Pricing to Cover Exporting Costs
One of the most serious mistakes companies make when entering overseas markets is to underprice their products or services because they've underestimated the cost of going international. Ed Mayorga, who exports integrated communications systems, targets the same bottom-line profit margin on his overseas sales that he does on domestic sales. But to do so, the CEO of R&E Electronics calculates his costs and price structure quite differently. Some of the hidden costs that affect R&E's export prices include
* Longer collection cycles. When pricing, Mayorga adds in a charge to cover his cost of borrowing while he waits to collect from his export customers, who are slower payers. To speed up collections, R&E offers price discounts to international customers who pay for goods upon or before delivery.
* Administrative overhead. Mayorga has found that international sales require more paper and manpower than domestic sales do. So he assigns a larger percentage of general and administrative (G&A) costs to his overseas jobs.
* Insurance. "Our insurance fees add up to one of the biggest cost components relating to any foreign sale," says Mayorga. Before bidding on a foreign job, his salespeople must consult insurance brokers who live in the relevant country or are U.S.-based specialists in the region. The job isn't priced until a solid insurance quote comes in.
* Taxes. Because R&E requires its foreign customers to make payments in dollars directly to its Wilmington, N.C., headquarters, only U.S. taxes must be factored into foreign bids. "I was afraid we'd be overwhelmed if we had to worry about different tax laws and rates in different countries," Mayorga explains. For companies that don't follow this strategy, it's essential to add an accountant's estimate of foreign-tax liabilities to all price quotes. -- Jill Andresky Fraser