Page 359 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 333

Pricing Decisions for Products Sold Internationally
There are two special pricing considerations for companies that are selling their
products in international markets. Transfer prices are the prices a U.S. company transfer price The price a U.S. company
will charge its overseas subsidiaries which will, in turn, sell the product in the for- charges its overseas subsidiary
eign market. While the U.S. firm is interested in setting a transfer price that will
maximize total profits, it also has to be concerned with taxes. This is because there
are two taxing authorities that have to be recognized: those in the United States and
those in the foreign country where the subsidiary is located.
Dumping occurs when a company sells a product in an international market at a dumping The practice of selling a
price below its cost. Why would a firm do this when it is losing money on each prod- product in foreign markets for less than
its cost
uct sold? Because the low price will enable it to gain market share at the expense of
domestic competitors and other international competitors. Once these competitors
have withdrawn from the market, the firm employing a dumping strategy can raise its
prices to where it is making acceptable profits. Dumping is resented for this reason
and often results in complaints to the World Trade Organization, which can order
dumping stopped and can assess penalties for violation of the order.

Retailers’ Pricing Decisions
Markup is the difference between what a retailer pays for a product and the price markup The difference between what a
at which the product is sold. This difference must cover the expenses the retailer retailer pays for a product and the price
at which it is sold

Global Business

Fuji Film Accused of Dumping in the U.S. Market

In the late 1990s, Kodak was attempting and a color film plant that started production in late
to turn around poor operating results. 1997.
The company, led by George M.C. Fisher, appeared to Kodak maintained that Fuji’s dumping strategy is
be on the right track—until it had to confront steep aided by the fact that Fuji has a virtual monopoly in
price cuts in the domestic market unveiled by its the Japanese market, where it has a 70 percent
major competitor, Japan’s Fuji Film. Fuji cut prices as market share, giving it solid control of distribution
much as 50 percent—to 25 percent of what it charged and pricing.
in Japan—resulting in an increase of sales for Fuji and Fuji countered Kodak’s claims with the explanation
a drop of sales of 11 percent for Kodak in the U.S. that it does not compete in the U.S. market solely on
market. Additionally, Kodak’s market share dropped price; it pointed to its high quality film that is being
on its home turf, a situation made worse by the increasingly successful with professional
market in the U.S. contracting due to heavy purchases photographers, and the heavy use of free samples.
by consumers of disposable cameras. Industry
Source: Geoffrey Smith, “A Dark Kodak Moment,” Business Week,
analysts predicted that within two years, Fuji’s August 4, 1997, pp. 30–31.
success in the U.S. would enable it to wrest the #1
Questions
spot from Kodak. In 1997, Kodak’s global market share
was 40 percent, versus 35 percent for Fuji. 1. Why would Fuji spend $1 billion to build new
Kodak responded to Fuji’s pricing strategies by manufacturing facilities in South Carolina?
accusing the Japanese firm of dumping. Fuji had 2. Should a firm be accused of dumping in an
already lost a dumping case in 1994, when Kodak international market when its price covers all of its
convinced the U.S. government that Fuji was selling costs for that product but its price is much lower
photo paper in the United States at one-fourth of the than domestic competitors’ prices?
price it charged in its home market. Fuji invested $1 3. Should Fuji’s 70 percent market share in Japan be
billion in new manufacturing facilities in Greenwood, used against it when Kodak accuses Fuji of
South Carolina, consisting of a paper plant operation dumping in the U.S. market?

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