PRICING, QUOTATIONS, AND TERMS

          Proper pricing, complete and accurate quotations, and

          choice of terms of sale and payment are four critical

          elements in selling a product or service internationally.

          Of the four, pricing is the most problematic, even for the

          experienced exporter.

          PRICING CONSIDERATIONS

          *    At what price should the firm sell its product in the

               foreign market?

          *    Does the foreign price reflect the product's quality?

          *    Is the price competitive?

          *    Should the firm pursue market penetration or

               market-skimming pricing objectives abroad?

          *    What type of discount (trade, cash, quantity) and

               allowances (advertising, trade-off) should the firm

               offer its foreign customers?

          *    Should prices differ with market segment?

          *    What should the firm do about product line pricing?

          *    What pricing options are available if the firm's costs

               increase or decrease? Is the demand in the foreign

               market elastic or inelastic?

          *    Are the prices going to be viewed by the foreign

               government as reasonable or exploitative?

          *    Do the foreign country's dumping laws pose a problem?

          As in the domestic market, the price at which a product or

          service is sold directly determines a firm's revenues. It

          is essential that a firm's market research include an

          evaluation of all of the variables that may affect the

          price range for the product or service. If a firm's price

          is too high, the product or service will not sell. If the

          price is too low, export activities may not be sufficiently

          profitable or may create a net loss.

          The traditional components for determining proper pricing

          are costs, market demand, and competition. These categories

          are the same for domestic and foreign sales and must be

          evaluated in view of the firm's objective in entering the

          foreign market. An analysis of each component from an

          export perspective may result in export prices that are

          different from domestic prices.

          FOREIGN MARKET OBJECTIVES

          An important aspect of a company's pricing analysis

          involves determining market objectives. Is the company

          attempting to penetrate a new market?  Looking for

          long-term market growth? Looking for an outlet for surplus

          production or outmoded products? For example, many firms

          view the foreign market as a secondary market and

          consequently have lower expectations regarding market share

          and sales volume. Pricing decisions are naturally affected

          by this view.

          Firms also may have to tailor their marketing and pricing

          objectives for particular foreign markets. For example,

          marketing objectives for sales to a developing nation where

          per capita income may be one tenth of per capita income in

          the United States are necessarily different from the

          objectives for Europe or Japan.

          COSTS

          The computation of the actual cost of producing a product

          and bringing it to market or providing a service is the

          core element in determining whether exporting is

          financially viable. Many new exporters calculate their

          export price by the cost-plus method alone. 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 net effect of this pricing approach may be that the

          export price escalates into an uncompetitive range. For a

          sample calculation see table 10-1. The table shows clearly

          that 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 entry 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 a loss. For example, export

          products may have to be modified for the export market to

          accommodate different sizes, electrical systems, or labels.

          Changes of this nature may increase costs. On the other

          hand, the export product may be a stripped-down version of

          the domestic product and therefore cost less.  Or, if

          additional products can be produced without increasing

          fixed costs, 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, overhead, and research and

          development, other costs should be allocated to domestic

          and export products in proportion to the benefit derived

          from those 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; and

          *    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.

          MARKET DEMAND

          As in the domestic market, demand in the foreign market is

          a key to setting prices. What will the market bear for a

          specific product or service?

          For most consumer goods, per capita income is a good gauge

          of a market's ability to pay. Per capita income for most of

          the industrialized nations is comparable to that of the

          United States. For the rest of the world, it is much lower.

          Some products may create such a strong demand --  chic

          goods such as "Levis," for example --  that even low per

          capita income will not affect their selling price. However,

          in most lower per capita income markets, simplifying the

          product to reduce selling price may be an answer. The firm

          must also keep in mind that currency valuations alter the

          affordability of their goods. Thus, pricing should

          accommodate wild fluctuations in currency and the relative

          strength of the dollar, if possible. The firm should also

          consider who the customers will be.  For example, if the

          firm's main customers in a developing country are

          expatriates or the upper class, a high price may work even

          though the average per capita income is low.

          COMPETITION

          In the domestic market, few companies are free to set

          prices without carefully evaluating their competitors'

          pricing policies. This point is also true in exporting, and

          it is further complicated by the need to evaluate the

          competition's prices in each export market the exporter

          intends to enter.

          Where a particular foreign market is being serviced by many

          competitors, the exporter may have little choice but to

          match the going price or even go below it to establish a

          market share. If the exporter's product or service is new

          to a particular foreign market, it may actually be possible

          to set a higher price than is normally charged

          domestically.

          PRICING SUMMARY

          *    Determine the objective in the foreign market.

          *    Compute the actual cost of the export product.

          *    Compute the final consumer price.

          *    Evaluate market demand and competition.

