Cost & Pricing Analysis

Cost and Pricing Analysis:
Analyzing the Numbers

Cost and Pricing Analysis:
Analyzing the Numbers
1
Conducting Cost and Pricing Analysis for Exporting Products
Examines the process of exporting goods, as well as export costing and the cost of sales
2
Conducting Cost and Pricing Analysis for Importing Products
Describes the process of costing and pricing related to a new importing initiative
3 Conducting Cost and Pricing Analysis for Exporting Services

Considers issues that arise when exporting services internationally
4 Conducting Cost Analysis for Outsourcing Services Internationally

Examines the mechanics of performing a detailed cost analysis
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Module Learning Outcomes
Upon successful completion of this module, the individual will be able to:
Conduct export cost and pricing analysis of products in order to evaluate financial
1 viability.
Conduct cost and pricing analysis for importing products in order to evaluate
2 financial viability.
Maximize use of cost-accounting systems to maintain reliable fundamental data to
3 continuously determine all related costs.
4 Describe possible effects of Incoterms® rules in relation to export and import costs.
Describe costing implications related to Harmonized Commodity Description and

5 Coding System.
6 Conduct cost and pricing analysis specific to exporting services.
Determine financial viability and potential competitive advantages of outsourcing

7 services internationally.

Reflect on Your Experience
Reflect on your past experience and answer
the following questions to the best of your ability.
Name four Incoterms® rules that apply to any mode of transport and explain how
1 they affect the export costing of goods.
How does the Harmonized Commodity Description and Coding System (HS) affect
2 the costing of imports?
There are three main steps used to analyze the costing and pricing of goods for
3 export, goods for import and services for export. What are they?
4 What are four modes of delivering services internationally?
What are three considerations when analyzing the costs of insourcing versus
5 outsourcing?

Feasibility of International Trade
UNIT 1
Conducting Cost & Pricing
Analysis for Exporting Products
◎ The Process of Analyzing Export Cost and Pricing
◎ Trade Terms and How They Affect Costing
◎ The Harmonized Commodity Description and Coding System and How It
Affects Costing
◎ STEP 1: Determine the Cost of Exporting
◎ STEP 2: Elaborate a Pricing Strategy
◎ STEP 3: Assess the Viability of the Transaction
Why Is This Important?

The Process of Analyzing Export Cost and Pricing
THE STAGES OF EXPORT COST AND PRICING ANALYSIS
Determine the Cost of Exporting
Elaborate a Pricing Strategy
Assess the Viability of the

Transaction
FIGURE 1.1

Incoterms® 2020 Obligations
FIGURE 1.2
Source: Adapted from Credit Industriel et Commercial (CIC), “Bien utilizer les Incoterms®”
Group 1 Incoterms® 2020 Group 2 Incoterms® 2020
Any Mode(s) of Transport Sea and Inland Waterway Transport
EXW – Ex Works FAS – Free Alongside Ship
FCA – Free Carrier FOB – Free On Board
CPT – Carriage Paid To CFR – Cost and Freight
CIP – Carriage and Insurance Paid To CIF – Cost, Insurance and Freight
DPU – Delivered at Place Unloaded
DAP – Delivered at Place
DDP – Delivered Duty Paid

Incoterms® Rules and Trade Finance
Incoterms® rules define:

o The point at which liability related to the shipment passes from exporter to importer
o Obligations related to insuring the shipment
o The mode of transport
o Customs clearance

The Harmonized Commodity Description and
Coding System and How It Affects Costing
Compliance with HC is mandatory EXPORTING AND

FOREIGN EXCHANGE RISK
HC is used for: Ways to Hedge
o Determining appropriate duty rates
o Natural Hedging
o Negotiating trade agreements
o Options
o Maintaining trade statistics o Futures
o Identifying goods and shipments that pose a o Forward Contracts
risk to health, safety and security

STEP Cost of Product
1
o Materials See Table 1.1
o Labour Sample Export Costing
o Plant overhead Sheet
o Research and development
o Product modification
o Administration
o Administrative costs
o Advertising
o Duty drawbacks

Determining Costs of Exporting, Continued
Export Sales Costs and Foreign Agent’s Commission
o Translation
o Legal and negotiating expenses
o Commission
Export packing
Labelling
Marking cases
Strapping
Price EXW
Freight to seaport
o Freight forward fees

Terminal charges
Demurrage or storage charges
Price FAS
Loading
Price FOB
Consular documents
o Consular invoice
Other documentation charges

Ocean freight
Price CFR

Marine insurance
Price CIF
Unloading
Import duties and delivery
Price DDP
Export financing
o Financial instrument fees
o Discounting costs
o Export credit insurance premium
o Hedging of foreign exchange risk
Profit margin

Costing Sheet: Grand Exporters Limited
Continued… TABLE 1.2

Costing Sheet: Grand Exporters Limited, Continued
TABLE 1.2
Environmental factors
STEP
Market factors
2 Internal factors

