International Marketing Module 3

MODULE 3
INTERNATIONAL MARKETING
Module 3
 Pricing for International Markets: Factors affecting international price

determination; International pricing process and policies. Delivery terms and
currency for export price quotations; Transfer pricing.
 International Distribution Decisions: Distribution channel strategy-

International distribution channels, their roles and functions; Selection and
management of overseas agents; International distribution logistics inventory
management transportation, warehousing and insurance.
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Dr Somesh Kumar Sinha
INTERNATIONAL PRICING
International pricing is a multifaceted process that involves determining the

optimal pricing strategy for products or services in diverse global markets.
It requires a delicate balance between various factors, including production costs,

local market conditions, and regulatory environments.
Companies must consider the impact of tariffs, import/export duties, and

currency fluctuations, which can significantly influence the cost structure of
goods in different countries.
Global brands must navigate the complexities of distribution channels,

accounting for varying channel margins and logistical costs associated with
shipping and distribution on a global scale. 3
INTERNATIONAL PRICING
Adhering to legal and regulatory requirements, including compliance with
price controls and consumer protection laws, is paramount.
The international pricing landscape also involves strategic decisions related to

product positioning, such as whether to adopt premium pricing for luxury
markets or implement discounting strategies to capture price-sensitive
segments.
As companies expand globally, maintaining a consistent brand image while

adapting pricing to local nuances is essential for long-term success.
International pricing is an ongoing, dynamic process that demands continuous

monitoring and adjustment to optimize competitiveness and profitability in the
ever-evolving global marketplace. 4
PRICING OBJECTIVES
Price is a strategic marketing tool to achieve certain objective(s). The pricing objective, naturally, is one
of the very important determinants of price. A firm’s pricing policy may be guided by any one or more of
the following objectives:
 (i) Market Penetration: Market penetration may be a very important objective, particularly for new
exporters. A firm may attempt to penetrate the market with a low price.
 (ii) Market Share: The price may be manipulated to increase the market share. In many cases, it is a
corollary of market penetration.
 (iii) Market Skimming: This is often the case with innovative products. The product is introduced
with a high initial price to skim the cream of the market. The price may be subsequently reduced to
achieve greater market penetration.
 (iv) Fighting Competition: Sometimes, price is a tool to fight competition. A price reduction by the
competitor may have to be countered by price cuts. Sometimes, price cuts may be affected to
discipline the competitor or to compel the competitor to reduce prices so that his cash flows will be
affected.
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 (v) Preventing New Entry: A firm may charge a low price even when there is scope for
high price so that the industry does not look very attractive to new entrants.
 (vi) Shorten Payback Period: When the market is uncertain and risky because of factors
like swift technological changes, short product life cycles, political reasons, threat of
potential competition etc., recouping the investment as early as possible would be an
important objective.
 (vii) Early Cash Recovery: A firm with liquidity problem might give priority to generate a
better cash flow. Hence, it would adopt a pricing that might help it to liquidate the stock
and/or encourage prompt payment by the channel members or buyers.
 (viii) Meeting Export Obligation: A company with specific export obligation may be
compelled to adopt a pricing policy that enables it to discharge its export obligation.
Sometimes it may even imply a price lower than the cost.
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 (ix) Disposal of Surplus: A company confronted with a surplus stock may resort to
exporting to dispose off the surplus. In such cases, exports sometimes takes the form
of dumping.
 (x) Optimum Capacity Utilisation: Exporting is sometimes resorted to enable the firm
to achieve optimum capacity utilisation so as to minimise the unit cost of
production. In such a case, achieving the required quantity of exports could be the
objective of export pricing.
 (xi) Return on Investment: Achieving the target rate of return is the most important
pricing objective in a number of cases.
 (xii) Profit Maximisation: In many cases, the primary pricing objective is

