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Costs

COSTS

The computation of the actual cost of producing a product and bringing it to market is the core element in determining if exporting is financially viable. Many new exporters calculate their export price by the cost-plus method. In the cost-plus method of calculation, the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges, and profit.

The effect of this pricing approach may be that the export price escalates into an uncompetitive range gives a sample calculation. It clearly shows that if an export product has the same ex-factory price as the domestic product, its final consumer price is considerably higher once exporting costs are included.

Marginal cost pricing is a more competitive method of pricing a product for market entry. 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 a loss. For example, additional costs may occur due to product modification for the export market that accommodates different sizes, electrical systems, or labels. On the other hand, costs may decrease if the export products are stripped-down versions or made without increasing the fixed costs of domestic production.

Other costs should be assessed for domestic and export products according to how much benefit each product receives from such expenditures. Additional costs often 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.
  • Consultants and freight forwarders.
  • Product modification and special packaging.


    After the actual cost of the export product has been calculated, the exporter should formulate an approximate consumer price for the foreign market.