Elaborate a Pricing Strategy, Continued
Static Pricing INTERNATIONAL PRICING

CONSTRAINTS
Flexible Pricing
o Anti-dumping legislation
Penetration Pricing
o Resale price maintenance
Market Skimming o Price ceilings and price

level reviews
Market Maintenance Pricing • Environmental factors
• Market factors
• Internal factors

Assess the Viability of the Transaction
A transaction is not viable if the resulting sales generate

STEP losses or cannot amortize the cost of doing business
3
A transaction that cannot yield a profit could harm domestic
operations or threaten the survival of the company
Case Study
Grand Exporters Limited

UNIT 2
Analysis for Importing Products
◎ The Process of Analyzing Import Cost and Pricing
◎ The Cost of Sourcing Products
◎ Incoterms® Rules and Importing
◎ HS Codes and Tariffs
◎ Taxes and Fees Related to Imported Products
◎ Product Standards and Certifications
◎ STEP 1: Determine the Cost of Importing
Continued…
UNIT 2
Analysis for Importing Products,
Continued


The Process of Analyzing Import Cost and Pricing
Determine the Cost of Importing

Transaction

Conducting Cost and Pricing
Analysis for Importing Products
The Cost of Sourcing Products
Incoterms® Rules and Importing
HS Codes and Tariffs
Taxes and Fees Related to Imported Products
o Sales tax/goods and services tax/harmonized sales tax
o Excise tax
o Value-added tax
o Anti-dumping duty
o Countervailing duties
Product Standards and Certifications

Determine the Cost of Importing
STEP Importers must carefully account for all of the costs of

importing products
1 They must determine all of the real costs and then add the
profit margin applied to domestic sales
See Figure 2.1

Importing Commercial
Products

Transportation Costs
Adapted from FIGURE 2.2

Ethical Sourcing Cost
TBL companies strive to develop business “MAKE A DIFFERENCE”

practices that benefit the labour force APPROACH
and the community, e.g. o Reducing energy consumption
o Offering fair compensation to employees o Reducing waste

o Disposing of harmful waste
o Avoiding exploitation of labour
safely
o Providing a safe work environment o Reusing or recycling material
o Encouraging a work/life balance o Ethical sourcing

o Developing non-fossil fuel
o Investing in employee’s health
energy sources
o Investing in the community o Offsetting company’s carbon
footprint

Import Costing Sheet
TABLE 2.1

Import Costing Sheet, Continued
Continued… TABLE 2.1

Import Costing Sheet, Continued
TABLE 2.1

Importers must choose the most appropriate strategy for the

STEP
new product(s). Prices must be competitive, cover all costs
2 and give importers a profit margin.

Importers must carefully assess the financial viability of the
overall venture. Assessment takes into account total costs of
STEP the acquisition and potential pricing strategies to help ensure
the organization will make a profit on the new product(s).
3 Emerging Practices
Two fundamental mistakes:
LOW COST
COUNTRY SOURCING
• Definition of total landed cost is incomplete can lead to:
• Fail to consider revenue implications of o Profit erosion
longer and more unpredictable lead times, o Missed profit maximization
o Longer lead time and
demand fluctuations and supply uncertainty
additional costs

Total Delivered Profit
FIGURE 2.3

UNIT 3
Analysis for Exporting Services
◎ The Process of Analyzing Service Export Cost and Pricing
◎ Considerations when Trading in Services
◎ Delivering Services Internationally
◎ Marketing Services Internationally
◎ Legal Issues Related to the Export of Services
◎ Regulations and Taxes on Services
Continued…
UNIT 3
Analysis for Exporting Services,
Continued
◎ Payment for Exported Services
◎ STEP 1: Determine the Cost of Exporting Services


The Process of Analyzing Service Export Cost and Pricing

Services

Transaction

Considerations When Trading in Services
In addition to conducting thorough market research and developing
cultural understanding of the customer’s context, organizations should be
aware of the following:
o International services can be delivered in four different modes
Cross-border supply Consumption abroad Commercial presence Movement of people
o Marketing approach is different without a physical product to sell

o Lack of physical product has implications for contracts
o Can be a high level of adaptation and customization needed
o Many costs are associated with service export
o There may be costs to integrate with the target market’s infrastructure
o Level of maturity in a particular industry will vary greatly between international
target markets

Delivering Services Internationally
Mode 1: Cross-Border Supply
FIGURE 3.1

Mode 2: Consumption Abroad
FIGURE 3.2

Mode 3: Commercial Presence
FIGURE 3.3

Mode 4: Movement of Natural Persons
FIGURE 3.4

Conducting Cost and Pricing
Analysis for Exporting Services
Marketing Services Internationally
Legal Issues Related to the Export of Services
Regulations and Taxes on Services
Payment for Exported Services
o How much will be paid, in what currency, and when?
o Who is responsible for bank charges?
o What will happen if the customer fails to pay?
o Where payment will be made, e.g. to bank account?
o Who is responsible for any taxes?

