The presence of the basics of competitiveness in itself does not guarantee success in the world market. The firm needs an active struggle to maintain its position with the support of the nation-state. Usually, competition is reduced to two main forms: price and non-price, although this division is conditional.
The company’s pricing strategy is aimed, firstly, at gaining a larger share in the world market and, secondly, at obtaining as much income as possible, especially at the stage of introducing new products [9 p.203].
Factors determining the level of export prices:
lower production costs (1. equipment and organization of production at the enterprise; 2. national conditions of production (level of wages, social insurance costs, etc.); level of labor productivity.
Pioneering strategies such as “skimming the cream”, “what the market will endure” and others involve the establishment of relatively high prices for new products while there are no competitors in the market. Pioneer pricing strategy “gradual penetration”, on the contrary, involves the establishment by the company of initially low prices in the foreign market. Standard strategies (“first-class product image”, “target market share”, “target sales volume”, “entrance ticket to the foreign market”, “contractual price with government”) are aimed at maintaining the first-class image of the product, the target market share or the target sales volume. Adaptation strategies (competitive and “trial and error”) are carried out by firms that do not have the ability to independently pursue a pricing policy and are forced to focus on the prices of leaders in the relevant market.
In order to have a flexible attitude to different buyers, companies apply discounts from the price, and in some cases resort to dumping [9 p.203].
When concluding a trade transaction, the reference price is the reference price, which is fixed by the company for a certain period in price lists and catalogs. Reference prices are characterized by relative stability. This applies in particular to the prices of machinery and equipment. However, after some time, the reference price changes, as a rule, it increases, which is due to a change in the nomenclature of manufactured products, the introduction of some improvements, etc.
The reference price refers to the cost of the product itself. However, at the conclusion of the contract, prices are fixed on the basis of basic terms of delivery, differing in whether they include transportation costs (freight) or any part of them, the cost of insurance, customs clearance of goods. Depending on the different combinations of including these costs when transporting goods by sea, rail, road, air transport, there are essentially 13 options for basic terms of delivery and, accordingly, prices. The structure of these prices is defined in the internationally approved document “Incoterms”. The two main types of prices, in terms of basic terms of delivery, are FOB prices, which include the cost of the goods and the seller’s costs of delivering the goods on board the shipper’s vessel, and CIF, which include the cost of the goods and the seller’s costs of paying the costs of insurance and delivery of the goods to the buyer’s port. When transporting goods by other modes of transport, there are also prices that include the cost of delivery to the consumer or do not include these costs (in this case, they are borne by the buyer).
From the point of view of competitiveness, the choice of certain basic conditions does not give much, because, in any case, all the costs of delivery of goods are borne by the buyer. Only in one case they are included in the price (CIF), and due to this part of the price, the seller pays with transport, insurance companies, customs, and in the other case (FOB) these calculations are made by the buyer himself. Of course, if the seller can find cheaper ways to deliver goods to the buyer, this will strengthen his competitive position in the market.
Within the scope of the reference price, the change in prices at the conclusion of contracts is regulated by the system and the amount of discounts. In world practice, there are a large number of different discounts tried on in foreign trade transactions. The most common of these are the following:
discount from list prices for wholesale buyers; discount on trading; discounts on payment terms; discount for quantity or seriality; discount for turnover during the year (bonus discount); discounts for intermediaries, or dealer discounts (discounts for “loyalty”); discount for out-of-season purchases; special discounts.
Discounts are a flexible tool used by exporting firms when selling goods to foreign buyers. Skillful use of discounts allows, on the one hand, to interest the buyer, and on the other hand, to achieve an increase in sales, which always leads to an increase not only in mass, but also in the rate of profit [9 pp.178-180].
Along with discounts, amendments are made to the prices related to the quality of the goods and the conditions for its sale.
First, adjustments for equipment are applied, i.e. the price increases or decreases depending on whether additional components are installed when selling this product or, conversely, are not installed in comparison with the set in the base product.
