International Marketing Practices

product (e.g., 4.4 cents per kilogram of Argentinian beef imported to the U.S. [95]), a percentage of the value imported (e.g., 20% ad valorem for Canadian softwood lumber imported to the U.S. [96]), or a combination of the two [1]. Firms should also consider other factors, such as certificate fees, paperwork filing fees, and value-added taxes (VAT), a common consumption tax in place in more than 140 countries [97]. Product adaptation for foreign markets. Product adaptation, or product homologation, consists of all changes needed to make a product acceptable for foreign markets. These changes add to the cost of making a product for export markets. Exchange rate effects. With the exception of sales between the 19 Eurozone countries, most export transactions involve an exchange rate, which can positively or negatively impact the profitability of an export transaction. For example, say a U.S. exporter sells merchandise to a Canadian importer with a 60-day payment of $100,000 CAD. If, during that period, the Canadian dollar loses value against the U.S. dollar at a rate of 0.76 to 0.74, the U.S. exporter will receive $74,000 instead of the $76,000 it expected. To avoid risks from exchange rate fluctuations, a firm could require payment in U.S. dollars or use a forward contract, by which the exporter agrees to sell at an agreed exchange rate and delivery time. Exchange rates are discussed in greater depth in Chapter 5. Inflation effects on exchange rates. Inflation directly affects exports through the effect on exchange rates — specifically, higher inflation leads to a weaker currency [1]. Deflation, or the reduction of general prices in an economy, puts pressure on manufacturers and their supply chains to reduce costs [1]. Transport, physical distribution, and insurance costs. Export costs can be quite high, often driving up product prices. The longer the supply chain, the more parties involved, each of which will demand a markup. In countries where transportation and warehousing infrastructure are not well developed, these costs tend to be higher. Logistics and its costs are covered extensively in Chapter 4. Economic and political risk. When making decisions about export pricing, a company must consider the risks of entering foreign markets, such as economic downturns that would affect product demand or unfavorable political developments, which may affect legal and regulatory frameworks. Other costs. There are many other factors to consider in determining the export price of a product, such as packaging and labeling, costs of additional documentation (permits, certificates), additional transportation costs (detention, demurrage, loading-unloading, storage), financing costs, and others [98].

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