1. Price reviewed
1.1. value customers place on product/service
1.2. 3 factors than influence price decision
1.2.1. Cost
1.2.1.1. determine what customers are willing to pay then make cost adjustments
1.2.1.2. dumping
1.2.1.2.1. selling below cost to gain market share or get rid of unwanted inventory
1.2.2. Competiton
1.2.2.1. what are competitor prices
1.2.3. Demand & supply
1.2.3.1. hi demand = hi price
1.2.3.2. hi supply = low price
1.2.4. need all 3 factors to make best price
2. Price escalation
2.1. refers to raising prices because of added expenses of doing business internationaly
2.2. added expenses include:
2.2.1. administered exchange rates
2.2.2. higher intermediary margins
2.2.3. higher warehousing and shipping costs
2.2.4. longer channels of distribution
2.2.5. product modification
2.2.6. shipping costs
2.2.6.1. paid by buyer or seller?
2.2.7. taxes
2.2.7.1. turnover taxes
2.2.7.1.1. are assessed each time product changes hands while moving thru distribution channel
2.2.7.1.2. noncumulative
2.2.7.1.3. cumulative
2.3. Responses to price escalation:
2.3.1. reclassify
2.3.1.1. to lower import duties
2.3.2. agents instead of merchants
2.3.2.1. to lower turnover taxes
2.3.3. less expensive transportation modes
2.3.4. use shorter channels
3. Intracompany transfer pricing
3.1. price mgmt. charges itself for sales from 1 segment to another within the company
3.2. in US must adhere to IRS Code: Sec. 482
3.2.1. charge an "arms length" price
3.2.1.1. price that occurs when unrelated buyers & sellers do same transaction
3.2.1.2. 3 factors:
3.2.1.2.1. best method rule
3.2.1.2.2. comparability analysis
3.2.1.2.3. arms-length range
3.2.2. tax havens
3.2.2.1. prohibited by Sec. 482
4. Shipping terms & price quotes
4.1. 3 ways to specify terms of sale:
4.1.1. insert statement in contract saying exporters home country laws will used
4.1.2. insert explicit understanding of the meaning of export terms
4.1.3. use a standard set of trade terms
4.1.3.1. 2 types:
4.1.3.1.1. Incoterms
4.1.3.1.2. Intraterms
5. International payment methods
5.1. Cash in advance
5.1.1. seller receives payment in full before product is manufactured & shipped
5.2. Letter of credit (LOC)
5.2.1. issued by bank
5.2.2. substitutes the bank's credit for that of the buyer & guarantees payment
5.2.3. types:
5.2.3.1. irrevocable
5.2.3.1.1. changes can only be made with approval from seller, opening bank, & advising bank
5.2.3.2. revocable
5.2.3.2.1. opening bank can invalidate the LOC or make changes at any time
5.2.3.2.2. cannot be confirmed
5.2.3.3. confirmed
5.2.3.3.1. advising bank guarantees payment to seller
5.2.3.4. unconfirmed
5.2.3.4.1. advising bank does not guaranteed payment and
5.2.3.4.2. can stop or change payment terms because of changes in buyers financial situation
5.3. Bill of exchange (draft)
5.3.1. unconditional written order by seller to the buyer
5.3.1.1. instructs the buyer to pay a specific amount of $ to a 3rd party
5.3.2. Types:
5.3.2.1. Sight draft
5.3.2.1.1. must be paid immediately upon presentation to buyer
5.3.2.2. Arrival draft
5.3.2.2.1. must be paid when product arrives
5.3.2.3. Dated draft
5.3.2.3.1. must be paid on or before date prescribed
5.3.2.4. Time draft
5.3.2.4.1. must be paid before prescribed # of days after draft presented to buyer
5.3.3. riskier than LOC for the seller because buyer may decide not to pay
5.4. Open account
5.4.1. means the product is shipped with buyer promising to pay at some future date
6. Payment sources
6.1. Edge act banks
6.1.1. authorized by the Fed solely for foreign purposes
6.2. Overseas development banks
6.2.1. US organizations established to support the export expansion programs of US firms
6.3. Multinational banks
6.3.1. international organizations that provide banking services to a variety of buyers
6.4. Eurodollars
6.4.1. US dollar-denominated deposits held in foreign banks or branches of US banks