Question

(TCO 5) How do governmental (environmental) constraints affect the pricing strategy in a foreign market?

(TCO 1) Why is the understanding of society and the cultural environment important when entering a foreign market?

Answer 1

(TCO 5)

When making pricing strategy for a foreign market a company must consider various environmental constraints that affects the price. Government controls and subsidies is one of the main constraints that a company can face. Government's regulations limits the freedom of management to adjust prices. It also take the form of prior cash deposit requirements imposed on impoerters, such requirements create an incentive for a company to minimize the price of imported product. In short, it hinder or prohibits a company's effort to adjust costs and thus ultimately affecting the market price.

Other environmental constraints such as exchange rate clauses should also be considered as this allows the buyers and sellers to agree to purchase or supply at fixed rates in each country's currency. Pricing in an inflationary environment, currency fluctuations, price-quanlity relationship etc should also be considered.