Taxes and regulatory costs
Apart from customs duties levied on goods
coming into a country, additional costs (e.g. fees for
import certificates and for other administrative processing)
purchasing or excise taxes which apply to various categories
of goods, value-added or turnover taxes which apply as
a product goes through a channel of distribution, as well
as retail sales taxes, all of which serve to increase the
final price of the goods.
The cost of inflation
In addition the effect of inflation on the
cost of the goods should not be ignored. The selling price
should always be related to the cost of the goods sold
and the cost of replacing the items concerned. By selling
goods in foreign markets below their replacement cost,
you may be better off not exporting at all. Inflation becomes
an important consideration when payment is delayed by several
months or where credit extended over a long-term contract.
The cost of exchange rate movements
Many South African companies have experienced
heavy financial losses because of adverse movements in
exchange rates. Of particular concern to the exporter should
be those areas of exchange risk that they cannot cover
forward. For example, where freight rates are given in
US dollars, the exporter needs to ensure that they are
covered if the rand weakens. Worse still, should the rand
strengthen significantly between the time of accepting
an order and the actual date of shipment, the exporter
could be providing the customer with an unexpected discount.
For these reasons, it is important that every
exporter have some knowledge of exchange rate trends and
can adjust the rates used for currency conversions accordingly.
(This additional cost, however, may have a detrimental
effect on price competitiveness.)
An easy form of protection would be to quote
all export prices in South African rands. However, from
a marketing point of view, this would be unwise. Importers
usually prefer all quotes to be in their own currency or
US dollars. Firstly, they can easily compare the offers
of various foreign and national suppliers and, secondly,
they may be equally concerned about the exchange risk,
particularly if their own currency is susceptible to devaluation
Another form of protection is to stipulate
in the export quotation that the quoted price is subject
to alteration depending on exchange rate fluctuations.
This solution, however, is seldom acceptable to the buyer.
The cost of channel length
The length of your channel of distribution
can have a considerable impact on the final export price.
Apart from the various intermediaries who will be marking
up the product, a lack of standardisation in respect of
such mark-ups makes it very difficult to assess their actual
contribution to the final price. Often, intermediaries
will use higher wholesale and retail margins for foreign
goods than for similar domestic goods.