Global Pricing Chapter 17

1. Global PricingChapter 17 Leanne Mulholland Nguyen Vo Zhouyang Lu

2. Transfer Pricing or Intracorporate Pricing • Objectives • Competitiveness in the international marketplace • Reduction of taxes and tariffs • Management of cash flows • Minimization of foreign exchange risks • Avoidance of conflicts with home and host governments • Internal concerns such as goal congruence and motivation of subsidiary managers

3. Transfer Pricing to Achieve Corporate Objectives • Three philosophies • Cost based • Market based • Arms length price

4. Transfer Pricing Challenges • Performance Measurement • Taxation • Arms length pricing • Comparable uncontrolled price method • The resale price method • The cost-plus method • The comparable profits method • The profit split method • Any other reasonable method

5. Pricing Within Individual Markets • Determined by: • Corporate objectives • Costs • Customer behavior and market conditions • Market structure • Environmental constraints

6. Dealing with Financial Crises • Causes of the Crises • Effects of the Crises • Consumer and Marketer Responses

7. Pricing Coordination • With more global and regional brands in the global marketer’s offering, control in pricing is increasingly important. • Recent experience has shown that pricing coordination has to be worldwide because parallel imports will surface in any markets in which price discrepancies exists, regardless of distances.

8. The Euro and Marketing Strategy • The euro pushes national markets closer together. • The single currency has made prices completely transparent for all buyers. • In terms of specific approaches, marketers should aim to lower prices as slowly as possible, especially for less price-sensitive customers.

9. Countertrade • More than an exchange of goods, services, or ideas for money • Conditions: • Lack of money • Lack of value of money • Lack of acceptability of money as an exchange medium • Greater ease of transaction by using goods • The shrinking of establishes markets and the existence of a substantial product surplus.

10. Why Countertrade ? • Ordinary trade financing very risky • Permit the covert reduction of prices • Mask dumping activities • An excellent mechanism to gain entry into new markets • Provide stability for long-term sales • Ensure the quality of an international transaction

11. Types of Countertrade • Counter purchase: The participating parties sign 2 separate contracts that specify goods and services to be exchanged. If the exchange is not of precisely equal value, some amount of cash will be involved • Buyback: One party agrees to supply the technology or equipment that enables the other party to produce goods with which the price of the supplied products or technology is repaid

12. Types of Countertrade • Clearing Arrangements: Clearing accounts are established in which firms can deposit and withdraw the results of their countertrade activities • Switch Trading: Gives additional flexibility to the clearing account in which credits in the account can be sold or transferred to a third party • Offset: Industrial compensation mandated by governments when purchasing defense related goods and services in order to equalize the effect of the purchase on the balance of payments

13. Classification of Forms of Countertrade

14. Preparing for Countertrade • Decide whether to use outside countertrade intermediary or in-house

15. In-House Countertrade Disadvantages • Less expertise • Reselling problems • Recruitment & training costs • Less objectivity • Problems coordinating inter functional staff Advantages • Lower costs • Customer contact • More control • More flexibility • More learning

16. Third Parties for Countertrade Disadvantages • May be costly • Distanced from customer • Less flexibility • Less confidentiality • Less learning Advantages • Expert specialists • Customer contacts • Reselling contacts • Legal acumen • More objectivity

17. Preparing for Countertrade • Determine the import priorities for its products to the target customer (country). • Determine goals and objectives of the countertrading parties. • Match strengths of the firm to current and potential situations. • Assess countertrade risks and impact. • Identify countertrade arrangements and regulations in the target country. • Evaluate length and importance of the trading relationship.

18. Questions??