maximisation of profits.
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FACTORS AFFECTING PRICING
 International Marketing Objectives : For example, when the objective is market
penetration, the price charged may be low. Similarly, when a firm exports to make use of the
excess capacity, marginal cost basis may be adopted for pricing. But if profit maximization in
the short run is the objective of a firm having good domestic demand for its products, it
would not export at a price which does not provide a profit margin at least equivalent to that
on the domestic sales.
 Costs : The pricing decision, quite obviously, is influenced by the costs — the fixed and
variable costs of production and the transportation and marketing costs. Although in the
short run, in certain situations the export price may be lower than the full cost, in the long
run a firm which exports a substantial share of its production is normally expected to cover
the full costs. The flexibility a firm can enjoy in pricing depends to a large extent on its cost
efficiency, i.e., how favourably its fixed and variables costs compare with those of the
competitors.
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 Competition : Competition is a very important factor affecting pricing. A monopolist
normally has high degree of freedom in pricing. That is why patented products could be sold
at high prices. The severe the competition the lower the pricing freedom.
 Product Differentiation : The extent of product differentiation is another factor
influencing price. This is in fact an aspect of competition. If the company’s product is highly
differentiated than those of the competitors or if the product has some strong unique features,
the company will have more freedom to manipulate the price.
 Exchange Rate : The exchange rate of the currency may also influence pricing. For
example, if the Rupee is steadily appreciating, the Indian exporter would be constrained to
quote high dollar prices because an appreciation of the rupee means a fall in the rupee
realisation for every dollar earned by exports.
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 Market Characteristics : Apart from competition, there are certain other market
characteristics which are relevant to pricing. They include:
1. Demand trends
2. Consumer income levels
3. Importance of the product to the consumers
4. Trade characteristics like trade margins
 Image : The price which a firm may charge also depends on the image of the firm and
the country. It may be easier for a well reputed firm to charge a higher price than others.
Pricing freedom also depends on the image abroad of the country.
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 Government Factor
 Export pricing is sometimes influenced by government policies and regulations. The
Government influence on export pricing may take any one or more of the following
forms:
 Regulation of Margins: Sometimes the government may dictate the margins or mark-
ups by the producers or distributors. The marketers, thus, lose, by and large, the
freedom in pricing.
 Price Floors and Ceiling: There are a number of cases in different countries involving
price floors and ceilings. When there are such regulation, the price shall not fall below
the floor price or shall not exceed the price ceiling, as the case may be. Until recently,
several textile items were subject to minimum export price (MEP) in India.
 Subsidies: With a view to making export price competitive, government sometimes
grant subsidies. A subsidy enables the seller to reduce his price to the extent of the
subsidy without incurring any loss. For example, in India, certain select export items
were eligible for Cash Compensatory Support (CCS).
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 Tax Concessions and Exemptions: In countries like India, the export sector enjoys certain tax
benefits which help to quote a lower price for exports. For example, under the duty drawback
scheme, an exporter is entitled to refund of certain specified duties he has paid, like import duty
or excise duty on raw materials used in export production.
 Other Incentives: A number of other incentives and assistances like cheap credit, supply of raw
materials etc., at regulated prices, marketing assistance, etc., may also influence export prices.
 Government Competition: Government may even compete directly in the market to control
prices. For example, the US Government could effectively combat the increase in aluminium
prices by three companies by announcing the government’s decision to release two or three
hundred thousand tonnes of aluminium from its strategic stockpile.
 Taxes: Taxes like customs duties also influence export pricing. (import duty export duty).
Governments often impose countervailing import duties to combat dumping, export subsidy, etc.
 International Agreements: International prices of certain commodities are sought to be
controlled by means of international commodity agreements like quota agreements, buffer stock
agreements and bilateral/multilateral contracts, 12
International pricing process
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 STEPS IN PRICING
The setting up of an appropriate export price involves various steps which are
outlined below:

Analysing
Defining pricing Calculating value Determining
market Calculating costs
objectives of incentives export price
characteristics
Steps in Export Pricing

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 Defining Pricing Objectives : As pointed out in an earlier section of this chapter, the export
objective has an important bearing on pricing. For example, if the objective is to utilise
excess capacity, even marginal cost pricing may be acceptable. But if a firm has a good
domestic market to sell its full capacity output, the export price may be influenced by the
short-run vs. long-run objectives.
 Analysing Market Characteristics : There are several market characteristics which affect
pricing. Competitive condition is one such important factor. If competition is very intense,
price would be very sensitive. On the other hand, if competition is not severe, the company is
likely to have more flexibility in pricing.
 Calculating Costs To ascertain whether a given price is acceptable or not, it is very much
essential to have an accurate estimate of the cost. The main elements that should be covered
in a calculation of export costs are: Direct Production Costs: (Materials, labour and other
expenses), Production Overheads: (Materials, labour and the expenses that are indirectly
involved in producing the goods, Marketing and Distribution Costs: Materials, labour and
other expenses necessary for getting orders, handling orders, packing the goods and sending
them to customers.)
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 Estimating the Value of the Incentives
There may be several export incentives like duty drawback, Cash Compensatory
Support (CCS), Replenishment license/Exim Scrip, premium on the foreign exchange,
income tax benefits etc., which either enable the exporter to reduce the price without
incurring any loss or increase the profitability.
 Establishing Target Price and Ascertaining Export Feasibility

