Export Pricing

EXPORT

• Export involves physical transhipment of goods from the home country to the host country, in lieu of payment thereof.

• Export goods and services are provided to foreign consumers by domestic producers

REASONS FOR EXPORTING

Mode of entering international market and requires less investment than the other modes of entry.

Economies of scale Increase Top Line and Bottom lineMarket extensionExtend product life cycleOffset lack of demand for seasonal products

EXPORT PRICING

Export pricing is the most important factor in promoting export and facing international trade competition.

It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses.

There is no fixed formula for successful export pricing and it differs from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency.

EXPORT PRICING STRATEGY

(1) High pricing strategyUnique or new productsBrand name products: Gucci bagsHigh profit marginLimits market to well-to-do customers Attracts competitionHigher price at the beginning and lower price later

Contd.....

(2) Low pricing strategyTo penetrate foreign marketsTo increase market shareTo dispose of excess or obsolete inventoryTo discourage new competitionCannot be a long-term strategy

Contd.....

(3) Moderate pricing strategy

Adequate profit marginCan meet competition and maintain market sharesShould be long-term strategy

1. Presumed Relationship between Quality & Price.

2. After Sale – Service.

3. Before Sale – Service in consumer Goods.

4. Prompt deliveries.

5. Settlement of claims.

6. Ability to Supply complete Range of product.

7. Sales Promotion.

8. Fancy Prices for Handicraft Goods.

9. Fro Industrial Goods, demonstrating the product, spare parts, Trg. After Sales Service Financial Credit gets Related to price.

Non – Price Factors

India is able to get Reasonable Prices. To Reduce cut throat unfair Prices UNCATAD help is being sought.

Indian Exporter– 55 cents for shims. Sold at $ 2.1 a pound.

TRADITIONAL PRODUCTS

Intermediate Product:

Consumer Products. All developing countries are put to Serve dis-advantage.

NON – TRADITIONAL PRODUCTS

DETERMINANTS OF EXPORT PRICING

Range of products offered. After-sales service in products like machine tools,

consumer durables. Product differentiation and brand image. Frequency of purchase. Specialty value goods and gift items. Aggressive marketing and sales promotion. Unique value goods and gift items.

VARIABLE COST+OTHER COST DIRECTLY RELATED TO EXPORT

Special Packing. Commission to Oversea Agent. Export Credit Insurance. Bank Charges. Inland Freight. Port Charges. Forwarding Charging. Export duty. Documentation & Incidental.

Contd.....

Cost of after sales. Promotional. Pre-shipment Inspection Port Charges.

- Less duty Drawback = Export Price

METHODS ( PRODUCT PRICING)

Cost Plus.

Marginal cost pricing.

Competitive pricing.

Market pricing

Contd.....

Value based or competition based pricing.

ROI.

Markup.

Seal bid.

Product bundling.

METHODS

FOB or FOR (Free on board) CIF (Cost, Insurance & Freight )

  EXW       Ex Works

  FAS Free Alongside Ship

  FCA Free Carrier

  FOB Free On Board

CIF Cost, Insurance and Freight

  CIP Carriage and Insurance Paid To

  CPT Carriage Paid To

  DAF Delivered At Frontier

  DDP Delivered Duty Paid

  DDU Delivered Duty Unpaid

  DEQ Delivered Ex Quay

  DES Delivered Ex Ship

To balance export import deficit.To empower the Indian currency.To bring the dollar price demand and supply at equilibrium.To create a good impact on GNP.

WHY GOVERNMENT GIVE INCENTIVES ON EXPORT

EXPORT INCENTIVES

Export Incentives impart cost competitiveness to exports, thereby facilitating greater market penetration.

Raw material and other components can be imported without payment of customs duty for use in goods to be exported.

Refund of local taxes and duties levied on raw materials and components used in the manufacture of exports.

Increase employment opportunities. Increase merchandise export

Indians as a gem & jwellery hub.

Indian as a automotive hub.

Indian as refueling stock.

Benefit of un-rebated servies tax.

Trade facilitation measures

DUTY DRAWBACK (DBK)

The duty drawback refers to the refund of central Excise (CST) & Custom duties paid by manufacturer and/or exporter in relation to the inputs used for manufacturing of the products.

Duty drawback is not applicable in the respect of a product if – (a)- No excise/custom duties were paid for its manufacturer and/or

exporter– (b)- Amount of the drawback is less then 1 % of FOB value.(except where

the amount of drawback is more than Rs. 500. per shipment)– (c) - manufacturer and/or exporter is by 100% EOU/EPZ/SEZ Units.– (d)- If manufacturer and/or exporter apply for duty entitlement pass book

scheme.

DUTY ENTITLEMENT PASS BOOK (DEPB)

Where exporter is eligible to claim credit (in some percentage of FOB (Free on Board) value) if exports made in freely convertible currency (means currency acceptable by all countries like USD). The rate of Duty Entitlement Pass Book (DEPB) is announced by DGFT. The rates of Duty Entitlement Pass Book (DEPB) are decided by DGFT after every 5 years but they have right to change the rates at any time.

FOCUS MARKET SCHEME (FMS)

Government of India gives the duty credit equivalent to 2.5 % of FOB value of exports to some countries to increase the export in these countries.

FOCUS PRODUCT SCHEME (FPS).

Government of India gives the duty credit equivalent to 1.25 % of FOB value of exports to some products to increase the export of these products.

VISHESH KRISHI AND GRAM UDYOG YOJNA (VKGUY)

The objective of this scheme is to prompt the export of fruits, vegetables, flower, minor forest product and their value added product. Export of agricultural product shall be entitled for duty credit equivalent to 5 % of FOB value of exports for each licensing year.

EXPORT PROMOTION CAPITAL GOODS SCHEME

A domestic manufacturer can import machinery and plant without paying customs duty or settling at a concessional rate of customs duty

Customs Duty Rate Export Obligation Time

10% 4 times exports (on FOB basis) of CIF value of machinery.

5 years

Nil in case CIF value is Rs200mn or more.

6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery.

8 years

Nil in case CIF value is Rs50mn or more for agriculture, aquaculture, animal husbandry, floriculture, horticulture, poultry and sericulture.

6 times exports (on FOB basis) of CIF value of machinery or 5 times exports on (NFE) basis of CIF value of machinery.

8 years

EXCHANGE EARNER FOREIGN CURRENCY ACCOUNT (EEFC A/C)

Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorized Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs.

Several FTZs have been established at various places in India like Kandla, Noida, Cochin, etc. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose. Goods being brought in these zones from different parts of the country are brought without the payment of any excise duty. Moreover, no customs duties are payable on imported raw material and components used in the manufacture of such goods being exported. If entire production is not sold outside the country, the unit has the provision of selling 25% of their production in India. On such sale, the excise duty is payable at 50% of basic plus additional customs or normal excise duty payable if the goods were produced elsewhere in India, whichever is higher.

FREE TRADE ZONES (FTZ)

In this scheme advance licence, either quantity based (Qbal) or value based (Vabal), is given to an exporter against which the raw materials and other components may be imported without payment of customs duty provided the manufactured goods are exported. These licences are transferable in the open market at a price.

Advance Licence / Duty Exemption Entitlement Scheme (DEEC)

This scheme furnishes a bond with the manufacturer of adequate amount to undertake the export of his production. Against this the manufacturer is allowed to import goods without paying any customs duty, even if he obtain it from the domestic market without excise duty. The production is made under the supervision of customs or excise authority.

MANUFACTURE UNDER BOND