International Pricing Strategies and Trade Finance

Chapter 18: International Pricing and Trade Mechanisms

Pricing Approaches and Objectives

• 1. Active Pricing Instrument: A company using this approach sets prices to achieve targeted returns on profit.
• 2. Static Pricing Element: A company following this approach places a low priority on foreign business.
• 10. Administered Pricing Goal: The end goal of all administered pricing activities is generally to reduce the impact of price competition or eliminate it.

Distribution and Market Control

• 3. Parallel Importing Condition: Exclusive distribution often encourages retailers to stock large assortments, which frequently creates a favorable condition for parallel importing.
• 11. Market Control Agreement: A cartel exists when various companies producing similar products or services work together to control markets for the types of goods and services they produce.

Cost Orientation and Foreign Competition

• 4. Sole Pricing Basis: Firms unfamiliar with overseas marketing and firms producing industrial goods orient their pricing solely on a cost basis.
• 5. Primary Discriminatory Tax: Tariffs are the primary discriminatory tax that must be taken into account when reckoning with foreign competition.

Trade Barriers and Logistics

• 6. Cost Reduction via FTZ: A company can lower costs by shipping unassembled goods to a Foreign Trade Zone (FTZ) in an importing country because ocean transportation rates are affected by weight and volume; unassembled goods may qualify for lower freight rates.
• 7. Import Restriction: A minimum access volume, which restricts the amount a country will import, may be imposed on foreign goods benefiting from subsidies (in production, export, or transportation).

International Trade Transactions

Countertrade and Barter

• 8. Russian Pepsi Example: When PepsiCo was asked to accept an equal amount of Russian vodka as payment for permission to sell Pepsi Cola in Russia, the formal name for this trading strategy is countertrade.
• 9. Barter House Function: Barter houses specialize in trading goods acquired through barter arrangements.

Commercial Finance Procedures

Payment Terms and Risk

• 12. Typical U.S. Payment: In U.S. domestic trade, the typical payment procedure for established customers is an open account.
• 14. Seller Disadvantage: Open accounts obviously leave sellers in a position where most of the problems of international commercial finance work to their disadvantage.
• 13. Seller Risk Assumption: With dollar drafts, the seller assumes all risk until the actual dollars are received.
• 15. Receivable Discounting: In factoring, a company has an ongoing relationship with a bank that routinely buys its short-term accounts receivable at a discount.