The next step is to establish a target price based on the analysis of the market
characteristics and to ascertain whether it will be possible to export at that price.
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PRICING METHODS / APPROACHES
 Cost Based Pricing
Cost based pricing, also known as cost plus pricing, is a common method of pricing. Under this method,
the price includes a certain percentage of profit margin on the sum total of the full cost of production,
marketing costs and an allocation of the overheads. That is, Price = [fixed costs + variable costs +
overheads +marketing costs] + specified percentage of the total costs.
 Advantages
(i) It covers all the costs.
(ii) It is designed to provide the target rate of margin.
(iii) It is, generally, a rational and widely accepted method.
(iv) It is an easy to comprehend and simple method.
 Disadvantages
(i) The cost calculations are based on a predetermined level of activity. If the actual level of activity varies from this
estimated level, the costs may vary, rendering this method unrealistic.
(ii) If the costs of the firm are higher than its competitors, this method would render the firm uncompetitive in
relation to price.
(iii) Another drawback of the cost plus method is that sometimes the opportunity to charge a high price is foregone. 17
(iv) It ignores the price elasticity of demand.
 Market Oriented Pricing
This is a very flexible policy in the sense that it allows the prices to be changed in accordance with the
changes in market conditions. The product may be priced high when demand conditions are very good and the
price may be lowered when the market is sluggish if that helps in increasing sales. This method is sometimes
referred to as what the traffic will bear method, i.e., charging the maximum possible price given the market
conditions.
 Advantages
(i) It is a very flexible policy.
(ii) Price is based on the market conditions.
(iii) When the product life cycle is expected to be relatively short, ‘what the traffic will bear’ is an
appropriate policy because it will enable the firm to recoup the investment fast.
 Disadvantages
(i) It is difficult to estimate what the traffic will bear.
(ii) Under this method, there is a chance of ignoring the elasticity of demand factor.
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(iii) If what the traffic can bear in one market is significantly lower than what it is in another, it could lead to the
development
Dr Somesh Kumar Sinhaof a grey market.
 Following Competitors
Many firms follow the dominant competitors, particularly the price leader, in setting the price. The price leader
is the firm which initiates the price trends. The important alternative ways of following the competitor are:
(i) Setting the price at the same level as that of the competitor.
(ii) Setting the price below that of the competitor.
(iii) Pricing higher than that of the competitor’s.
The choice of the alternative has to be based on such factors as the comparative quality of the product, the image
and reputation of the firm, the uniqueness or similarity of the product etc.
 Advantages
(i) It is a very simple method.
(ii) It follows the main market trend.
(iii) It has relevance to the competitive standing of the firm.
 Disadvantages
(i) If the competitor’s price decisions are unrealistic, the follower will also be going wrong on the price.
(ii) The cost factors of the follower may not be similar to that of the competitor’s.
(iii) The pricing objective of the firm could be different from that of the competitor’s.
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 Negotiated Prices
Deciding the price by negotiation between the seller and the buyer is common. This is popular
with government and institutional purchases.
 Advantage
The major advantage of deciding price by negotiation is its great flexibility and the
opportunity to put across and understand the points of both the buyer and seller.
 Disadvantage
The major disadvantage is that if the bargaining power of the seller is weak, he may
not be able to get a good price.
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 Customer Determined Price
In a number of cases, the foreign buyer specifies the price at which he is prepared
to buy the product. Whether a price quotation given by the buyer will be acceptable to
seller or not will depend on factors like his cost structure, conditions of business,
objectives etc.
 Break-even Price
Break-even price is the price for a given level of output at which there is neither
any loss nor profit. In other words, if the total costs of production and selling a
particular quantity of the product is divided by that quantity, we get the break-even
price. If the exporter sells below this price, he makes a loss and if he sells above this
price he makes a profit.
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Delivery terms and currency for export price quotations
 When providing export price quotations, it's important to specify clear delivery terms and the currency in
which the prices are quoted. This ensures transparency and avoids misunderstandings between the
exporter and the importer. Two commonly used terms for specifying delivery conditions are Incoterms
and the currency in which the transaction will be conducted.
 Delivery Terms (Incoterms):
 Incoterms: These are internationally recognized terms that define the responsibilities and risks of the
buyer and seller in international trade transactions. Examples include EXW (Ex Works), FOB (Free
on Board), CIF (Cost, Insurance, and Freight), and DDP (Delivered Duty Paid).
 Impact on Pricing: The chosen Incoterm affects the distribution of costs and responsibilities related
to the transportation and delivery of goods. For example, in an EXW agreement, the buyer bears
most of the costs, while in a CIF agreement, the seller is responsible for transportation and
insurance costs until the goods reach the destination port.
 Currency:
 Currency of Quotation: Specify the currency in which the prices are quoted. Commonly used
international currencies include the U.S. Dollar (USD), Euro (EUR), British Pound (GBP), and
others.
 Exchange Rate Considerations: Fluctuations in exchange rates can impact the final cost of goods for
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the importer. The agreed-upon currency should be stable and widely accepted in the international
Dr Someshbusiness
Kumar Sinha community.
Delivery terms for export price quotations
Delivery terms, as specified in export price quotations, are crucial for outlining the
responsibilities, risks, and costs associated with the transportation and delivery of goods
in international trade. The most commonly used set of delivery terms is defined by
Incoterms (International Commercial Terms), which are standardized by the International
Chamber of Commerce (ICC).
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Some important Incoterms for export price quotations:
 EXW (Ex Works):

