《国际贸易实务》Chapter 8 Export Price

Chapter8

ExportPriceLearningObjectivesThepricingmethodsofimportandexportcommodityprice;Priceconversiontomajorinternationaltradeterms,theconceptsandcalculationmethodsofcommissionanddiscount;Calculationofcostaccounting.OpeningCase

PriceaccountingAChinesecompanyexportsLadiesBlouses,$2.1perpiece,2000piecesinall.Letterofcreditstipulated“aboutUSD4200,CIFLondon,less5%commissionand5%discount”.Thefollowingisdifferentexportcommercialinvoicebydifferenthandlingpersonnel.Calculation1LadiesBlousesUnitpriceAmount2000piecesUSD2.1USD4200Less5%commissionand5%discountUSD420CIFLondonnetUSD3780Calculation2LadiesBlousesUnitpriceAmount2000piecesUSD2.1USD4200Less5%discountUSD210Less5%commissionUSD199.5CIFLondonnetUSD3790.5DiscussionQuestion:Whichoneisreasonable?Pleasegiveyourreasons.8.1ExportCostAccounting

8.1.1CostofExportsinTermsofForeignExchange

CostofexportsintermsofforeignexchangeisthefirsteconomicbenefitindicesinChina’sforeigntradeenterprises.Formula:Costofexportsintermsofforeignexchange=ExampleA:CommodityA:PurchasingcostRMB10000,processingchargesRMB1500,circulationchargesRMB1000,taxexpenditureRMB100,andthenetforeignexchangeincomeisUSD2000.Totalexportcost=10000+1500+1000+100=RMB12600RMBcostinreturnforforeignexchange=12600/2000=6.3RMB/USDExampleB:XXXCompanyexportscommodities1442250pieces,FOBShanghaifortotalamountofUSD71017.PurchasingpriceforthesecommoditiesareRMB574980(with17%VAT),6%standardexpense,9%rateofexportrebate,USD1:CNY8.3exchangerate.RMBcostinreturnforforeignexchange

=

=7.96RMB/USD8.1.2ProfitandLossRatioinExport

Thisindexisusedtoshowthepercentageoftheprofitandlossinthetotalexportcost.Positiveoutcomereferstoprofit,negativeoutcomereferstoloss.Profitandlossratioinexport=×100%

Example:XXXCompanyexportscommodities1442250pieces,FOBShanghaifortotalamountofUSD71017.PurchasingpriceforthesecommoditiesareRMB574980(with17%VAT),6%standardexpense,9%rateofexportrebate,USD1:CNY8.3exchangerate.Solving:totalexportcost=574980×(1+6%)-574980÷(1+17%)×9%=565249.57Profitandlossratioinexport=×100%=4.28%8.2CurrencyandExchangeRate8.2.1TheSelectionofCurrency

Currencyforaccountisthecurrencyusedforpricecalculation.Currencyforpaymentisthecurrencyforsettlement.Thedollarisstrong,wecallithardcurrency,whichmeanscurrencythatisreliableandstableandmoreindemand.Thedollarisweak,wecallitsoftcurrency,whichmeanscurrencythatisunstableinvalue.Ifonesidehastoadoptanunfavorablecurrency,heshould：a.Trytoreducetheimportpriceandraisetheexportprice.b.Combinekindsofmoneyofaccounttogether.c.Getexchangevalueterms.Exchangevaluetermsincluded:

i.Currencyforaccountusehardcurrency,currencyforpaymentusesoftcurrency.ii.Bothcurrencyforaccountandcurrencyforpaymentaresoftcurrency,butstipulatecontractcurrencyandhardcurrencyexchangerate.iii.Stipulateagreedexchangerateconcerningsoftcurrencyandhardcurrency.8.2.2ForeignExchangeRate

Ininternationaltrade,iftheforeignclientrequiresustomaketheofferonthebasisofforeigncurrency,nativecurrencyandanotherforeigncurrency,weshouldadoptsomemeasurestoconversion.A.NativecurrencyexchangeintoforeigncurrencyFormula：ForeignCurrency=NativeCurrency/Buy-inpriceExample：

Chinesecompanyexportsequipment￥10000.00,thebuyerrequirestoquoteonthebasisofUSdollar,thebuy-inpriceisUSD$1=RMB8.2664,thesell-outpriceisUSD$1=RMB8.2694,howtomakethequotation?ForeignCurrency=NativeCurrency/Buy-inprice=￥10000.00/8.2664=$1209.72B.ForeigncurrencyexchangeintonativecurrencyFormula：NativeCurrency=ForeignCurrency×Sell-outpriceExample：

AHongKongcompanyexportsequipmentUSD$10000.00,theAmericabuyerrequirestoquoteonthebasisofHKdollar,thebuy-inpriceisUSD$1=HK$7.7910,thesell-outpriceisUSD$1=HK$7.79500,howtomakethequotation?NativeCurrency=ForeignCurrency×Sell-outprice=USD$10000.00×7.79500=HK$77950C.ForeigncurrencyexchangeintoanotherforeigncurrencyFormula：ForeigncurrencyB=ForeigncurrencyA/(Buy-inpriceoncurrencyB/A)Example：

AHongKongcompanyexportsequipmentFRF8000.00,thebuyerrequirestoquoteonthebasisofUSdollar,thebuy-inpriceisUSD1=FRF4.4350,thesell-outpriceisUSD1=FRF4.4550,howtomakethequotation?USdollarquotation=FRFquotation/Buy-inprice=FRF8000/4.4350=USD$1803.838.3CommissionandDiscount

Commissionisafeepaidtobusinessmanfornegotiatingasale,basedonapercentageofthesellingprice.