          *    Consider modifying the product to reduce the export

               price.

          QUOTATIONS AND PRO FORMA INVOICES

          Many export transactions, particularly first-time export

          transactions, begin with the receipt of an inquiry from

          abroad, followed by a request for a quotation or a pro

          forma invoice.

          A quotation describes the product, states a price for it,

          sets the time of shipment, and specifies the terms of sale

          and terms of payment. Since the foreign buyer may not be

          familiar with the product, the description of it in an

          overseas quotation usually must be more detailed than in a

          domestic quotation. The description should include the

          following 15 points:

          1.   Buyer's name and address.

          2.   Buyer's reference number and date of inquiry.

          3.   Listing of requested products and brief description.

          4.   Price of each item (it is advisable to indicate

               whether items are new or used and to quote in U.S.

               dollars to reduce foreign-exchange risk).

          5.   Gross and net shipping weight (in metric units where

               appropriate).

          6.   Total cubic volume and dimensions (in metric units

               where appropriate) packed for export.

          7.   Trade discount, if applicable.

          8.   Delivery point.

          9.   Terms of sale.

          10.  Terms of payment.

          11.  Insurance and shipping costs.

          12.  Validity period for quotation.

          13.  Total charges to be paid by customer.

          14.  Estimated shipping date to factory or U.S. port (it is

               preferable to give U.S. port).

          15.  Estimated date of shipment arrival.

          Sellers are often requested to submit a pro forma invoice

          with or instead of a quotation. Pro forma invoices are not

          for payment purposes but are essentially quotations in an

          invoice format. In addition to the foregoing list of items,

          a pro forma invoice should include a statement certifying

          that the pro forma invoice is true and correct and a

          statement describing the country of origin of the goods.

          Also, the invoice should be conspicuously marked "pro forma

          invoice." These invoices are only models that the buyer

          uses when applying for an import license or arranging for

          funds. In fact, it is good business practice to include a

          pro forma invoice with any international quotation,

          regardless of whether it has been requested.  When final

          collection invoices are being prepared at the time of

          shipment, it is advisable to check with the U.S. Department

          of Commerce or some other reliable source for special

          invoicing requirements that may prevail in the country of

          destination.

          It is very important that price quotations state explicitly

          that they are subject to change without notice. If a

          specific price is agreed upon or guaranteed by the

          exporter, the precise period during which the offer remains

          valid should be specified.

          TERMS OF SALE

          In any sales agreement, it is important that a common

          understanding exist regarding the delivery terms. The terms

          in international business transactions often sound similar

          to those used in domestic business, but they frequently

          have very different meanings.

          Confusion over terms of sale can result in a lost sale or a

          loss on a sale. For this reason, the exporter must know the

          terms before preparing a quotation or a pro forma invoice.

          A complete list of important terms and their definitions is

          contained in Incoterms 1990, a booklet issued by ICC

          Publishing Corporation, Inc., 156 Fifth Avenue, Suite 820,

          New York, NY 10010; telephone 212-206-1150. The cost is

          $23.95 plus postage, handling, and sales tax if applicable.

          Guide to Incoterms 1990, also available from ICC, uses

          illustrations and commentary to explain how buyer and

          seller divide risks and obligations -- and therefore costs

          -- in specific kinds of international transactions. The

          1990 update of Incoterms resulted in several new terms and

          abbreviations; exporters should, therefore, take care to

          use the correct terms to avoid confusion.

          The following are a few of the more common terms used in

          international trade:

          *    CIF (cost, insurance, freight) to a named overseas

               port of import.  Under this term, the seller quotes a

               price for the goods (including insurance), all

               transportation, and miscellaneous charges to the point

               of debarkation from the vessel. (Typically used for

               ocean shipments only.)

          *    CFR (cost and freight) to a named overseas port of

               import. Under this term, the seller quotes a price for

               the goods that includes the cost of transportation to

               the named point of debarkation. The cost of insurance

               is left to the buyer's account. (Typically used for

               ocean shipments only.)

          *    CPT (carriage paid to) and CIP (carriage and insurance

               paid to) a named place of destination. Used in place

               of CFR and CIF, respectively, for shipment by modes

               other than water.

          *    EXW (ex works) at a named point of origin (e.g., ex

               factory, ex mill, ex warehouse). Under this term, the

               price quoted applies only at the point of origin and

               the seller agrees to place the goods at the disposal

               of the buyer at the specified place on the date or

               within the period fixed. All other charges are for the

               account of the buyer.

          *    FAS (free alongside ship) at a named U.S. port of

               export. Under this term, the seller quotes a price for

               the goods that includes charges for delivery of the

               goods alongside a vessel at the port.  The seller

               handles the cost of unloading and wharfage; loading,

               ocean transportation, and insurance are left to the

               buyer.