Meaning: The seller's responsibility ends when the goods are made available for pickup at their
premises or another named place (factory, warehouse, etc.).
Buyer's Responsibility: The buyer bears all costs and risks associated with transportation from the
seller's location to the final destination.
 FOB (Free on Board):

Meaning: The seller is responsible for delivering the goods to the named port of shipment and loading
them onto the vessel.
Buyer's Responsibility: Once the goods are on board, the buyer assumes responsibility for
transportation, insurance, and other costs.
 CIF (Cost, Insurance, and Freight):

Meaning: The seller is responsible for the costs of transportation to the named port of destination
and provides insurance coverage until the goods arrive at that port.
Buyer's Responsibility: Once the goods are on board, the buyer takes over responsibility for any
further transportation, unloading, and local delivery. 24
 CIP (Carriage and Insurance Paid To):
Meaning: Similar to CIF but can be used for any mode of transportation. The seller is responsible
for carriage to the named destination and provides insurance coverage during transit.
Buyer's Responsibility: The buyer takes over responsibility upon arrival at the destination and is
responsible for unloading and local delivery.
 DAP (Delivered at Place):
Meaning: The seller is responsible for delivering the goods to a named place, often the buyer’s
premises or another agreed-upon location.
Buyer's Responsibility: The buyer takes responsibility for unloading, customs clearance, and any
further transportation to the final destination.
 DDP (Delivered Duty Paid):
Meaning: The seller is responsible for delivering the goods to the buyer's premises, including all
costs and responsibilities associated with customs clearance and import duties.
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Buyer's Responsibility: The buyer is only responsible for unloading the goods at their premises.
Currency for export price quotations
The choice of currency in export price quotations is a critical aspect of international trade and
has significant implications for both exporters and importers. Here are some key reasons
highlighting the importance of currency in export price quotations:
Standardization and Comparisons: Standardizing the currency in export price
quotations allows for easy comparison of prices across different suppliers and markets. It
provides clarity and transparency in evaluating offers from various international sources.
Global Acceptance: Certain currencies, such as the U.S. Dollar (USD), Euro (EUR), and
British Pound (GBP), are widely accepted and used in international trade. Quoting prices in a
globally recognized currency facilitates smoother transactions and reduces the risk of
confusion.
Exchange Rate Stability: The choice of a stable and widely accepted currency helps
mitigate the risk of exchange rate fluctuations. Both exporters and importers prefer currencies
that are relatively stable to avoid sudden changes in the cost of goods. 26
▪ Financing and Payment: The choice of currency affects the financing and payment terms of the
transaction. Buyers and sellers often agree on a specific currency for the transaction, and this choice
is reflected in the payment method, such as letters of credit or international wire transfers.
▪ Risk Management: Currency fluctuations can impact the profitability of international transactions.
By choosing a stable currency or incorporating hedging strategies, exporters and importers can
manage and mitigate the risks associated with exchange rate volatility.
▪ Avoiding Exchange Rate Uncertainty: Quoting prices in a specific currency provides both
parties with clarity regarding the agreed-upon terms. It avoids uncertainty related to exchange rate
fluctuations, ensuring that both the buyer and seller understand the financial aspects of the
transaction.
▪ Legal and Regulatory Compliance: Certain countries may have regulations regarding the use of
specific currencies in international transactions. Adhering to legal requirements and industry norms
helps ensure compliance and minimizes the risk of legal complications.
▪ Consistency in Communication:Using a consistent currency in export price quotations
contributes to effective communication between parties. It reduces the chances of misunderstandings
and ensures that both parties have a clear understanding of the financial terms of the deal. 27
TRANSFER PRICING
 Transfer pricing refers to the prices of goods and services that are exchanged
between companies under common control. For example, if a subsidiary company
sells goods or renders services to its holding company or a sister company, the price
charged is referred to as the transfer price.
 Entities under common control refer to those that are ultimately controlled by a
single parent corporation. Multinational corporations use transfer pricing as a
method of allocating profits (earnings before interest and taxes) among their various
subsidiaries within the organization.
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 TRANSFER PRICING
Transfer pricing or intracompany pricing refers to the pricing of goods transferred from
operations or sales units in one country to the company’s unit elsewhere.
The appropriate basis for intracompany transfers often depends on the nature of the
subsidiaries, the market conditions and government policies and regulations.
Some studies show that, in most cases, setting up transfer prices remains the absolute
prerogative of the parent company executives regardless of the firm’s nationality.
 The important general objectives of the intracompany pricing system are:
(i) To maximize the total profits of the company;
(ii) To facilitate parent-company control; and
(iii) To offer management at all levels, both in the product divisions and in the
international divisions, an adequate basis for maintaining, developing, and receiving
credit for their own profitability.
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International Distribution Decisions
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Distribution channel
 A distribution channel may be defined as “the path traced in the direct or indirect
transfer of title to a product as it moves from a producer to ultimate consumers or
industrial users”.
 A distribution channel, in other words, is “the set of firms and individuals that take
title, or assist in transferring title, to the particular good or service as it moves from
the producer to the consumers.”
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International Distribution Decisions
 The distribution process for international marketing involves all those activities
related to ' time, place and ownership utilities for industrial and end consumers.