Secondly, the price is adjusted depending on the technical and economic parameters of the goods. The basic principle of pricing is the equality of prices for the same consumer properties of the goods. In accordance with this principle, the parameters that determine the technical and economic quality of products are distinguished, and compared with the parameters of other homogeneous or interchangeable products. For each parameter, its influence on the price of the product is established if it corresponds to the parameter of the compared product. If the parameter of this product is better than that of others, the price of the product may be increased, if worse, then lowered. Comparison in all parameters allows you to determine the total price of the product when entering the market.
Pricing for long-term contracts has certain features. For example, contracts related to specialization and cooperation agreements that provide for deliveries for a certain period of time. Another form of long-term contracts is the supply of machinery and equipment in the construction of large facilities in foreign countries.
Long-term contracts for the supply of mineral raw materials from foreign countries are also long-term. Since both producers and buyers are interested in the sustainability of supplies, contracts are concluded for 5-10 years, and sometimes for a longer period.
As production conditions change over the course of long-term contracts, they provide for a rolling price. At the same time, the contracts fix the basic price of the specific weight of its constituent elements (material costs, labor costs and the unchanged part of the price). In addition, the price of materials and wage rates at the time of signing the contract (reference prices and rates) and the order of sliding are indicated. Sliding periods are determined, i.e. time intervals during which changes in material prices and wage rates are calculated. Taking into account all this, calculations are made for the supply of products [9 pp.180-181].
Use of dumping. One of the tools of price competition used in competition in the world market is dumping. At one time, dumping was understood as the sale of goods on the foreign market at prices lower than domestic ones. However, at present, in the context of the multiplicity of prices on the world market and significant differences between domestic price systems in individual countries, such a definition cannot be considered satisfactory. Apparently, the definition given to GATT dumping should be recognized as fair, where dumping is understood as the distribution of products of one country on the market of another at a price below “normal”, if it causes or threatens to cause significant harm to production based by one of the participating countries, or significantly slows down the creation of national products. This definition correctly indicates the purpose of dumping – to prevent the development of the production of relevant products in a given country.
Since dumping is associated with a significant decrease in price below the normal world level, it can be used almost only by large companies that carry out operations on a huge scale. For small and medium-sized companies, an attempt to use dumping can end in ruin. Large companies, receiving high profits in their own country and in the markets of a number of other countries, resort to dumping in order to conquer new markets or suppress potential competitors in already conquered markets. Dumping is aimed at preventing the emergence of new manufacturers of goods and ruining existing ones [9 pp.181-182].
Non-price factors of competition include, first of all, quality competition. The concept of “non-price competition” includes various forms of competition:
improvement of consumer properties of goods; provision of various services to consumers of goods; forms of settlement with buyers; improvement of the system of sale of goods in foreign markets: market research, advertising, forms of promotion of goods, etc.
For example, for machinery and equipment, quality is determined by their productivity, efficiency, reliability and durability, maintainability, relatively smaller dimensions, ease of management, workplace equipment, etc. The organization of maintenance of the sold products is aimed at maintaining its quality throughout the entire period of operation.
Recently, the company’s position in the world market has been strengthened by the organization of its system sales, as well as participation in the complete supply of equipment for the construction of industrial and other facilities abroad. These forms of entering the foreign market are associated with the development of consulting and engineering, technical assistance and training of specialists.
A significant role in the struggle for foreign markets is played by the choice of channels for the sale of products. A characteristic feature of the modern system of product sales has become an increase in the role of the manufacturing firms themselves. Sales structures are created by them in the management system of the company itself or in the form of a subsidiary export community. Direct sales of products abroad is carried out by our own trading machine or foreign agents. The use of its own trading apparatus, created in one form or another abroad for the export of products, is increasing. Foreign agents in comparison with national trade intermediaries have a number of advantages: first of all, better knowledge of the local market, long-term contacts with consumers, etc. National export-import or export firms are more used by small or medium-sized firms, as well as representatives of mass goods. Participation in e-commerce is becoming an increasingly important factor in competitiveness.
Thus, the foundations of competitiveness and forms of competition are changing, which is associated with fundamental shifts in the commodity structure of world trade and an increase in the role of the technical level of production [9 pp.203-204].