This can create cash flow problems for the buy entity, however, as they must pay for the product before they receive cash from the end consumer and thus must carry the balance in the interim (UNZCO 2010). Letters of credit, which give a guarantee from a financial institution to the exporter that the goods will be paid for assuming all conditions are met, provided added assurance to exporters that the transaction will truly be profitable, while insulating importers from the cash flow issues described above (UNZCO 2010).
A draft operates n a manner similar to a check, and carries the same risk that it will not be honored due to a lack of funds or credit, but until the draft has been paid to the exporter the ownership of the goods still technically resides with the exporting company (UNZCO 2010). For truly well-established buyers, open accounts might be used that allow for the exporter to simply bill the importer when necessary, and allow the importer to order more goods whenever they are needed (UNZCO 2010). This method carries some risk for the exporter, but simplifies matters for both companies. Finally, consignment deals can be arranges wherein the exporter is the technical owner of the goods until they are sold to final consumers by a foreign distributor, and the distributor pays the exporter only after the sale of the goods (less the distributor's commission/fee, of course) (UNZCO 2010).
Another major issue to consider in exporting scenarios is the pricing of good that are exported. In order to be profitable, a company must charge a price for their goods that offsets the total costs of manufacturing and distribution, plus an additional amount -- the profit. This is termed "cost-plus pricing," and in exporting endeavors there are two basic pricing strategies: rigid cost-plus pricing and flexible cost-plus pricing (Amity 2010). In rigid cost-plus...
This leads to very simple and highly reliable (i.e. unchanging) price structures, which has certain benefits both to exporters and to importers and end consumers (Amity 2010). On the other hand, it does not allow for differentiation between markets and so limits the exporters potential profitability by not enabling it to take advantage of certain market-specific opportunities that may exist in other countries, or to shield itself from risks and adjust to changing demands in these markets (Amity 2010).
These issues are solved (or at least mitigated, and in an ideal world solved) by flexible cost-plus pricing. This pricing method still takes the actual cost of production and distribution into account, of course, but it also considers things like trade barriers, demand levels, and consumer expectations -- things that can vary greatly from market to market in the global economy (Amity 2010). While this leads to more complex pricing structures that require more time and effort to continue optimizing, it also allows exporters to take greater advantage of market-specific opportunities ad to adjust their prices based on fluctuating demand in specific markets (Amity 2010).
References
Amity. (2010). "Pricing strategies: Basic decisions." Amity Business School. Accessed 7 November 2010. http://www.scribd.com/doc/18926133/Pricing-Strategy-Basic-Decisions
Answers. (2010). "Make-or-buy (outsource) decision." Answers.com. Accessed 7 November 2010. http://www.answers.com/topic/make-or-buy-outsource-decision
UNZCO. (2010). "Basic guide to exporting." Accessed 7 November 2010. http://www.unzco.com/basicguide/