 The selection, operation and' motivation ,of effective channels of distribution
often turn out to be crucial factors in a firm's differential advantage in
international markets,
 The diverse activities, and culturally differentiated roles of channel
intermediaries make the formulation of, distribution strategies a challenge for
any firm entering international markets.
 Successful international distribution decisions require a comprehensive
understanding of the target markets, a flexible and adaptive approach, and a
commitment to compliance with local regulations and cultural norms.
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❖ Distribution Channels:
✓ Decide on the most suitable distribution channels, such as direct sales, agents,
distributors, retailers, or e-commerce.
✓ Consider a mix of channels based on the nature of the product and the market.
❖ Logistics and Infrastructure:
✓ Assess the efficiency of transportation, warehousing, and distribution infrastructure in
the target market.
✓ Consider the impact of logistics on costs and delivery times.
❖ Local Partnerships:
✓ Establish partnerships with local distributors or agents who have knowledge of the
market.
✓ Evaluate potential partners for reliability, reputation, and alignment with your brand
values.
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❖ Technology and Data Management:
✓ Implement technology solutions for efficient inventory management, order processing, and
data analytics.
✓ Use data to continuously evaluate and improve distribution performance.
❖ E-commerce and Digital Platforms:
✓ Leverage e-commerce platforms and digital channels to reach a broader audience.
✓ Adapt online strategies to local preferences and online shopping behavior.
❖ Customer Service and Support:
✓ Develop a customer service strategy that addresses the needs and expectations of
international customers.
✓ Provide support in local languages and time zones.
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❖ Legal and Regulatory Compliance:
✓ Be aware of and comply with local laws and regulations related to distribution,
import/export, and product standards.
✓ Understand tax implications and customs procedures.
❖ Risk Management:
✓ Identify and mitigate potential risks associated with international distribution, such as
political instability, economic downturns, or supply chain disruptions.
❖ Cultural and Language Differences:
✓ Adapt marketing and distribution strategies to accommodate cultural and language
differences.
✓ Ensure that packaging and labeling are culturally appropriate.
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In international marketing, companies often choose between two
primary distribution strategies:
1. Direct exporting
2. Indirect exporting.
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Indirect Distribution:
 Indirect distribution involves using intermediaries or third parties to distribute products to the end
consumers.
 Common intermediaries in indirect distribution include agents, distributors, wholesalers, and
retailers located in the foreign market.
Advantages:
 Market Expertise: Local intermediaries often have a deep understanding of the foreign market,
including consumer preferences, cultural nuances, and regulatory requirements.
 Cost Savings: Companies may save on establishing their own distribution infrastructure and
personnel costs by leveraging existing networks of intermediaries.
 Risk Mitigation: Indirect distribution can help mitigate risks associated with entering unfamiliar
markets.
Disadvantages:
 Reduced Control: The company has less direct control over the distribution process and may face
challenges in maintaining brand consistency.
 Profit Sharing:
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Sharing profits with intermediaries can reduce the overall profit margin for the
company.
Direct Distribution:
 Direct distribution involves the company handling the distribution process itself without relying on
intermediaries.
 This can be achieved through setting up company-owned subsidiaries, sales offices, or e-commerce
platforms in the foreign market.
Advantages:
 Greater Control: The company has more control over the distribution process, allowing for better
brand management and customer relationships.
 Maximized Profit Margins: Without intermediary fees, the company retains a larger share of the
profits.
 Flexibility: Direct distribution provides greater flexibility in adapting to changing market conditions.
Disadvantages:
 Higher Costs: Establishing and maintaining a direct distribution network can be costly, involving
investments in infrastructure, personnel, and marketing.
 38
Limited Local Expertise: The company may lack the local market knowledge and expertise that
Dr Someshintermediaries
Kumar Sinha can provide.
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TYPES OF INTERMEDIARIES AND THEIR FUNCTIONS
Direct Channel (Foreign Market Channel Members)
Importers:
 Importers identify local market requirements and find products from the world markets to satisfy
these requirements.
 Importers purchase goods in their own names and act independently of the manufacturers.
 As independent middlemen, these channel members use their own marketing strategies and keep
in close contact with the markets they serve.
Foreign Distributors:
 A foreign distributor is a firm in the overseas country that has exclusive rights to undertake the
distribution function for a manufacturer in its country or specific area.
 The distributor purchases merchandise from the manufacture at a discount and then resells the
merchandise to retailers and, at times, to final consumers also.
 The distributors function in many countries may be a combination of wholesaler and retailer. But
in most cases, the distributor is usually considered as an importer or wholesaler 40
Foreign Retailers:
 If a manufacturer directly supplies to foreign retailers it means that the products in question are
consumer products rather than industrial products.
 Manufacturers can engage foreign retailers through various methods, including personal visits by
representatives or sending catalogs, brochures, and other literature to generate interest in carrying
their products.
 Most large retailers prefer to deal directly with the manufacturers. Large food chains in USA and
Europe are mostly in direct contact with foreign manufacturers.
Government Department/ State Owned Trading Companies:
 In some countries, government departments and/or government owned companies buy large
quantities of certain goods often on long-term basis directly from suppliers.
 These are generally essential goods, meant for mass consumption or for use in Government
Departments.
End Users:

