Question

1. Explain the importance of planning and understanding price structure in an International Trade negotiation. Also name three different forms of pricing with a brief description of each as well as which one is best suited for International Trade.

Answer 1

Pricing- International Trade
Pricing a commodity in the international market is too challenging since various factors may affect the demand and supply of commodities. Efficient planning considering the objectives, analyzing market, determining the demand factors could all help in making a suitable plan for international trading of goods. Entering international market without proper plan may creates problems regarding competition, demand, transportation costs and output cost etc. A firm must be aware about the tariff rates, import duties, exchange rates etc. of other countries. Opting over available forms of price considering the market situation can helps in effective participation in foreign markets. The problems regarding costs of production, competition and demand can be tackled by proper planning in price determination in the foreign markets.
Three different forms of pricing can be listed as cost based pricing, demand based pricing and competition based pricing. Cost based pricing refers to charging a price adding a percentage of the total cost of production of a commodity. This helps in earning better profit. Demand based pricing refers to the method of determining price according to the demand for the commodity. A higher demand could lead to high price and vice versa. Competition based price fixes the level of price considering the price charged by the competitors. Foreign trade of a competitive market is better to follow competitive prices than other kind of the same. A deviation from the competition price could leads to loss, even if the firm increase or decrease the price in the market. Even then, the pricing policy may changes according to the structure, rate of tariffs etc. of the foreign economy.