Foreign Market Pricing

8/3/2019 Foreign Market Pricing

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Himanshu Dhumal 10020241087 Gauri Chitragar


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Demand Supply Product Life cycle

Product Line pricing

Pricing to Intermediaries Penetration to skimming strategies


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1) Company Goals : Objectives vary from country to country

Joint Venture Constraint

Changing economic situation

2) Costs :

Not easy to determine relevant costs

Full cost or variable cost ?

Marketing Costs


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3) Inflation: Costs go up faster than prices

Strong price controls

Strict controls over foreign exchange

Different cost elements have different rate of inflation from theaverage

Elapse of time between production and sale sale and payment

Pricing in inflation will never be easy, especially with pricecontrols. However certain guidelines can help :

Good cost accounting, especially in forecasting of costs forpricing

Source material or components from low-cost suppliers inother countries

Long term contracts may need escalator clauses

Short credit terms Change in product line/ingredients which are less subject to

inflation or price controls.


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4) Government:

Tarrifs, taxes and competition policy

Direct price control Price controls often limited to selected

product groups

Actions taken by company :

Additional services

Unbundling

Matched-sales technique Change in product line

Special orders


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5) Currency Inconvertibility:

Integration of multinational operations

Transfer payments of goods andequipment

Payment of dividends and capitalrepatriation

Reason:

Desire to conserve scarce foreign exchange

Expects companies to be self-sufficient Expectation to deepen chinas base and

capabilities


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Pepsi in China : Dealing with Currency Volatility andInconvertibility

Pepsi SubsidiaryA in State A

Pepsi Subsidiary Bin State B

Capital contribution to Subsidiary B in the form ofdividends

Deposit FC in Chinese bankas collateral, borrow local

currency(LC)

Repay LC loan

Repay FC loan with returnedFC collateral

Receive FCcollateralLend LC

Repay LCloan and

release FCcollateral

Lend foreigncurrency (FC)

to Pepsi

Receiverepayment of

FC loan withinterest

Friendly Foreign Bank Pepsi Local Chinese Bank


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Pepsi in China : Dealing with Currency Volatility andInconvertibility

Sourcing goods from local companies, paid for partly inLC;

Export for use by Pepsi companies (e.g., mushrooms forPizza Hut)

Pepsi usesDividends ascash source

for :

Investing in Chinese joint ventures( e.g., toy

manufacturer and a spice company)


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Moving manufacturing to overseas location

Redesign the product to cut component and direct labor

costs Technology, Experience Curve

Need to Cut Costs

Comparative Advantage

Technological Advantage

Importance of Price as an attribute


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SunbeamModelTypes

UnitCost

Materials

Labor

Manufacturing Overhead

No. ofParts

No. ofScrewsNeeded

OldModel

9.50 4.32 1.06 4.12 73 13

Redesign

ed Model

6.66 4.10 .48 2.08 68 13

B&D(Singapore)

5.98 3.40 .53 1.25 74 19

Global

Model

5.33 3.40 .35 1.58 52 3

Redesign of the product to reduce the number of parts andassembly, thus reducing direct cost of labor Reduction in cost of materials Though Overhead is higher in B&D, manufacturing using

capital intensive nature.


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Countertrade is a form of financing internationaltrade wherein price-setting and financing are tiedtogether in one transaction

It is essentially exchange of goods with someflexibility

A typical transaction might be as follows :

Polish apple juice factory may need equipmentbut unable to buy from the US because no bankready to lend money.Austrian bank guarantees debt with the condition

to buy large portion of apple juice for resale inwestern markets.


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Forms of Countertrade : Barter

Counterpurchase

Offset

BuybackReasons for Countertrade :

They lack foreign exchange

They want multinational partners to sell their

goods overseas Hope of successful technology transfer, thus

transforming them into reliable suppliers of high-quality raw materials and components

Foreign Market Pricing

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