This direct channel is a logical and natural choice for high unit value and high
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Sometimes, a manufacturer may sell directly to foreign end users with no, intermediary involved in
the process.
technology items
Indirect Channel (Domestic Market Channel Members)
 The manufacturer deals with one or more domestic middlemen who, in turn,
move or sell the product to foreign middlemen or final users. Although there are
many kinds of local , sales intermediaries, all of them call be grouped under two
broad categories:
 i) Domestic Agents
 ii) Domestic Merchants
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Domestic Agents ‘
 Agents can be classified according to the principal whom they represent. Some agent intermediaries
represent the buyer; others represent the interest of the manufacturer.
 Those who work for the manufacturer include export broker; manufacturer's export agents, export
management companies and co-operative exports.
 Agents who look after the interests of the buyer include purchasing agents and country controlled
buying agent.
Domestic Merchant Export Merchant:
 The domestic based export merchant buys the manufacturer's product and sells it abroad on his own.
 When this type of middlemen is used for overseas marketing, the job of manufacturer is limited to
essentially production and at most domestic marketing.
 In such cases, except production related functions such as carry out modifications in the product and
product mix which may-be sometimes required to suit, the export market, all other international
marketing tasks are handled by the export merchant. 43
Selection and management of overseas agents
 Channels are an integrative part of the marketer's activities and as such are
very important.
 They also give a very vital information flow to the exporter.
 A channel is an institution through which goods and services are marketed.
 Channels give place and time utilities to consumers.
 In order to provide these and other services, channels charge a margin.
 The, longer the channel the more margins are added.
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Factors affecting the choices of distribution channels :
(1) capital requirements;
(2) level of distribution cost;
(3) desired extent of control over distribution channel;
(4) depth of market coverage;
(5) product-market distribution pattern characteristics;
(6) competitive practices;
(7) legal requirements; and
(8) short-tern versus long-term involvement of the firm
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Management of Overseas Agents:
 Contractual Agreements: Develop a comprehensive and clear contractual agreement that outlines the
roles, responsibilities, and expectations of both parties.
 Regular Communication: Establish regular communication channels to stay informed about market
conditions, sales performance, and any challenges faced by the agent.
 Performance Metrics: Define key performance indicators (KPIs) and regularly evaluate the agent's
performance against these metrics.
 Training and Support: Provide necessary training and support to ensure that overseas agents understand
your products, services, and marketing strategies.
 Incentives and Rewards: Implement incentive programs to motivate and reward overseas agents for
achieving sales targets and promoting your brand effectively.
 Problem Resolution: Develop a process for addressing and resolving issues promptly, fostering a
collaborative approach to problem-solving.
 Market Updates: Keep agents informed about changes in the market, new products, and any modifications
to marketing strategies.
 Market Visits: Conduct periodic visits to the overseas market to strengthen the relationship, provide
support, and gather firsthand insights.
 46
Adaptability: Be adaptable and open to feedback, allowing for adjustments to the business relationship
based on changing market conditions.
INTERNATIONAL LOGISTICS
 The cost and efficiency of the distribution have direct relationship with the logistics. Logistics,
therefore, is a factor which affects the competitiveness of a firm.
 International logistics is defined as “the designing and managing of a system that contracts the flow of
materials into, through, and out of the international corporation. It encompasses the total movement
concept by covering the entire range of operations concerned with product movement.”
 It follows from the above definition that logistics comprises of:
(i) Management of movement of raw materials, parts and supplies into and through the firm; and
(ii) Management of movement of finished products to the consumer.
 The major objective of the logistics management is to make the physical distribution as effective as
required at the lowest cost possible.
 Attempts to increase the effectiveness of the distribution may sometimes tend to increase the cost and
often a complex problem. 47

attempts to cut costs may impair distribution effectiveness. The trade-off and optimization, therefore,
are
Components of Logistics Management
Logistics management comprises of five major interdependent areas.