Determine the Cost of Exporting Services
STEP
1
Service exporters must fully account for all the costs
involved in delivering internationally.
See Table 3.1

Sample Service Exports
Costing Sheet

Once costs are identified, service exporters must choose an

STEP appropriate pricing strategy
2 Reasons for calculating a separate price for each market:

o Costs vary between markets
o Competitors’ pricing strategies will differ
o The price end users are willing to pay will differ

Cost Plus Pricing
Competitive Pricing
Premium Pricing
Penetration Pricing

Organizations must conduct a final assessment to determine

STEP whether the transaction is viable
3
Comparing a comprehensive listing of costs to the price to be
charged will provide critical information on potential profit

UNIT 4
Conducting Cost Analysis
for Outsourcing Services Internationally
◎ Determining What Can Be Outsourced
◎ The Cost of Finding Service Providers
◎ Outsourcing and GATS
◎ Cost Considerations When Outsourcing
◎ Comparing Outsourcing to Insourcing Costs
◎ Identifying Benefits


Conducting Cost Analysis for
Outsourcing Services Internationally
Determining What Can Be Outsourced
The Cost of Finding Service Providers
Outsourcing and GATS

Cost Considerations When Outsourcing
o Integration of infrastructure systems
o Quality assurance
o Monitoring
o Protection of service levels
o Protection and impact on brand efficiency, image and reputation

Outsourcing Versus Insourcing Costs
SAMPLE WORKSHEET
Cost Outsourcing Insourcing

• Preparation of a request for proposal
Securing a supplier • Assessment of proposals N/A
• Other fees
• Supplier salaries • Recruitment and retention
Personnel • Supplier benefits • Salaries
• Supplier time worked • Benefits
• Time worked
• Total contract cost
Contract N/A
• Total years of the contract
• Unit price
Supply • Proprietary supplies
• Amount consumed
• Any equipment needed to link with
• Unit price or commercial-equivalent
Equipment prices
infrastructure
• Depreciation
Continued…
Adapted from TABLE 4.1

Outsourcing Versus Insourcing Costs, Continued
SAMPLE WORKSHEET
Cost Outsourcing Insourcing

• Facilitation of training on company
Training • Cost of personnel
standards and policies
Quality • Third-party monitoring • Management of call centre staff
management
Intellectual Property • Protection of IP N/A
• Maintenance of infrastructure
Infrastructure and • Integration of software systems, • Facility leasing
operations including CRM software • Standard unit price of electricity, water
and telephones
• Utility consumption
• Taxes and fees related to outsourcing
Regulation • Respective country’s payroll tax
to foreign location

Assessing the Benefits and Obstacles of Outsourcing
Potential Benefits Potential Obstacles

Cost reduction Failure to realize hidden costs
Focus on core competency Loss of critical skills
Enhanced flexibility Loss of control
IT development Inadequate cost and benefit analysis systems
Supplier capability Staff morale issues
Globalization Lack of support

FINAL CHECK Test your understanding on the knowledge, skills and concepts
presented in this module and practice for other FITT assessments.


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Cost and Pricing Analysis:

Analyzing the Numbers

3 Conducting Cost and Pricing Analysis for Exporting Services

4 Conducting Cost Analysis for Outsourcing Services Internationally

© 2017, 2020 FITT All Rights Reserved

Describe costing implications related to Harmonized Commodity Description and

6 Conduct cost and pricing analysis specific to exporting services.

Determine financial viability and potential competitive advantages of outsourcing

© 2017, 2020 FITT All Rights Reserved

4 What are four modes of delivering services internationally?

© 2017, 2020 FITT All Rights Reserved

© 2017, 2020 FITT All Rights Reserved

Determine the Cost of Exporting

Elaborate a Pricing Strategy

Assess the Viability of the

© 2017, 2020 FITT All Rights Reserved

EXW – Ex Works FAS – Free Alongside Ship

FCA – Free Carrier FOB – Free On Board

CPT – Carriage Paid To CFR – Cost and Freight

DPU – Delivered at Place Unloaded

DAP – Delivered at Place

DDP – Delivered Duty Paid

© 2017, 2020 FITT All Rights Reserved

Incoterms® rules define:

o Obligations related to insuring the shipment

o The mode of transport

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Compliance with HC is mandatory EXPORTING AND

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STEP Cost of Product

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Other documentation charges

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Continued… TABLE 1.2

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Static Pricing INTERNATIONAL PRICING

Market Skimming o Price ceilings and price

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A transaction is not viable if the resulting sales generate

© 2017, 2020 FITT All Rights Reserved

© 2017, 2020 FITT All Rights Reserved

© 2017, 2020 FITT All Rights Reserved

Determine the Cost of Importing

Elaborate a Pricing Strategy

Assess the Viability of the

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Product Standards and Certifications

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STEP Importers must carefully account for all of the costs of

See Figure 2.1

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Adapted from FIGURE 2.2

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TBL companies strive to develop business “MAKE A DIFFERENCE”

o Offering fair compensation to employees o Reducing waste

o Encouraging a work/life balance o Ethical sourcing

© 2017, 2020 FITT All Rights Reserved

© 2017, 2020 FITT All Rights Reserved