Itisusuallycalculatedbyapercentageofthesellingpriceoftheproperty,andspecifiedinthepriceclauseas“USD1000permetrictonCIFHongKongincluding2%commission”or“USD1000permetrictonCIFC2%HongKong”.

Discount

referstotheamountapricewouldbereduced,andtheformulatocalculatethediscountisthattheinvoicevaluetimesdiscountrate.Discountisalsospecifiedinthepriceclause,suchas“USD200permetrictonCIFLondonless3%discount”or“USD200permetrictonCIFLondonincluding3%discount”.Example:TheinvoicevalueisUSD5000,including2%discount,tocalculatetheactualprice.Actualprice=USD5000×(1-2%)=USD49008.4ConversionofTradeTermsA.IfweknowFOBprice,wecancalculateotherprice.CFRprice=FOBprice+FreightCFRCprice=CIFprice=CIFCprice=

B.IfweknowCFRprice,wecancalculateotherprice.FOBprice=CFRprice-FreightCFRCprice=CIFprice=CIFCprice=C.IfweknowCIFprice,wecancalculateotherprice.FOBprice=CIFprice×[1-(insurancepercentageofaddition×premiumrate)]-FreightCFRprice=CIFprice×[1-(insurancepercentageofaddition×premiumrate)]CFRCprice=/(1-commissionrate)CIFCprice=D.IfweknowCFRCprice,wecancalculateotherprice.FOBprice=CFRCprice×(1-commissionrate)-FreightCFRprice=CFRCprice×(1-commissionrate)CIFprice=CIFCprice=

E.IfweknowCIFCprice,wecancalculateotherprice.FOBprice=CIFCprice×(1-insurancepercentageofaddition×premiumrate-commissionrate)-FreightCFRprice=CIFCprice×(1-insurancepercentageofaddition×premiumrate-commissionrate)CFRCprice=CIFprice=CIFCprice×(1-commissionrate)8.5ClauseofPrice

8.5.1ConstitutionofPriceClausePriceclauseincludesunitpriceandtotalamount.Aunitpriceiscomposedoffourparts:currencyunit,unitpricefigure,measurementunitandtradeterm.

Forexample:USD200permetrictonCIFNewYork

8.5.2PricingStrategy

Apricestrategydefinestheinitialpriceandgivesdirectionforpricemovementsovertheproductlifecycle.

Exportgoodspriceshouldaimattheinternationalmarket,choosingcorrectpricestrategies.

Priceskimming,penetrationpricing,discriminationpricingarethebasicpricingstrategiesininternationalmarket.A.PriceSkimmingPriceskimmingiswhenamanufacturerormarketersellsanitemforarealhighpriceatfirst,andthenlowersthepriceoveraperiodoftime.Thefirststepistodevelopanewproductorservicethatyourbusinessisgoingtostartoffering.Thisshouldeitherbetotallyuniqueinthemarket,orshouldatleastbeanimprovementonothersimilarproductsandservicesavailablefromyourcompetitors.B.PenetrationPricingPenetrationpricing

setsarelativelylowpriceforaproductasawaytoreachthemassmarketintheearlystagesoftheproductlifecycle.Thisstrategyismostoftenusedbusinesswishingtoenteranewmarketorbuildonarelativelysmallmarketshare.C.DiscriminationPricing

Discriminationpricingexistswhensalesofidenticalgoodsorservicesaretransactedatdifferentpricesfromthesameprovider.

i.Productdiscriminationpricingii.TheSeasonsdiscriminationpricingiii.Customdiscriminationpricingiv.Regiondiscriminationpricing8.5.3WaysofPriceStipulation

Pricingisacomplexandgenerallyunscientificactivityinmostfirms.Whenwedecidetheprice,weshouldconsiderthesefactors:

﹡Thequalityandclassofproduction﹡Transportationdistance﹡Deliveryplaceanddeliveryterms﹡Thechangesofseasonaldemand﹡Goodsquantity﹡Paymentandriskofexchangeratemovement﹡Thegoodssupplyanddemandininternationalmarket

Pricingmethodinvolvesfixedprice,unfixedprice,partialfixedpriceandpartialunfixedprice,andpriceadjustmentclause.FixedPrice

Thecommonwayofpricestipulationistodefineafixedpricemutuallyagreed.Thefixedpriceisclearanddefiniteastofacilitateaccounting.UnfixedPrice

Becauseofthefluctuationsoftheinternationalmarketprice,pricingcanberuledas“pricetobeagreedwithin45daysbeforethemonthofshipment,accordingtothelocalandinternationalmarketpricelevel”or“pricetobeconsultedbybuyerandsellerondateofXXX”.PartialFixedPriceandPartialUnfixedPrice

Inordertotakeaccountoftheinterestsofbothparties,bothbuyerandsellerdividepriceintotwoparts.Thefirstpartofpriceisfixed,butthesecondpartisn’tfixed.Sowecallitpartialfixedpriceandpartialunfixedprice.PriceAdjustmentClause

Forcontractsofmachineryandequipmentwhichrequirelongproductiontime,a“PriceAdjustmentClause”isaddedtouse.

Inthisclause,onlyan“InitialPrice”isdecideduponwhenthecontractisfirstestablished.Underthecircumstances,thepricecanbeadjustedaccordingtothechangesofrawmaterialsprice,wages,etc.