 Fixed Facilities Location: The major consideration is the location of fixed facilities like
production and warehousing in such a way as to maximize the total efficiency of the logistics
system. Factors like future potentials of the markets, future plans of the company, competitive
factors, political stability etc. are also import considerations.
 Transportation: The modes of transportation, frequency of shipping etc. are determined on

consideration of several factors such as the cost, speed, safety, lead time, transit time, type of
product, natural environmental factors etc.
48
 Inventory Management: The main objective of inventory management is to minimize the cost of
the inventory while ensuring smooth supplies. Developments in inventory management by the
customers, order processing and in the total logistics system have made inventory management both
challenging and efficient.
 Order Processing: The efficiency of order processing by the client as well as the company have
important implications for inventory levels and other aspects of the logistics. Rapid order
processing shorten the order cycle and allows for lower safety stocks on the part of the client.
Exporters from developing countries like India face the challenge of coping up with such situations.
 Materials Handling and Warehousing: Materials handling and warehousing are also an important
part of the logistics management. The technologies in use in materials handling and transportation
may be different in different countries. Differences in natural factors like climatic and weather
conditions may also make warehousing requirements varied.
49
Inventory management
 Inventory management in international distribution is a critical aspect of ensuring that
products are available in the right quantities, at the right locations, and at the right times
across global markets. Effective inventory management helps optimize supply chains,
minimize carrying costs, and enhance customer satisfaction.
 Key considerations for inventory management
1.Global Demand Forecasting: Utilizing data analytics and market research to
accurately forecast demand in different international markets. Considering factors such
as seasonality, economic conditions, and cultural preferences that may impact demand.
2. Safety Stock and Lead Time: Incorporating safety stock to buffer against
uncertainties, such as longer lead times, customs delays, and unexpected disruptions.
Calculating safety stock levels based on historical demand variability and the reliability
of the international supply chain.
3. Strategic Inventory Placement: Determining the optimal locations for inventory
based on market demand, production facilities, and transportation networks. Balancing
faster response times.

50
the trade-off between centralizing inventory for cost efficiency and decentralizing for
 4. Technology Integration: Implementing advanced inventory management systems
(IMS) to provide real-time visibility and control over inventory levels. Integrating
with other supply chain technologies, such as warehouse management systems
(WMS) and order processing systems.
 5. Collaboration with Suppliers: Collaborating closely with international suppliers
to align production schedules with anticipated demand. Implementing vendor-
managed inventory (VMI) or collaborative forecasting to improve inventory accuracy.
 6. Regulatory Compliance: Ensuring compliance with international regulations
regarding the storage and handling of certain products. Understanding and adhering to
customs regulations that may impact inventory movement across borders.
 7. Inventory Turnover and Holding Costs: Monitoring inventory turnover rates to
assess the efficiency of the supply chain. Balancing the costs associated with holding
inventory, including storage, insurance, and obsolescence.
51
 8. Order Policies and Replenishment Strategies: Establishing optimal order policies,
such as economic order quantity (EOQ), reorder points, and order cycles.
Implementing just-in-time (JIT) or other replenishment strategies to minimize excess
stock while ensuring timely availability.
 9. Technology for Visibility: Leveraging technologies such as RFID, barcoding, and
IoT devices to enhance visibility into the movement and status of inventory. Enabling
real-time tracking and monitoring of inventory across the international supply chain.
 10. Continuous Improvement: Regularly reviewing and refining inventory
management strategies based on performance metrics, market changes, and feedback
from the supply chain.
52
Warehousing:
Warehousing in the context of international distribution involves the

