Export Costing and Pricing

In the era of Global Market Economy and fierce competition, importance of accurate costing of product need not be over – emphasized. In accurate costing can lead to either losing of orders or losing of profits. Export pricing is most important tool for promoting sales and contesting international competition. Exporter has to face domestic producers in the export market, producers in other competing supplying countries and domestic producer’s in one owns country. Costs, Demand and Competition are the three important factors that determine price. The price for export should be as realistic as possible. The exporter has to exclude cost for domestic production which are not applicable for export and add those elements of costs which are relevant to export product. Exporter has to compete with manufacturers formal over the world. Hence, his price has to be realistic considering all export benefits and price in foreign market.

There is no fixed formula for successful export pricing. It differs from exporter to exporter depending upon whether the exporter is a merchant exporter or manufacturer exporter or exporting through canalizing agency. Exporter has to assess the strength of his competitor And anticipate the move of competitor in the market of operation. Exporter can still be competitive with higher prices with better delivery package or added advantage.

Following are few examples of such factors :

Range of product offered
Prompt deliveries and continuity in supplies
Product differentiation and brand image
Frequency of purchases
Presumed relationship between quality and price
Credit offered

Pricing Vs Costing :

There is a lot of confusion between the price and the cost. Many consider these synonymous. A few points to give you a mental pictures of these points are as under

Price is what we offer to the customer. Cost is the price that we pay / incur for the product.
Price includes our profit margin. Cost only gives the expenses we have incurred.
Costing is the Cost Accountant’s privilege. Pricing is the Marketing man’s privilege.

Export Price :

Once the Ex- works / purchase price has been decided the additional expenses that have to be added are as under :

Loading charges from work to truck/ rail/ air etc.
Freight charges to port of shipment
Clearing and forwarding charges
Dock charges / wharf age/ terminal handling charges etc.
Freight charges to the destination port
Insurance charges
Insurance (both to port of shipment and destination)
Commission
Interest charges
Guarantee/Warrantee costs

In order to withstand international competition, the Government offers certain exemptions and incentives / benefits. These are additional realizations which tend to reduce the cost of your product. the following are few of them :

There is no sales tax applicable on the final product
There is no excise applicable on the final product
Duty free import of raw materials, components and consumables is permitted under the advance licensing scheme.
Income tax benefit under 80HHC
Special import license
Credit of duty under the duty Entitlement Pass Book Scheme
Any other special subsidy announced by the government

Special Factors for Exporting Pricing :

There are many unique factors relating to goods to be sold abroad. These factors influence their determination in comparison to those having bearing on pricing for domestic products. These factors may be delivery schedules, terms of payments, motivation of pricing, size of order etc.

Factors that increase price of Export Products :

Special packing, marking and labeling
Additional supervision and effort for Export product
Export Transaction cost
Cost of Export Procedure
Marketing cost
Additional Insurance cost

Factors that reduce price of Export Products :

Export Assistance and Facilities
Refund or exemption from excise duty
Lower price due to Imported components and spares
Import of raw materials at International price
Benefit of economy of scale
Cheaper Export credit

Ascertaining Exact Benefits from Export Assistance Schemes :

In order to ascertain the exact benefits that can be derived from export assistance schemes it is necessary first to locate the exact clarification or SI. Number of the product under these schemes. The problem is exacerbated for products carrying specific brand names, as the brand rate may differ from the all industry rate. This occurs for example, under the duty drawback credit scheme, which provides relief on the customs and excise duties paid on raw materials and components used in export production. The exporter should be aware of two types of drawback rates :

1. All industry rates : These are published in the form of a government notification every year and are normally valid for one year.

2. Brand rates : These are fixed at the exporters or the manufacturer request.

Components, spare parts, ancillary items : Finding out the rate of assistance for components, spare parts or ancillary items of the main product exported can be a problem. To determine the exact rate of assistance it is necessary first to determine the exact classification of the product which has to be priced. This is especially important as the classification of a primary or main product may differ than from those of its components or ancillaries. The rate of assistance may sometimes be the same for the primary items and the co – product. Furthermore, there are common or general rates applicable to products which are not classifiable under any of the SI.
Numbers for which specific policies have been laid down. Where it is not possible for exporters to determine the classifications on their own, they may seek the assistance of the disbursing authorities or organizations set up to help them.

When approaching an organization like an Export Promotion Council, licensing authorities or the Drawback Directorate for a product classification, the exporter must present the details required to establish this classification. These include the technical and trade name of the product, its various uses and its essentials ingredients (raw materials, etc.).

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Agricultural and Processed Food Products Export Development Authority (APEDA)
(Ministry of Commerce & Industry, Govt. of India)

NCUI Building 3, Siri Institutional Area, August Kranti Marg, New Delhi - 110 016
Phone : 91-11-41486013, 20863919, 20867008, 20867007

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