitment to the U.S. market is not nearly as significant as it is in the UK. Considering though that the UK health administration has issued a report stating that vaporizers are 95% healthier for smokers than traditional tobacco cigarettes, it is easy to see why ECIG operates the majority of its non-traditional venues (kiosks) in the UK: the government and the society are more welcoming of the sector. Should such a climate emerge in other countries where vendors are receptive to ECIG's business model, an opportunity for growth would be evident.
As for economic concerns that the company facings when trading across borders, these are more complex, considering the nature of currency volatility in recent years. ECIG has already suffered from currency devaluation in its trading across borders and accounted for a substantial loss in quarterly profits in Q4 of 2014. Today, there are a number of methods it may pursue in order to reduce exposure to currency volatility as it seeks returns from business in European, Asian and American countries. The various forms of foreign exchange (FX) exposure that ECIG should consider are addressed in the following:

Transaction exposure risk may be defined as "cash flow risk" and is associated with the impact of FX rate moves on exposure due to transactional accounts, regarding exports, import or dividend repatriation: and FX "rate change in the currency of denomination of any such contract will result in a direct transaction exchange rate risk" (Papaioannou, 2006, p. 4), thus impacting ECIG in terms of affecting the inflow and outflow of cash over a given period.

Translation risk may be defined as the FX rate risk associated with the balance sheet of an ECIG's holdings. The notion is that exchange rates affect the value of a subsidiary in a foreign country and in instances where the subsidiary is consolidated to the parent balance sheet, the risk becomes translational. The way to measure this risk for a company is by assessing the net asset exposure and measuring it against potential FX moves.

How translation exposure might impact the operations of ECIG is in the consolidation of financial statements: various regulations will doubtlessly impact the parent company, as its international headquarters are in Denver, Colorado; therefore, a different method of translation will occur -- whether taking the average FX rate for a given period or the rate at the close of the period. This makes a difference because as statements of income typically translate at an average FX rate, a balance sheet translation exposure could be in terms of the rate that prevailed at consolidation (Papaioannou, 2006, p. 4).

Economic exposure may be defined as FX rate moves that impact the ECIG's valuation of predicted operating cash flow. This risk would impact ECIG in terms of revenue and how revenue is affected by FX rate alterations. Operating expense is also an issue that is impacted. Thus, both sales and costs are considered in economic exposure/risk. ECIG's strategy for managing this exposure would depend upon the current valuation of future cash flow (both of parent and subsidiary companies) and the sort of currency risk associated with these markets and their operations.

As Dominguez and Tesar (2001) illustrate in their analysis of the impact of exchange rate moves on corporate value, a number of factors are important in assessing how a firm can best manage its exposure. First, choosing the rate of exchange is pivotal and incorporation of a "trade-weighted exchange rate" is more likely than not to cause the exposure to be understated. Second, exposure estimates change in relation to conditioning, whether value- vs. equally-weighted-based or international index based. Third, risk limitations are not identifiable by high variance random variables but risk does, however, increase in proportion to the return horizon.

Hedging strategies that ECIG could apply to manage its exposure to each of the three types of exchange rate risk stated above would necessarily incorporate some consideration for the various factors relating to its FX exposure.

Transaction exposure can be hedged in order to maintain cash flow/earnings, which ECIG will want to preserve based on its own assessment of future exchange rate moves. Selective or strategic hedges can be performed depending on this assessment. A tactical hedge would include reducing transaction exposure due to short-term receivables/payables. A strategic hedge would include reducing exposure due to long-term accounts. An alternative to both is a passive hedge that is defined as a single hedge…