storage and management of goods before they are distributed to the end
consumer. Warehouses play a critical role in the overall supply chain,
providing a centralized location for storing, organizing, and preparing
products for distribution.
53
Roles of Warehousing in International Distribution:
➢ Inventory Storage:
✓ Providing a secure and organized environment for storing products before distribution.
✓ Allowing for efficient management of stock levels.
➢ Order Fulfillment:
✓ Processing and preparing orders for shipment to end customers.
✓ Ensuring accuracy in order picking and packing.
➢ Cross-Docking:
✓ Facilitating the direct transfer of goods from inbound to outbound transportation without storing them in the
warehouse.
✓ Streamlining the distribution process for certain products.
➢ Value-Added Services:
✓ Offering additional services such as labeling, packaging, and assembly within the warehouse.
✓ Providing customization to meet specific market requirements.
➢ Returns Management:
✓ Handling and processing product returns efficiently.
✓ Assessing returned items for potential resale or disposal. 54
Insurance
Insurance plays a crucial role in international distribution by providing coverage for potential
risks and losses associated with the transportation, storage, and handling of goods as they move across
borders. The international trade environment introduces various risks, and insurance helps mitigate these
risks, protecting the financial interests of the parties involved.
Here are key aspects of the role of insurance in international distribution:
 Risk Mitigation:
❑ Transportation Risks: Insurance, such as marine cargo insurance, covers risks related to the loss
or damage of goods during transit, whether by sea, air, road, or rail.
❑ Customs Risks: Insurance can provide coverage for risks associated with customs duties, taxes,
and regulatory compliance.
 Financial Protection:
❑ Cargo Loss or Damage: Insurance compensates for financial losses incurred due to physical loss
or damage to goods during transit.
❑ Liability Coverage: Liability insurance protects against legal claims and financial losses arising
from damage caused to third parties during transportation or while goods are in storage. 55
 Political and Geopolitical Risks:
❑ Political Risk Insurance: Provides coverage for losses arising from political events, such as
expropriation, currency inconvertibility, and political violence in the destination country.
❑ Trade Credit Insurance: Protects against non-payment by foreign buyers, helping to mitigate the risk
of economic and political uncertainties.
 Supply Chain Interruptions:
❑ Business Interruption Insurance: Covers financial losses resulting from disruptions to the supply
chain, such as natural disasters, strikes, or other events that impact the ability to produce or
deliver goods.
 Warehouse and Storage Risks:
❑ Storage and Handling Insurance: Protects against risks associated with storing goods in
warehouses, including damage due to fire, theft, or other unforeseen events.
56
 Compliance and Regulatory Risks:
❑ Customs Bond Insurance: Ensures compliance with customs regulations and provides financial
protection in case of customs-related issues.
❑ Sanctions Risk Insurance: Covers losses resulting from changes in trade policies, sanctions, or other
regulatory restrictions affecting international trade.
 Contractual and Legal Risks:
❑ Credit Insurance: Safeguards against financial losses resulting from the insolvency or default of a
buyer, ensuring that payment obligations are met.
❑ Legal Liability Insurance: Provides coverage for legal expenses and liabilities arising from disputes
related to international contracts.
 Comprehensive Coverage:
❑ Door-to-Door Coverage: Comprehensive insurance policies can provide coverage from the point of
origin to the final destination, offering protection throughout the entire international distribution process.
57
Anti-dumping
 If a company exports a product at a price lower than the price it normally charges
on its own home market, it is said to be “dumping” the product.
 The WTO Agreement does not regulate the actions of companies engaged in
“dumping”.
 Its focus is on how governments can or cannot react to dumping — it disciplines
anti-dumping actions, and it is often called the “Anti-dumping Agreement”.
58
What Is an Anti-Dumping Duty?
 An anti-dumping duty is a protectionist tariff that a domestic government imposes
on foreign imports that it believes are priced below fair market value.
 Dumping is a process wherein a company exports a product at a price that is
significantly lower than the price it normally charges in its home (or its domestic)
market.
 In order to protect their respective economy, many countries impose duties on
products they believe are being dumped in their national market; this is done with
the rationale that these products have the potential to undercut local businesses and
the local economy.
 While the intention of anti-dumping duties is to save domestic jobs, these tariffs
can also lead to higher prices for domestic consumers.
 In the long-term, anti-dumping duties can reduce the international competition of
domestic companies producing similar goods. 59
 Example of an Anti-Dumping Duty
 In June 2015, American steel companies United States Steel Corp., Nucor
Corp., Steel Dynamics Inc., ArcelorMittal USA, AK Steel Corp., and
California Steel Industries, Inc. filed a complaint with the U.S. Department of
Commerce and the ITC. Their complaint alleged that several countries,
including China, were dumping steel into the U.S. market and keeping prices
unfairly low.
 After conducting a review, one year later the U.S. announced that it would be
imposing a total of 522% combined anti-dumping and countervailing import
duties on certain steel imported from China
60

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MODULE 3

 Pricing for International Markets: Factors affecting international price

 International Distribution Decisions: Distribution channel strategy-

International pricing is a multifaceted process that involves determining the

It requires a delicate balance between various factors, including production costs,

Companies must consider the impact of tariffs, import/export duties, and

Global brands must navigate the complexities of distribution channels,

The international pricing landscape also involves strategic decisions related to

As companies expand globally, maintaining a consistent brand image while

International pricing is an ongoing, dynamic process that demands continuous

 (xii) Profit Maximisation: In many cases, the primary pricing objective is

Steps in Export Pricing

 Establishing Target Price and Ascertaining Export Feasibility

 EXW (Ex Works):

 FOB (Free on Board):

 CIF (Cost, Insurance, and Freight):

often a complex problem. 47

Logistics management comprises of five major interdependent areas.

 Transportation: The modes of transportation, frequency of shipping etc. are determined on

faster response times.

Warehousing in the context of international distribution involves the

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