Strategic export pricing, payment terms

26 Sep, 2021 - 00:09 0 Views

The Sunday Mail

Trade Focus
Allan Majuru

ZIMBABWE’s exports have been on an upward trend over the past few months and are expected to continue growing throughout the year.

This growth is a result of initiatives being implemented by the Second Republic, including developing and promoting relations that facilitate export growth.

For example, the economic diplomacy agenda being pursued through the Ministry of Foreign Affairs and International Trade is expected to unlock economic value from countries that Zimbabwe has good relations with.

In addition, ZimTrade — the national trade development and promotion agency — has been undertaking export promotion programmes in non-traditional markets over the past few months, in line with the National Export Strategy, which was launched by President Mnangagwa in 2019.

Some of these programmes include the recently concluded Outward Seller Mission to Kinshasa, held as a follow-up programme to the Outward Seller Mission to Lubumbashi held in May this year.

These missions have seen Zimbabwean exporters establish strong links with potential buyers in the Democratic Republic of Congo and are expected to start trading as soon they conclude negotiations.

ZimTrade, together with its partners, is organising the Zimbabwe-Rwanda Trade and Investment Conference that is taking place from September 27-30 in Kigali, Rwanda.

The conference is expected to improve bilateral economic relations between the two countries and will witness Zimbabwean exporters establishing links with the market.

The Intra-Africa Trade Fair, whose National Campaign Launch was held on the sidelines of the Zimbabwe International Trade Fair, is another programme that will witness Zimbabwean exporters diversifying their export markets and products.

Furthermore, there are several initiatives that the Government is undertaking, through different ministries and agencies, to enhance the ease of doing business, resulting in reduced cost of doing business and improved revenues.

While these programmes and activities will undoubtedly contribute towards export growth, it is important for exporters to understand the costing of their products as well as payment terms to ensure success.

This is because buyers that have expressed interest in Zimbabweans goods and services often note that local companies must offer competitive prices and practical payment terms.

Exporters must consider both external and internal factors that affect the pricing of the final product.

At the same time, exporters must take advantage of available incentives that help reduce the cost of their final product.

Local exporters must register to trade under bilateral and multilateral trade agreements that Zimbabwe is a signatory to.

These agreements are designed to stimulate and encourage trade between the countries or group of countries party to the agreement through offering one another preferential treatment in the reduction or elimination of customs duties as well as removal or relaxation of quantitative restrictions.

For example, duty and import-related taxes could constitute a large percentage of the final price for cross border transactions. Thus, a reduction or elimination of the duty can give the exporter a substantial advantage in terms of cost over competitors from countries that do not have similar trade agreements.

Setting a competitive price

Coming up with a market-oriented price is always a strategic function and should ensure easy uptake of products.

ZimTrade has published the Exporters’ Guide (2018) that unpacks some of the key considerations exporters should look at when pricing their goods for export.

Foreign markets are highly competitive and product pricing should be worked out in relation to conditions prevailing in each market.

Unlike pricing for the domestic market, pricing for the export market involves consideration of a variety of costs and factors.

Prices on the international marketplace are affected by several factors, some of which the exporter has little control over such as exchange rates, inflation, tariffs, and other taxes.

Key factors affecting pricing include the cost of manufacturing or obtaining the product, demand, supply, brand image, and competition.

Price controls in the target market, product characteristics and size or volume of the order also affect pricing.

The final price is also affected by the cost of entry into a new market, export and import incentives, logistics costs, customs duties and global competition.

As a result, a successful exporter must be aware of these factors and how these they can affect their competitive position.

However, regardless of these factors, there is a need to come up with a competitive price that is neither too high nor too low.

If prices from the competition are too low, exporters can also focus on niche products that offer better prices.

At the end of the day, the price should enable the importer or distributor to make a reasonable profit and give the product access into the market with good chances of being bought.

In “export pricing” it is necessary to calculate all costs minutely in order to ensure that no element of cost is overlooked and at the same time allowing for a profit.

One of the most useful ways to analyse costs is to use an export-costing sheet/template, which must have correct costs obtained from well-informed sources such as freight and shipping companies who can give up-to-date transport charges.

Exporters who find it difficult to understand or use the costing sheet/template can always take advantage of the research services offered by ZimTrade.

Negotiating good

payment terms

Negotiating sustainable payment terms is another critical factor that determines a successful export business.

While payment terms differ across buyers, the exporter must understand the exchange control regulations of the country of origin and country of destination.

Before exporting goods, the seller must ascertain that the importer has the necessary documentation required to import so that payment is not affected as a result of the unavailability of such documentation.

In addition, exporters should consult with their banks on the best method of handling each transaction.

Some of the factors that influence the method of payment include the type of transaction, nature of merchandise, the amount involved, credit standing of the importer, political or economic conditions in the importing country, exporter’s financial position, and acceptable trade practices.

In selecting which method to use, the exporter must also consider the wishes of the buyer. This is because when there is stiff competition, it is not advisable for the exporter to impose strict terms.

Creating strong and positive relations with buyers is one of the ways local exporters can get better payment terms with buyers without compromising on the security of payment, product quality and delivery.

The 2018 Exporters Guide, published by ZimTrade, offers some insights into the type of payments that local exporters, particularly new exporters, should familiarise themselves with.

Allan Majuru is the ZimTrade chief executive.

 

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