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 3 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 4 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. 5 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. 7 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 8 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 9 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 10 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 11 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 12 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. 13 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 14 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 15 WTP-11 Chris Schrage College of Business, University of Northern Iowa 5