International Marketing Practices

Depending upon the country of destination, costs can be steep; thus, careful research is required and consultation with experts is advised.

To remain competitive in target foreign markets, firms must try to reduce costs, typically carried out using three basic strategies. The first and obvious option is to reduce production costs by adopting new technology, outsourcing part of the manufacturing, changing suppliers, changing raw material specifications, streamlining processes, and other cost-reduction strategies. A second option is to adopt supply chain management strategies to reduce distribution costs, which many times means shortening supply channels by reducing the number of intermediaries. Lastly, exporters can explore means to lower the duties applied to their products through reclassification into a lower tariff level or by modifying the product or its packaging so it can be put into a more favorable tariff classification. Another way to reclassify products for a lower tariff is to perform some of the assembly in the country of destination [1]. Experienced customs brokers can play an important role in advising the exporter on ways to reduce tariffs. Calculating Export Price There are two basic ways to calculate export pricing. Many companies entering foreign markets adopt a cost-plus pricing strategy, which typically involves totaling all costs and adding a mark-up for the desired profit margin. However, this method is often not optimal and leads to underpricing in strong markets or overpricing in weak markets [94]. As the company gains experience, it can be beneficial to adopt a market-oriented pricing strategy, considering the competition and the customer’s willingness to pay. Table 12 shows an example of the cost-plus method.

Table 12. Example of export price calculation, using cost-plus method. Based on [99].

Price component

Amount $1,000

Totals

Ex works* price, manufacturers facility (wholesale)

Transport to port Customs clearance

$200

$50 $62

Agent’s commission (5%) FOB* price, port of origin

$1,312

Sea shipping freight

$300

Sea shipping documentation, bill of lading (B/L)

$20 $20

Marine insurance

CIF* price, port of destination Import duty (20% of CIF price) Delivery to customer’s warehouse DDP* price, customer’s warehouse Custom clearance

$1,652

$330

$80

$150

$2,212

* International Commerce Terms (Incoterms), see detailed explanation in Chapter 4.

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