Although there are many factors that affect global pricing, there are four factors that stand out as most important. First, the nature of the product or industry gives the power in flexibility based on the product. Price flexibility is essential in competing with rivals in a foreign industry. Flexibility stems from a product that is specialized or that gives a technological edge. When the global market has few threats, little price adjustment is needed. As competition and threats increase, the ability to raise and lower prices is essential to competition. #skimming #predatory pricing
Second, the location of the production facility affects the global pricing of a company. When a company exports to their foreign market, the ability to have price flexibility is low. This is not the case when companies manufacture in the global market they are penetrating due to the ability to absorb currency rate fluctuations. An example of this is Mazda in the 1990’s. The refused to open a manufacturing plant outside of Japan. As Japan’s currency appreciated against the currency of the import countries, the company began to lose profits.
Third, the distribution system is very important in global pricing. This is especially true when the company is exporting to the global market they are penetrating. A company that distributes its products through its own overseas subsidiaries is able to control the final price of the product much more. This allows them to be able to adjust prices quickly in response to increased competition.
Fourth, foreign currency differentials plays a large factor in the setting of global pricing. Inflation, exchange rate fluctuations, and price controls play a large role in hindering the entry to a market. Because the currency of a company appreciates and depreciates, a company should be able to have a flexible strategy in pricing as sometimes their currency may switch from being undervalued to being overvalued, or visa versa.