The Price Impacts of International Trade (1)

Tariffs, taxes, and duties can erode product profit margin, hence these will have to be reckoned into final pricing. Transport costs are also highly variable, due to fluctuations in the commodity markets and the particularities of local conditions, which may not be fully grasped by geographically distant headquarters. When operating overseas trade, companies need up-to-date, detailed, and reliable knowledge of the local business environment into which they are moving and selling goods. Important information to acquire will be updates on competitor activity, new entrants, political conditions, resource availability, market trends, rival products, changes in supplier prices (especially relevant if the overseas company is manufacturing locally), legislation and regulation changes, and any alteration in customs processes or import tariffs.

Economies of scale although desirable represent risk. For example, moving high quantities of product into a market where demand is uncertain could result in dumping, for which the company and/or its home state could be fined or subjected to legal controls on further activity. Moving high quantities of product into a market where demand is known and profits are expected may result in retaliatory backlash (e.g. undercutting) by local competitors who, by their proximity to the market possess valuable competitive knowledge and network connectivity (retailer and political connections, for example). Such provocation is to be avoided at all costs. Similarly, advertently or inadvertently bypassing government-set import quotas is similarly unwise. Companies may have licences revoked or be subjected to extra layers of checks by customs. Deliberate underpricing of exports will lead to penalisation by the World Trade Organisation. Offering prices below cost in order to seize market domination is an illegal practice according to international trade law (but is practised by some states and organisations nevertheless).