          *    FCA (free carrier) to a named place. This term

               replaces the former "FOB named inland port" to

               designate the seller's responsibility for the cost of

               loading goods at the named shipping point. It may be

               used for multimodal transport, container stations, and

               any mode of transport, including air.

          *    FOB (free on board) at a named port of export. The

               seller quotes the buyer a price that covers all costs

               up to and including delivery of goods aboard an

               overseas vessel.

          When quoting a price, the exporter should make it

          meaningful to the prospective buyer. A price for industrial

          machinery quoted "EXW Saginaw, Michigan, not export packed"

          would be meaningless to most prospective foreign buyers.

          Such buyers would have difficulty determining the total

          cost and, therefore, would hesitate to place an order.

          The exporter should quote CIF whenever possible, because it

          has meaning abroad. It shows the foreign buyer the cost of

          getting the product to a port in or near the desired

          country.

          If assistance is needed in figuring the CIF price, an

          international freight forwarder can provide help to U.S.

          firms. The exporter should furnish the freight forwarder

          with a description of the product to be exported and its

          weight and cubic measurement when packed; the freight

          forwarder can then compute the CIF price. There is usually

          no charge for this service.

          If at all possible, the exporter should quote the price in

          U.S. dollars.  Doing so eliminates the risk of possible

          exchange rate fluctuations and the problems of currency

          conversion. (As a courtesy, the exporter may also wish to

          include a second pro forma invoice in the foreign currency

          of the buyer.)

          A simple misunderstanding regarding delivery terms may

          prevent exporters from meeting contractual obligations or

          make them responsible for shipping costs they sought to

          avoid. It is important to understand and use delivery terms

          correctly.

            SAMPLE COST-PLUS CALCULATION OF PRODUCT COST

                                            Domestic Sale    Export Sale

     Factory price                                 $ 7.50         $ 7.50

     Domestic freight                                 .70            .70

                                                   _______        _______

                                                     8.20           8.20

     Export documentation                                            .50

                                                                  _______

                                                                    8.70

     Ocean freight and insurance                                    1.20

                                                                  _______

                                                                    9.90

     Import duty (12 percent of landed cost)                        1.19

                                                                  _______

                                                                   11.09

     Wholesaler markup (15 percent)                  1.23

                                                   _______

                                                     9.43

     Importer/distributor markup (22 percent)                       2.44

                                                                  _______

                                                                   13.53

     Retail markup (50 percent)                      4.72           6.77

                                                   _______        _______

     Final consumer price                          $14.15         $20.30

                            SAMPLE PRO FORMA INVOICE

                               Tech International

                               1000 J Street, N.W.

                              Washington, DC 20005

      Telephone                                                 Fax

     202-555-1212                                           202-555-1111

                                 PRO FORMA INVOICE

                                                       Date: Jan. 12, 1993

     To:  Gomez Y. Cartagena           Your Reference: Ltr., Jan. 6, 1993

          Aptdo. Postal 77

          Bogota, Colombia             Our Reference: Col. 93-14

     We hereby quote as follows        Terms of Payment:    Letter of Credi

                                       Terms of Sale:       CIF Buenaventur

      ______________________________________________________________________

     QUANTITY  MODEL          DESCRIPTION         UNIT      EXTENSION

     ______________________________________________________________________

     3         2-50 Separators in accordance $14,750.00     $44,250.00

                    with attached

                    specifications

     3        14-40 First-stage Filter       $ 1,200.00     $ 3,600.00

                    Assemblies per attached

                    specifications

     3    custom    Drive Units _ 30 hp each $ 4,235.00     $12,705.00

                    (for operation on 3-phase

                    440 v., 50 cy. current)

                    complete with remote controls

     ______________________________________________________________________

     TOTAL FOB Washington, D.C. domestic packed..................$60,555.00

     Export processing, packaging, prepaid inland freight

      to Dulles International Airport & forwarder's

      handling charges FOB Dulles Airport, Virginia..............$63,670.00

     Estimated air freight and insurance.........................$ 2,960.00

     Est. CIF Buenaventura, Colombia.............................$66,630.00

     ______________________________________________________________________

          Estimated gross weight 9,360 lbs.  Estimated cube 520 cu. ft.

          Export packed 4,212 kg.            Export packed 15.6 cu. meters

     ______________________________________________________________________

                                    PLEASE NOTE

     1.   All prices quoted herein are U.S. dollars.

     2.   Prices quoted herein for merchandise only are valid for 60 days

          from this date.

     3.   Any changes in shipping costs or insurance rates are for account

          the buyer.

     4.   We estimate ex-factory shipment approximately 60 days from receip

          here of purchase order and letter of credit.