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Costs
The computation of the actual cost of producing a product and
bringing it to market is the main element in determining whether
exporting is financially profitable. Many new exporters calculate
their export price by the сost-plus method.
In the cost-plus method
of calculation, the exporter starts with the domestic manufacturing
cost and adds administration, research and development, distribu-
tor margins,
customs charges, and profit.
The effect of this pricing approach may be that the export
price will become uncompetitive. If an export product has the same
ex-factory price as the domestic product, its final consumer price
is considerably higher.
A more competitive method of pricing
for market is what is
termed marginal cost pricing. This method considers the direct, out-
of-pocket expenses of producing and selling products for export as
a floor, beneath which prices cannot be set without incurring losses.
For example, export products have to be modified for the export
market to accommodate different sizes,
electrical systems, or labels.
Such changes may increase costs. On the other hand, the export
product may be version of the domestic product and therefore it
costs less. If additional products can be produced without increasing
fixed cost, the incremental cost of producing
additional products for
export should be lower than the earlier average production costs
for the domestic market.
In addition to production costs, research and development,
other costs should be added to domestic and export products in
proportion to the benefit derived from those expenditures. Ad-
ditional costs associated with export sales include:
market
research and credit checks;
business travel;
international postage, cable, and telephone rates;
translation costs;
commissions, training charges, and other costs involving
foreign representatives;
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consultants;
product modification and special packaging.
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