Global Trade Practices
International Pricing
World Trade Practices
Chapter 11
Market Price Strategy
May make or break your
profitability
May not be able to use the same
strategy
Internationally as Domestically
Pricing challenges
y Currency
exchange
fluctuations affect
customer
purchasing power
y Use of a strong
currency for
pricing doesn’t
eliminate the
problem
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WTP-11 Chris Schrage
College of Business, University of Northern Iowa
1
Global Trade Practices
Foreign exchange Pressures
Strong
Currency
Weak
Currency
EXPORTS
IMPORTS
Stimulates
DETERS
yInflation
controlled
ySome capital outflow
yHome assets expensive
yLower costs of production
yForeign
DETERS
Stimulates
yHome
yBalance
assets cheap
yStimulates inflations
yDomestic costs of production
rise
ySome capital inflow
Journal of Teaching in International Business, Vol. 6, 1995
Joseph W. Weiss and Alexander Zampieron
WTP-11 Chris Schrage
products replace
domestic exports
yBalance of Payments deficit
yUnderutilized domestic
capability
yDomestic prices higher than
international prices
of payments surplus
products replace
foreign products
yFull capacity: export led boom
yAccumulation of wealth
ySales rise for import
competing companies
yDomestic
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Tariffs
y Protect
the domestic producers
protect
producer/exporters of trade
agreement partners.
y Also
EU
Mercosur
CAFTA
Etc.
Can put imports at a very big
competitive disadvantage.
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WTP-11 Chris Schrage
Freight and Logistics
y Cost
of transport
y Distance
y Infrastructure challenges
y Make an objective assessment
6
WTP-11 Chris Schrage
College of Business, University of Northern Iowa
2
Global Trade Practices
Foreign Government Legal
Considerations
y Intellectual
y Non
Non--tariff
property rights
Risk assessment
barriers
Cost of compliance
y Contract
laws
and commerce
legislation
y Industry
Licenses, etc.
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WTP-11 Chris Schrage
Local Market Conditions
y Consumer’s
ability to purchase
need to consider redesign of product
to keep prices realistic
y May
“Fortune at the bottom of the pyramid”
y Distribution
costs or challenges
life cycle implications
y Consumer purchasing patterns
y Product
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WTP-11 Chris Schrage
Competitive Pricing
Calculations
y Step
y Step
Two:
Calculating the distributor and retail
price
y Step
One:
Calculating the foreign market landed
cost
Three:
Price comparisons
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WTP-11 Chris Schrage
College of Business, University of Northern Iowa
3
Global Trade Practices
Additional costs
yCIF
(Ex-works price)
(Ex-
Cost
Freight
Insurance
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WTP-11 Chris Schrage
Landing Charges
y
Import duty
y
Post costs
y
Warehousing
y
Terminal handling costs
y
Customs Broker’s Union
Custom brokerage fee
Bank costs
y
y
Based on CIF
Merchant marine tax
Based on CIF
Per container cost
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WTP-11 Chris Schrage
International Pricing
Concerns
y Long
Long--Term
y Short
Short--Term
Partial
manufacturing
Local assembly
Foreign
manufacturing
licensing
Product differentiation
Challenge the
distribution rules
Choose your
representation based
on pricing structure
Lower pricing
Pricing structure,
discounts, and
promotions
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WTP-11 Chris Schrage
College of Business, University of Northern Iowa
4
Global Trade Practices
Who pays what?????
yFreight
yInsurance
yCustoms
fees
Company experience and comfort
levels may be determining
factors.
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WTP-11 Chris Schrage
Which currency???
y RISK
Home currency pricing puts foreign currency risk on
buyers
Foreign currency pricing puts risk on supplier
y Larger
companies can hedge against currency
risk
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WTP-11 Chris Schrage
Pricing Structure
y
y
Variable Costing Vs. Full Absorption Costing
International Pricing
y
y
y
y
Full or variable
Market conditions and competitive position
Consistent pricing across markets
Cost responsibilities
Currency choices
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WTP-11 Chris Schrage
College of Business, University of Northern Iowa
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